Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 1995_Commission File Number 0-8550
PCA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-0888429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
815 Matthews-Mint Hill Road
Matthews, North Carolina 28105
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code (704) 847-8011
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.20 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days:
Yes X No_____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
At March 31, 1995, there were 8,109,771 shares of the
registrant's Common Stock outstanding; the aggregate market value of
such Common Stock (based on the closing price on the over-the-counter
National Association of Securities Dealers National Market System) held
by non-affiliates was approximately $81,584,296.
Documents Incorporated by Reference
The information required by Part III is incorporated by
reference to the Registrant's Definitive Proxy Statement to be filed not
later than 120 days after the end of the registrant's fiscal year 1994.
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT
THE COMPANY. PCA International, Inc. (the "Company") is a
holding company engaged through its subsidiaries in the sale of
photographic color portraits of children, adults, and families. The
Company's business is operated in two divisions: the Kmart Store
Division that focuses on the children's preschool portrait market and
operates through permanent portrait studios in Kmart stores; and the
Institutional Division that focuses on the adult and family portrait
market through promotions organized primarily with church congregations.
The Company operates in the United States, Canada, Mexico, Puerto Rico,
and the Virgin Islands. Executive offices and film developing and
portrait processing facility are located in Matthews, North Carolina.
The Company was organized as a North Carolina corporation in 1967 and
has been in business since 1967.
The Company's 1994, 1993, and 1992 fiscal years constitute the
52-week periods ending January 29, 1995; January 30, 1994; and January
31, 1993, respectively.
DIGITAL IMAGING SYSTEM AND CAPITAL EXPENDITURES. During fiscal
year 1994, the Company spent approximately $14.7 million in capital
expenditures principally to convert the remaining 672 of its existing
permanent Kmart studios not converted in 1993 to the Company's new
Digital Imaging System and to open 136 new permanent studios in Kmart
stores. The capital expenditures to convert all of our permanent
studios to the new Digital Imaging System totaled approximately $16
million over a two-year period.
PHASE OUT OF TRAVELING KMART STUDIOS. During fiscal year 1994,
the Company completed the planned phase out of traveling photography in
temporary studios in Kmart stores. Most of the equipment and employees
used in the traveling business were transferred to permanent Kmart
studios. There was no material cost associated with the phase out of
the traveling business. Sales from the traveling business accounted for
2%, 16%, and 29%, respectively, of the Company's sales during fiscal
years 1994, 1993, and 1992.
INDUSTRY SEGMENT
The Company operates in the portrait photography industry and
photographs, processes and sells photographic portraits. Within the
industry, the Company services the children's preschool market through
its Kmart Store Division and the adult and family markets through the
Institutional Division.
KMART STORE DIVISION
DESCRIPTION. The Kmart Store Division operates exclusively in
permanent portrait studios in Kmart stores and primarily services the
children's preschool portrait market. The Company operates in the Kmart
stores under an Exclusive License Agreement with Kmart Corporation.
Kmart receives a commission from the Company based on a percentage of
sales from the permanent studio in each store. The Kmart Store Division
contributed 95.1% of the Company's revenue in fiscal year 1994, 95.6% in
1993, and 94.0% in 1992.
The typical permanent studio is approximately 200 square feet,
consisting of a reception area, a camera room, and a portrait viewing
and sales area. Generally, the permanent studio is staffed by one
employee who performs both the photography and sales functions. At the
end of fiscal year 1994, the Company operated 1,417 permanent Kmart
store studios, an increase of 136
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from 1993. The Company has 92 permanent studios in Canada, an increase
of 13 from 1993. In 1994, the Company opened its first 2 permanent
studios in Kmart stores in Mexico. For fiscal year 1995, the Company
expects to open 50 new studios in Kmart Stores.
The Company operates its permanent studios and advertises for
them under the Kmart name. Customers are attracted to the studios
through a variety of advertising methods including in-store,
point-of-sale merchandising, television and newspaper advertising, and
direct mail to prior and prospective customers. The Company seeks to
maintain an advertising presence throughout the year in all geographic
markets where the Company operates permanent studios. As a Kmart
licensee, the Company is able to place its media advertising under the
Kmart name at rates that are lower than those the Company could
independently obtain.
DIGITAL IMAGING SYSTEM. The Company has developed a proprietary
Digital Imaging System that allows the customer to view a digital proof
of each pose on a high-resolution video monitor as the photographer
takes the portraits. Immediately after the photography session,
customers are able to customize their portrait purchase, choosing the
poses and size and number of portraits they wish to purchase. The
customer then returns to the studio approximately three weeks later to
pick up the finished portraits. The increased flexibility and choice
provided to customers by the Digital Imaging System have improved
customer satisfaction and increased average purchases. The Digital
Imaging System also has increased production efficiencies and reduced
waste because it is integrated with the Company's computerized
production system and the Company only prints portraits actually
purchased by the customer.
INSTITUTIONAL DIVISION
The Institutional Division contracts primarily with church
congregations to photograph and sell individual and family group
portraits of the congregation members. The Company does not pay
commissions to the hosting institution, but provides a free photo
directory to all members who agree to be photographed. The finished
portraits are sent to the church approximately three weeks after the
photography session for pick up by the congregation members.
During fiscal year 1994, the Institutional Division operated
approximately 27 portable camera units each week. The Company does not
expect the number of portable units in service to change significantly
during 1995.
PROCESSING
The Company processes the film from both the Kmart Store
Division and Institutional Division at its finishing laboratory in
Matthews, North Carolina. The finishing laboratory has adequate
capacity to meet the Company's processing needs for the foreseeable
future.
The Digital Imaging System is integrated with the Company's
computerized production system. With the digital system, the Company
only produces portraits which the customer has purchased. Before the
Digital Imaging System, the Company would produce portraits
speculatively to sell to the customer. With the integrated digital
system, there are substantially lower production costs. The Company
believes that this integrated system is unique in the portrait
photography industry.
SOURCES AND AVAILABILITY OF SUPPLIES
The Agfa Division of Bayer Corporation is the Company's primary
supplier of photographic film, paper, and processing chemicals. The
Company renewed its supply contract with Agfa in 1994 after receiving
competitive bids from other suppliers. The Company has not had
significant
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difficulty obtaining photographic supplies. The Company
builds its own cameras and has an adequate supply of cameras and camera
components.
The Company has not found it necessary to carry significant
amounts of inventory to assure itself of a continuous allotment of raw
materials. The Company's receivables from licensors and customers are
due within the cycle of payments to suppliers.
The computer and video equipment used by the Company in the
Digital Imaging System consists of standard components that are readily
available from multiple suppliers.
LICENSES, TRADEMARKS, AND PATENTS
The Company is party to an Exclusive License Agreement with
Kmart Corporation that allows the Company to operate its permanent
studios in Kmart stores under the Kmart name in exchange for a
commission from the Company based on a percentage of sales from the
permanent studio in each store. The Company has continuously maintained
its business relationship with Kmart for more than 27 years. The
Exclusive License Agreement was revised and renewed on July 1, 1994.
The license is for the period through January 31, 1997 and may be
terminated by either party upon 60 days' notice. The loss of the
license to do business in Kmart stores would have a materially adverse
effect on the Company; however, because of its long-standing
relationship with Kmart and the mutual benefits to both parties from the
license agreement, the Company does not expect or foresee any material
change in its relationship with Kmart.
The Company owns certain other patents, trademarks, and licenses
that it does not believe are material to its business.
SEASONALITY
Because of the retail nature of its services and its locations
in Kmart stores, the Company's business is very seasonal. The Christmas
season accounts for the majority of the Company's sales and earnings,
and the Company's fourth fiscal quarter (late October through late
January) typically produces a large percentage of annual revenues and
more than three-fourths of the Company's annual earnings. The fourth
fiscal quarters of 1994, 1993, and 1992 accounted for approximately
31.2%, 35.0%, and 38.4%, respectively, of sales, and 79.3%, 92.5%, and
81.3%, respectively, of earnings for those years.
COMPETITION
The children's preschool portrait market is highly competitive
and no one firm dominates the United States market. The market
comprises several large competitors, including the Company, operating in
multiple locations, and numerous smaller entities operating in only one
or a few locations. The Company believes that it is one of the largest
retailers, measured by annual sales, in the children's preschool
portrait market.
Competition for the Company's products, especially in the
children's preschool portrait market, centers on the quantity and
quality of the portrait packages relative to the price charged. Other
competitive factors include the quality of service, convenience of the
studio to the customer, and the availability and benefits of the Digital
Imaging Technology. The major competitors in the market seek to attract
new customers through advertised low-price portrait packages and the
benefits of the new digital technology. The Company believes that the
quality of its portraits and service, which is enhanced by the Digital
Imaging System, is an important factor in obtaining repeat business from
customers.
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RESEARCH AND DEVELOPMENT
The Company spent $748,000; $444,000; and $304,000 on research
and development activities during the 1994, 1993, and 1992 fiscal years.
Research and development has focused on developing and refining the
Digital Imaging System and integrating the system with the Company's
computerized processing facility.
GOVERNMENTAL REGULATIONS
The Company is subject to various federal and state laws and
regulations, including the Occupational Safety and Health Act and
federal and state environmental laws. The Company is not aware of any
material violation of such laws and regulations. Continued compliance
is not expected to have a material effect upon capital expenditures,
earnings, or the competitive position of the Company.
EMPLOYEES
At January 29, 1995, the Company had approximately 2,800
full-time and 300 part-time employees. The Company believes employee
relations are good.
INTERNATIONAL
At the end of fiscal year 1994, the Company operated 92
permanent studios in Kmart stores in Canada and had opened 2 such
studios in Mexico. The Company's Canadian studios provided 4.3%, 3.9%,
and 3.4% of revenues for fiscal 1994, 1993, and 1992, respectively.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Positions and Offices
John Grosso(1) 48 President, Chief Executive Officer, and
Director (Since 1987)
Jan M. Rivenbark(2) 45 Executive Vice President and
Chief Operating Officer (Since 1992)
Eric H. Jeltrup(3) 50 Executive Vice President and Chief
Technical Officer (Since 1987)
Bruce A. Fisher(4) 45 Senior Vice President and Chief
Financial Officer and Secretary (Since
1992)
R. Michael Spencer(5) 47 Senior Vice President, Treasurer (Since
1992)
(1) Mr. Grosso has been President and Chief Executive Officer of the
Company since 1987.
(2) Mr. Rivenbark has been Executive Vice President of the Company since
August 1992. He was promoted from Chief Financial Officer to Chief
Operating Officer on August 25, 1994. Prior to joining the Company, he
was President and Chief Operating Officer of JP Foodservice, Inc., a
privately held national food service distribution company, based in
Baltimore, Maryland.
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(3) Mr. Jeltrup has been with the Company in various positions in
research and development and production since 1976. He was promoted to
Chief Technical Officer on August 25, 1994.
(4) Mr. Fisher has been with the Company in various positions in
accounting and finance since 1977 and was promoted to Chief Financial
Officer and Secretary on August 25, 1994.
(5) Mr. Spencer has been with the Company since 1973 in various
positions in accounting. He was promoted to Senior Vice President,
Treasurer on January 6, 1992.
ITEM 2. PROPERTIES
The Company owns a facility in Matthews, North Carolina, that
serves as its corporate headquarters, production facility, and
warehouse. The building is approximately 166,000 square feet. The
Company leases its 1,417 permanent studios under the Exclusive License
Agreement with Kmart. The Company owns the equipment, furniture, and
fixtures in the Kmart store permanent studios.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company, or its
subsidiaries, is a party or of which any of their property is the
subject that are required to be disclosed under this item.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during
the fourth quarter ended January 29, 1995.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the over-the-counter
market and is quoted on the NASDAQ National Market System under the
symbol "PCAI." The following is the range of high and low bid prices
for the shares of Common Stock during the Company's last two fiscal
years, as reported on the NASDAQ National Market System:
Fiscal Year Ended Fiscal Year Ended
January 29, 1995 January 30, 1994
High Low High Low
1st Quarter $11.75 $8.50 $18.50 $14.00
2nd Quarter $ 9.25 $8.25 $21.25 $15.25
3rd Quarter $12.50 $8.75 $21.50 $18.25
4th Quarter $12.00 $9.25 $22.00 $ 9.75
At March 31, 1995, the Company had approximately 1,042
shareholders of record and the closing bid price for a share of Common
Stock was $10.00.
The Company paid cash dividends of $0.07 per share in each
quarter of fiscal years 1994 and 1993.
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ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except for percentages, ratios, statistics, and per share data)
<TABLE>
<CAPTION>
For the Fiscal Years Ended Approximately January 31,
1995 1994 1993 1992 1991(2)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Sales $144,881 $149,150 $142,865 $129,644 $121,384
General and administrative expense $22,936 $20,594 $16,374 $18,845 $20,028
Total cost and expense $137,028 $140,947 $130,182 $120,925 $114,915
Income from continuing operations before
cumulative effect of changes in
accounting principles $4,372 $4,912 $7,778 $5,438 $4,206
Net Income $4,785 $2,712 $7,410 $7,014 $5,327
*Fully diluted earnings per common share:
From continuing operations before
cumulative effect of changes in
accounting principles $0.51 $0.56 $0.94 $0.68 $0.45
Net Income $0.56 $0.31 $0.89 $0.88 $0.58
*Weighted average number of fully
diluted common shares 8,582,267 8,822,690 8,305,659 7,933,566 9,271,925
*Cash dividends per share $0.28 $0.28 $0.28 $0.21 $ -
Return on average equity 15.1% 9.3% 36.3% 75.0% 41.9%
BALANCE SHEET DATA:
Working capital $(6,697) $(4,321) $7,423 $(1,889) $(4,587)
Current ratio 0.67 0.81 1.35 0.91 0.74
Quick ratio 0.52 0.59 1.10 0.72 0.55
Total assets $59,557 $56,751 $51,975 $34,335 $24,714
Long-term debt (noncurrent portion) $ - $ - $ - $ - $ -
Ratio of long-term debt (noncurrent
portion) to total capitalization - - - - -
*Total shareholders' equity per share(1) $3.85 $3.43 $3.41 $1.58 $0.67
OTHER FINANCIAL DATA:
Depreciation expense $7,136 $5,159 $3,455 $2,539 $2,214
Capital expenditures $14,698 $21,875 $12,233 $6,027 $3,001
</TABLE>
*All share information for fiscal years prior to fiscal 1992 has been
adjusted for the three-for-two stock split paid April 8, 1992.
(1) Total shareholders' equity per share has been calculated dividing
total shareholders' equity by the weighted average number of fully
diluted shares.
(2) Fiscal 1990 was a 53-week year.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company provides portrait services, primarily in permanent
studios operated in Kmart stores, throughout the United States and in
many locations in Canada. In its Institutional Division, the Company
also provides portrait services primarily to church congregations
through traveling promotions. The Company's Kmart Store Division
accounted for approximately 95% of sales during fiscal 1994.
Prior to August 1994, the Company also operated traveling, or
portable, studio promotions in Kmart stores that did not have a
permanent studio. Because portrait services from traveling promotions
were available, on average, only seven weeks per year in any given Kmart
location, the Company has engaged for the past five years in a
continuing program of converting its traveling promotion business in
Kmart stores to permanent studios. Traveling promotions were phased out
completely in the second quarter of 1994. The Company opened 354
permanent studios in fiscal 1992, 258 in fiscal 1993, and 136 in fiscal
1994; it operated 1,417 permanent studios at the end of fiscal 1994.
Traveling promotion sales in Kmart stores decreased from $41.1 million,
or approximately 29% of total sales, in fiscal 1992; to $23.3 million,
or approximately 16% of total sales, in fiscal 1993; and $3.3 million,
or approximately 2% of total sales, in fiscal 1994.
In addition, in July 1994, the Company completed the conversion,
begun in November 1992, of all of its Kmart studio locations to its new
Digital Imaging System technology. The new Digital Imaging System
allows customers to approve each portrait during the photography
session, as each pose is displayed on a video monitor. With this
technology, the Company no longer relies on the production of portraits
on a speculative basis, but produces only those portraits which the
customer purchases. The conversion to digital technology has resulted
in very significant changes in the Company's operations, increasing the
emphasis on better quality portraits and service and allowing the
Company to improve its per-customer sales average. The Company also has
benefited from lower production costs primarily through the elimination
of waste from speculative portrait production.
Beginning with the fourth quarter of fiscal 1993 and continuing
in 1994, the portrait services industry experienced extremely
competitive pricing conditions. The Company responded to these pricing
pressures by reducing the price of its advertised special promotions
during the 1993 holiday season, which contributed to lower average sales
per customer for 1993. The Company expects competitive pricing
conditions to continue and has implemented various marketing and product
strategies in response, with particular emphasis on the quality of its
services and the enhanced portrait experience made possible through its
Digital Imaging System.
Because of the retail nature of its services, the Company's
business is very seasonal. The Christmas season accounts for the
majority of the Company's sales and earnings, and the Company's fourth
fiscal quarter (beginning in late October of each calendar year and
ending approximately January 31 of the succeeding calendar year)
typically produces a large percentage of annual revenues and more than
three-fourths of the Company's annual earnings. The fourth fiscal
quarters of fiscal 1992, 1993, and 1994 accounted for 38.4%, 35.0%, and
31.2%, respectively, of sales and 81.3%, 92.5%, and 79.3%, respectively,
of earnings for such years. The Company's operations can also be
adversely affected by inclement weather.
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Prior to December 1993, the Company also operated permanent
studios under license agreements with several department store chains.
The Company discontinued its department store operations in the third
quarter of fiscal 1993, and recorded a $2.2 million after-tax charge in
connection with the shutdown of these operations.
Continuing Operations
1994 Fiscal Year Compared With 1993 Fiscal Year. Consolidated
sales in fiscal 1994 declined by 2.9% to $144.9 million from $149.2
million in fiscal 1993. Sales in the Kmart Store Division declined by
3.4% in fiscal 1994 to $137.7 million. During the year, the Company
eliminated all traveling promotions resulting in a sales decrease of
$19.9 million, a decline of 85.6% as compared to the prior fiscal year.
Most of this sales shortfall was offset by a 12.7% sales increase in
Kmart permanent studio sales to $134.4 million which accounted for 93%
of the Company's total consolidated sales. The Company opened 136 new
studios in 1994 and ended the year with 1,417 studios. Sales in the
Institutional Division increased by 8.3% to $7.1 million in fiscal 1994
as compared to fiscal 1993.
During the fourth quarter of fiscal 1994, the Company adopted a
strategy designed to emphasize the enhanced quality of the overall
portrait experience in its digital studios by offering more choice and
service. Large numbers of temporary seasonal help were not hired and
the Company was able to service customers with experienced, full-time
PCA employees. As a result, and as planned, permanent studio customers
photographed during the fourth quarter declined by 32%, but the average
sales per customer increased by 42%, to $50.78 from $35.70, in the
fourth quarter of fiscal 1993.
Consolidated profit contribution (sales less advertising and
promotional costs, costs of photographic sales, store commissions and
selling costs, and field operating overhead) increased by 32.3% in the
fourth quarter to $9.3 million compared to the fourth quarter of fiscal
1993. The profit contribution margin in the fourth quarter was 20.7% as
compared to 13.5% in the same period of fiscal 1993. The significant
improvement in margins resulted from higher average sales per customer
and lower production costs, which the Company was able to achieve from
its proprietary Digital Imaging System. For the fiscal year, profit
contribution was down $1.2 million, or 7.6%. This decline was the
result of the phase out of Kmart traveling promotions. In fiscal 1994,
the Company incurred start-up costs of approximately $2.0 million to
develop, train, and market the new digital technology. Partially
offsetting these factors was an increase in profitability in permanent
studios, which reflect higher sales averages, cost savings from digital
technology, and competitive pricing conditions in fiscal year 1993.
Corporate general and administrative expenses declined by $0.8
million, or 11.4%, from $7.2 million in fiscal 1993. The decline was
primarily attributable to lower legal costs. Interest expenses
increased $0.4 million in fiscal 1994 as compared to fiscal 1993. The
increase was related to increased borrowing levels in fiscal 1994 for
procurement of Digital Imaging System equipment.
The income tax provision for fiscal year 1994 was $3.1 million,
for an effective tax rate of 41.3%. The increase in the tax rate was
generally attributable to the 1993 tax act.
1993 Fiscal Year Compared With 1992 Fiscal Year. Sales for the
Company's 1993 fiscal year increased by $6.3 million, or 4.4%, from
$142.9 million in fiscal 1992 to $149.2 million in fiscal 1993. Sales
in the Kmart Store Division increased $8.2 million, or 6.1%, from $134.3
million in fiscal 1992. The increase was due to an increase of 366,000,
or 10.7%, in the number of customers photographed, partially offset by a
$1.61 decrease in the average customer purchase for the Kmart Store
Division. During fiscal 1993, the Company had a net increase of 258 new
Kmart permanent studios, and at fiscal year-end, operated 1,281
permanent studios,
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25% more than at January 31, 1993. The increase in
permanent studios was offset by a decline in the number of Kmart
locations the Company serviced with traveling units, from 1,296 to 675.
Permanent studio sales increased by $26 million, or 28%, and
accounted for 84% and 80% of the Kmart Store Division and the Company's
total sales, respectively. Traveling sales declined by $17.8 million,
or 43%, as 33% fewer traveling promotions were scheduled during 1993 as
part of the Company's permanent studio conversion strategy. Kmart
permanent studio customers increased by 37.2%, to 3,029,732, while
traveling promotion customers photographed declined by 455,473 or 37%.
The Company's consolidated studio contribution (sales less
advertising and promotional cost, cost of photographic sales, and store
commissions and selling costs) for fiscal 1993 decreased by $0.3
million, or 0.9%, from the prior year. The studio contribution margin
in fiscal 1993 was 19.3%, a decline from 20.3% in fiscal 1992. Studio
contribution margins in the Kmart Store Division decreased to 19.4% in
fiscal 1993 from 20.2% in fiscal 1992 principally due to lower margins
realized in traveling promotions, continued pricing pressure in an
extremely competitive marketplace, and training costs for the new
Digital Imaging System. Studio contribution in permanent studios
increased by $4.8 million, 24.6% over the prior year, and equaled 20.3%
of sales as compared with 20.8% of sales in 1992.
Permanent studio results were negatively affected by digital
studio conversion startup costs and lower sales averages, primarily
caused by price competition, and higher production costs in the
traditional (non-digital) permanent studios. During fiscal 1993, the
Company converted 609 Kmart studios to its Digital Imaging System. The
Company incurred $2.1 million in startup costs in fiscal 1993,
principally for development cost, training, and marketing.
The Institutional Division studio contribution decreased by $0.8
million, or 42%, in fiscal 1993 due to the decline in sales. The studio
contribution margin for the Institutional Division declined in fiscal
1993, to 16.9%, from 22.5% in the prior year.
General and administrative expenses increased by $4.2 million or
25.8%, from $16.4 million in fiscal 1992 to $20.6 million in fiscal
1993. The majority of this increase was attributable to digital
start-up costs, legal fees of $1.3 million associated with a 1992
lawsuit, and $1.3 million, net of insurance proceeds, associated with
the settlement of the lawsuit.
The income tax provision for fiscal 1993 of $3.3 million
resulted in an effective tax rate of 40.2% as compared with 38.5% in
fiscal 1992. The effective tax rate for 1992 was lower than the
combined federal and state statutory rates due to an over-accrual of
federal and state income taxes in the prior year. See Note 3 of the
"Notes to Consolidated Financial Statements."
Discontinued Operations
In the third quarter of fiscal 1993, the Company discontinued
its Department Store Division, which included 13 fashion photography
studios and 67 adult/family studios operating in five chains. The
Company recorded a $1.9 million after-tax charge for the shutdown of
these operations in fiscal 1993. The $1.9 million represents the
write-down of fixed assets, severance expenses for the approximately 650
people either employed in that division or displaced in other
operations, obsolete inventory, an accrual for professional fees,
insurance and other administrative costs, and operating losses in the
fourth quarter of 1993 and the first quarter of 1994.
During the second quarter of fiscal 1994, the Company adjusted
downward by $0.4 million after taxes the reserve for discontinued
operations. As of January 29, 1995, there is less than $0.1 million
accrued for the discontinuance of the Department Store Studio Division.
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Liquidity and Capital Resources
The Company's principal sources of working capital are cash from
operations and its $16.0 million revolving line of credit from a bank.
On January 29, 1995, the Company had $1.0 million in short-term debt
outstanding and $0.3 million in cash and cash equivalents. The credit
facility bears interest, at the Company's choice, at either (a) the
90-day Certificate of Deposit Rate ("CD Rate") plus 100 basis points,
adjusted daily; or (b) the 30-, 60-, 90-, or 180-day London Interbank
Offered Rate ("LIBOR") plus 100 basis points, adjusted monthly,
bimonthly, quarterly, or semiannually, respectively, or (c) the Prime
Rate.
During fiscal 1994, the Company had property additions of
approximately $14.7 million, principally for materials and equipment for
the conversion to the Digital Imaging System and, to a lesser extent,
for the addition of 136 permanent Kmart studios. Cash from operating
activities provided $11.0 million. The Company was able to fund its
capital expenditures from operations, cash on hand, and its revolving
line of credit.
Shareholders' equity increased by $2.7 million to $33.0 million.
Net income was $4.8 million and dividends paid totaled $2.3 million.
The Company anticipates capital expenditures of $2.9 million for
fiscal 1995. The dividend rate of $0.07 per share per quarter, if
maintained throughout the year, would result in a payout of
approximately $2.3 million in fiscal 1995. In addition, in March 1995,
the Board of Directors increased the Company's authorization to
repurchase shares of stock, either in open market purchases or private
transactions, to one million shares. The Company believes, based on its
short- and long-term business plans, that it has the ability to
adequately fund its operating and capital expenditure needs for fiscal
1995, as well as dividends and share repurchases, from operations,
augmented by borrowings under its line of credit for seasonal credit
needs. Due to the seasonality of the Company's operations, cash is
generally consumed during the first fiscal quarter. During the
remaining fiscal quarters, operating activities usually generate cash.
Inflation
Over the past few years, inflation has not had a significant
impact on the Company's financial condition or results of operations.
Accounting Standards
The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting For Income Taxes," which generally requires that a current
or deferred tax asset or liability be adjusted annually to reflect
changes in tax laws and rates to the extent that such asset or liability
is refundable or payable currently or in future years. As described in
Note 3 to the Consolidated Financial Statements, the Company implemented
SFAS No. 109 by recognizing the cumulative effect of the change in
accounting method in fiscal 1992.
In December 1990, FASB issued SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The
Statement requires employers to accrue the cost of postretirement
benefits during the period of employees' active service. As described
in Note 5 of the "Notes to Consolidated Financial Statements," the
Company adopted SFAS No. 106 during fiscal 1992.
In November 1992, FASB issued SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." The Statement requires
employers to accrue, during employees'
11
<PAGE>
service period, estimated costs of benefits provided to former or
inactive employees after employment but before retirement. The
Statement is effective for fiscal years beginning after December 15,
1993. The initial liability must be recognized immediately and
accounted for as a change in accounting principle. The Company has
determined the effect of this change is not material to its results of
operations or financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is submitted beginning on
page F-2 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE MATTERS
None.
PART III
ITEMS 10, 11, 12, and 13.
The portion of Item 10 with respect to Directors of the Company
and Items 11, 12, and 13, Management Remuneration, Security Ownership of
Certain Beneficial Owners and Management, and Certain Relationships and
Related Transactions, respectively, have been omitted from this report
since the Company will file with the Securities and Exchange Commission
a definitive proxy statement pursuant to Rule 14a-3(b) of the
Commission, not later than 120 days after the close of the fiscal year
ended January 29, 1995. That portion of Item 10 with respect to
Executive Officers of the Company appears in Item 1 of Part I hereof.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1 & 2. The financial statements and schedules required by this Item
can be found as indexed on Page F-1 following page 16.
3. Exhibits shown by index beginning on page 13.
(b) Reports on Form 8-K.
None
12
<PAGE>
PCA INTERNATIONAL, INC.
Index to Exhibits - [Item 14(a)(3)]
Index Page
No. Description No.
3(i) Restated Charter, as amended to date, incorporated by reference
to Exhibit 4(b) to the Company's Registration Statement on Form
S-2, Commission File No. 33-50738, dated August 12, 1992.
3(ii) Bylaws of PCA International, Inc., as amended to date,
incorporated by reference to Exhibit 3.4 to the Company's
Quarterly Report on Form 10-Q, Commission File No. 0-8550, for
the quarter ended May 3, 1992.
4 Instruments defining the rights of security holders, incorporated
by reference to Exhibit 4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 3, 1992.
10(a) Amendment dated as of June 1, 1994, to Loan Agreement between PCA
International, Inc., Photo Corporation of America, PCA National,
Inc., and PCA Photo Corporation of Canada, Inc., PCA Mexico, S.A.
de C.V. and NationsBank of North Carolina, N.A., incorporated by
reference to Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 31, 1994.
10(b) Revised Exclusive License Agreement dated July 1, 1994, between
Kmart Corporation and PCA International, Inc., incorporated by
reference to Exhibit 10(b) to the Company's Amendment No. 1 on
Form 10-Q/A to its Quarterly Report on Form 10-Q for the quarter
ended July 31, 1994.
10(c) New Sales Contract dated August 11, 1994, between PCA
International, Inc., and Agfa Division of Miles, Inc.,
incorporated by reference to Exhibit 10(c) to the Company's
Amendment No. 1 on Form 10-Q/A to its Quarterly Report on Form
10-Q for the quarter ended July 31, 1994.
10(d) The 1990 Non-Qualified Stock Option Plan, incorporated by
reference to Exhibit 4 to the Company's Registration Statement on
Form S-8 (Registration No. 33-36793).
10(e) The 1992 Non-Qualified Stock Option Plan, as amended,
incorporated by reference to Exhibit 4 to the Company's
Registration Statement on Form S-8 (Registration No. 33-51458).
10(f) Loan Agreement dated September 8, 1992, between PCA
International, Inc., Photo Corporation of America, PCA National,
Inc., and PCA Photo Corporation of Canada, Inc., and NationsBank
of North Carolina, N.A., incorporated by reference to Exhibit
10(o) to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 2, 1992 (Commission File No. 0-8550).
10(g) Amendment dated as of September 14, 1993, to Loan Agreement
between PCA International, Inc., Photo Corporation of America,
PCA National, Inc., PCA Photo Corporation of Canada, Inc., and
NationsBank of North Carolina, N.A., incorporated by reference to
Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for
the quarter ended July 31, 1994.
13
<PAGE>
10(h) Amendment dated as of March 31, 1995, to Loan Agreement between
PCA International, Inc., Photo Corporation of America, PCA
National, Inc., PCA Photo Corporation of Canada, Inc., and PCA
Mexico, S.A. de C.V. and NationsBank of North Carolina, N.A.
11 Computation of Primary and Fully Diluted Earnings per Common
Share.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PCA INTERNATIONAL, INC.
Date: April 21, 1995 By:/s/Joseph H. Reich
Joseph H. Reich
Chairman of the Board
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/Joseph H. Reich Chairman of the Board April 21, 1995
Joseph H. Reich
/s/John Grosso President, Chief Executive April 21, 1995
John Grosso Officer and Director
/s/Jan M. Rivenbark Executive Vice President April 21, 1995
Jan M. Rivenbark Chief Operating Officer
/s/Eric H. Jeltrup Executive Vice President April 21, 1995
Eric H. Jeltrup Chief Technical Officer
15
<PAGE>
Signature Title Date
/s/Bruce A. Fisher Senior Vice President April 21, 1995
Bruce A. Fisher Chief Financial Officer
Secretary
/s/R. Michael Spencer Senior Vice President April 21, 1995
R. Michael Spencer Treasurer
/s/R. Stuart Dickson Director April 21, 1995
R. Stuart Dickson
/s/Stanley Tulchin Director April 21, 1995
Stanley Tulchin
/s/Albert F. Sloan Director April 21, 1995
Albert F. Sloan
/s/Peter B. Foreman Director April 21, 1995
Peter B. Foreman
/s/George Friedman Director April 21, 1995
George Friedman
16
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
Index to Financial Statements and Schedules
Page No.
Financial Statements:
Independent Auditors' Report F-2
Consolidated Balance Sheets at January 29, 1995
and January 30, 1994 F-3-F-4
Consolidated Statements of Income for Fiscal
Years Ended
January 29, 1995; January 30, 1994; and
January 31, 1993 F-5
Consolidated Statements of Changes in Shareholders'
Equity for Fiscal
Years Ended January 29, 1995; January 30, 1994;
and January 31, 1993 F-6
Consolidated Statements of Cash Flows for Fiscal
Years Ended
January 29, 1995; January 30, 1994; and
January 31, 1993 F-7
Notes to Consolidated Financial Statements F-8-F-20
Schedules:
II Valuation and Qualifying Accounts for Fiscal
Years Ended
January 29, 1995; January 30, 1994; and
January 31, 1993 S-1
Exhibits:
11 Computation of Primary and Fully Diluted
Earnings per Common Share
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
Financial statements, historical information, and schedules other than
those listed above have been omitted for the reason that they are not
required or because the required information is given in the financial
statements or notes thereto.
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
PCA International, Inc.:
We have audited the consolidated financial statements of PCA
International, Inc. and subsidiaries as of January 29, 1995, and January
30, 1994 and for each of the years in the three-year period ended
January 29, 1995, as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have
audited the financial statement schedules as listed in the accompanying
index. These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PCA
International, Inc. and subsidiaries as of January 29, 1995, and January
30, 1994, and the results of their operations and their cash flows for
each of the years in the three- year period ended January 29, 1995, in
conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set
forth therein.
As discussed in notes 3 and 5 to the consolidated financial statements,
the Company adopted the provisions of the Financial Accounting Standards
Board's Statements of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" and No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions", in the year ended January
31, 1993.
/s/KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
March 17, 1995
F-2
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JANUARY 29, JANUARY 30,
1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $311,759 $5,118,896
Accounts receivable (net of allowance for doubtful
accounts of $845,843 and $658,349):
Due from licensor stores and customers 6,408,629 3,348,131
Other, including employee advances 1,263,681 1,233,410
Inventories 3,243,571 4,906,074
Deferred costs applicable to unsold portraits - 1,412,815
Deferred income taxes 1,952,293 1,589,131
Prepaid expenses 636,907 559,521
TOTAL CURRENT ASSETS 13,816,840 18,167,978
PROPERTY:
Land and improvements 1,169,495 1,169,495
Building and improvements 7,630,427 7,564,850
Photographic and sales equipment 40,884,594 28,247,518
Photographic finishing equipment 12,076,064 11,751,433
Furniture and equipment 9,475,787 8,319,051
Transportation equipment 205,664 201,508
Leasehold improvements 10,408,620 9,465,825
Construction in progress 1,629,026 3,438,522
Total 83,479,677 70,158,202
Less: Accumulated depreciation and amortization 37,752,137 31,582,349
PROPERTY, NET 45,727,540 38,575,853
OTHER ASSETS 12,569 7,569
TOTAL ASSETS $59,556,949 $56,751,400
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
JANUARY 29, JANUARY 30,
1995 1994
CURRENT LIABILITIES:
Short-term borrowings $ 974,215 $ -
Accounts payable-trade 11,418,568 14,249,962
Accrued and withheld sales and payroll taxes 332,432 414,245
Accrued income taxes 1,492,427 341,811
Accrued compensation 3,015,943 2,632,022
Other accrued liabilities 3,279,824 4,851,385
TOTAL CURRENT LIABILITIES 20,513,409 22,489,425
DEFERRED INCOME TAXES 3,083,062 1,143,514
OTHER LIABILITIES 2,928,023 2,822,108
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $10.00 par value
(authorized 2,000,000 shares;
outstanding - none) - -
Common stock, $0.20 par value
(authorized 20,000,000 shares;
outstanding - 8,160,171 and
8,138,071 shares) 1,632,035 1,627,615
Additional paid-in capital 12,204,069 12,185,980
Retained earnings 19,444,035 16,940,572
Cumulative foreign currency
translation adjustments (215,087) (123,793)
Total 33,065,052 30,630,374
Less: Unearned compensation 32,597 334,021
TOTAL SHAREHOLDERS' EQUITY 33,032,455 30,296,353
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $59,556,949 $56,751,400
See notes to consolidated financial statements.
F-4
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
January 29, January 30, January 31,
1995 1994 1993
<S> <C> <C> <C>
SALES $144,880,737 $149,150,445 $142,864,617
COSTS AND EXPENSES:
Advertising and promotional costs 20,083,522 21,595,161 26,827,611
Costs of photographic sales 49,981,831 58,599,010 53,203,880
Store commissions and selling costs 44,026,391 40,159,117 33,776,595
General and administrative expenses 22,936,035 20,593,676 16,373,719
Total Costs and Expenses 137,027,779 140,946,964 130,181,805
INCOME FROM OPERATIONS 7,852,958 8,203,481 12,682,812
Interest expense (income) net 406,147 (5,108) 35,938
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES 7,446,811 8,208,589 12,646,874
INCOME TAX PROVISION 3,074,350 3,296,515 4,869,046
INCOME FROM CONTINUING OPERATIONS BEFORE
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES 4,372,461 4,912,074 7,777,828
DISCONTINUED OPERATIONS:
Income (loss) from operations of Department
Store Division [net of income taxes
(benefits) of $(201,303) and $619,341] - (307,038) 989,355
Income (loss) on disposal of Department
Store Division [net of income taxes
(benefits) of $280,189 and $(1,272,212)] 412,406 (1,892,788) -
TOTAL DISCONTINUED OPERATIONS 412,406 (2,199,826) 989,355
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES:
Postretirement benefits other than pensions - - (1,806,816)
Income taxes - - 450,000
TOTAL CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES - - (1,356,816)
NET INCOME $4,784,867 $2,712,248 $7,410,367
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Primary 8,564,295 8,793,876 8,223,582
Fully Diluted 8,582,267 8,822,690 8,305,659
FULLY DILUTED EARNINGS PER COMMON SHARE:
Income from continuing operations before
cumulative effect of changes in accounting
principles $0.51 $0.56 $0.94
Discontinued operations:
Income (loss) from operations - (0.04) 0.12
Income (loss) on disposal 0.05 (0.21) -
Total discontinued operations 0.05 (0.25) 0.12
Total cumulative effect of changes in
accounting principles - - (0.17)
Net income $0.56 $0.31 $0.89
CASH DIVIDENDS PER COMMON SHARE $0.28 $0.28 $0.28
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Fiscal Years ended January 29, 1995; January 30, 1994; and January 31, 1993
Cumulative
Foreign Loans to
Additional Currency Exercise
Common Stock Paid-In Retained Translation Unearned Stock
Shares Amount Capital Earnings Adjustments Compensation Options
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 2, 1992: 7,153,618 $1,430,724 $1,218,856 $11,214,548 $(9,486) $(682,684) $(659,315)
Net income 7,410,367
Exercise of stock options 178,400 35,680 1,359,877
Dividends (2,130,507)
Public stock offering 690,000 138,000 9,009,747
Acquisition of Company
stock (40,485) (8,097) (736,068)
Compensatory stock options 227,784
Canceled compensatory
stock options (25,650) 25,650
Conversion of convertible
debt 34,838 6,968 (6,968)
Payment of loans to exercise
stock options 569,352
Foreign currency translation
adjustment (64,633)
BALANCE, JANUARY 31, 1993: 8,016,371 1,603,275 10,819,794 16,494,408 (74,119) (429,250) (89,963)
Net income 2,712,248
Exercise of stock options 121,700 24,340 1,199,974
Dividends (2,266,084)
Compensatory stock options 3,342,062 (3,080,621)
Canceled compensator
stock options (3,175,850) 3,175,850
Payment of loans to exercise
stock options 89,963
Foreign currency translation
adjustment (49,674)
BALANCE, JANUARY 30, 1994: 8,138,071 1,627,615 12,185,980 16,940,572 (123,793) (334,021) _
Net income 4,784,867
Exercise of stock options 22,100 4,420 87,754
Dividends (2,281,404)
Compensatory stock options 231,759
Canceled compensatory
stock options (69,665) 69,665
Foreign currency translation
adjustment (91,294)
BALANCE, JANUARY 29, 1995: 8,160,171 $1,632,035 $12,204,069 $19,444,035 $(215,087) (32,597) $ _
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
January 29, January 30, January 31,
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 4,784,867 $ 2,712,248 $ 7,410,367
Adjustments to reconcile net income to net cash
provided from operating activities:
Cumulative effect of changes in accounting principles _ _ 1,356,816
Depreciation 7,135,629 5,159,325 3,455,380
Increase in allowance for doubtful accounts 189,479 529,744 22,827
Provision for deferred income taxes 1,576,386 (866,897) 856,164
Loss on disposal of property 222,526 1,610,777 232,500
Compensatory stock option expense 231,758 261,441 227,784
Increase in other liabilities 105,915 141,553 _
(Increase) decrease in other noncurrent assets (5,000) 65,070 69,960
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,362,361) 1,049,334 (704,527)
Decrease (increase) in inventories 1,654,774 469,781 (1,305,995)
Decrease in deferred costs applicable to unsold portraits 1,410,953 1,271,511 158,623
(Increase) decrease in prepaid expenses (78,195) 351,877 (415,638)
(Decrease) increase in accounts payable (2,797,599) 2,922,774 2,361,480
Decrease in accrued expenses (73,317) (953,487) (2,760,638)
NET CASH PROVIDED FROM OPERATING ACTIVITIES 10,995,815 14,725,051 10,965,103
INVESTING ACTIVITIES:
Purchases of property (14,697,706) (21,875,095) (12,232,844)
Proceeds from sales of fixed assets 72,554 22,523 11,527
Loans to corporate officers and employees to exercise stock
options, net of repayments _ 133,074 794,289
NET CASH USED IN INVESTING ACTIVITIES (14,625,152) (21,719,498) (11,427,028)
FINANCING ACTIVITIES:
Increase in short-term borrowing 974,215 _ _
Exercise of stock options 92,174 1,224,314 1,395,557
Acquisition of company stock _ _ (744,165)
Public stock offering _ _ 9,147,747
Cash dividends (2,281,404) (2,266,084) (2,130,506)
NET CASH (USED IN) PROVIDED FROM FINANCING
ACTIVITIES (1,215,015) (1,041,770) 7,668,633
Effect of exchange rate changes on cash 37,215 (56,356) (85,933)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,807,137) (8,092,573) 7,120,775
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,118,896 13,211,469 6,090,694
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 311,759 $ 5,118,896 $13,211,469
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Flow Data:
Interest paid $ 431,766 $ 73,684 $ 113,770
Income taxes paid $ 800,410 $ 4,198,236 $ 4,008,935
Schedule of Noncash Financing Activities:
Stock options canceled and unearned compensation credited $ 69,665 $ 3,175,850 $ 25,650
Shares issued for conversion of debenture _ _ 34,838
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 29, 1995;
JANUARY 30, 1994; AND JANUARY 31, 1993
1. Significant Accounting Policies:
Principles of Consolidation and Concentrations of Credit Risk:
The consolidated financial statements include the accounts of PCA
International, Inc., and its subsidiaries (the "Company"), all of which
are wholly owned. All material intercompany balances and transactions
have been eliminated in consolidation. The Company's operations in
Kmart stores accounted for approximately 95.1%, 95.6%, and 94.0% of
consolidated sales during the fiscal years ended January 29, 1995;
January 30, 1994; and January 31, 1993, respectively. The Exclusive
License Agreement with Kmart Corporation was revised and renewed on July
1, 1994. The license is for the period through January 31, 1997 and may
be terminated by either party upon 60 day's notice. The loss of the
license to do business in Kmart stores would have a materially adverse
effect on the Company.
Fiscal Year:
The Company's fiscal year ends on the Sunday nearest the end of January.
The fiscal years ended January 29, 1995; January 30, 1994; and January
31, 1993 were 52-week years.
Foreign Currency Transactions:
Gains and losses on foreign currency transactions are included in the
determination of net income for the period. The amount of such gain and
(loss) was $(100,452); $9,338; and $(22,466) for the fiscal years ending
January 29, 1995; January 30, 1994; and January 31, 1993, respectively.
Supplemental Cash Flow Information:
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventories:
Inventories are valued at the lower of cost or market, cost being
determined on the first-in, first- out basis.
Property and Depreciation:
Property is recorded at cost. Maintenance and repairs are charged to
expense as incurred; property additions, renewals, and improvements are
capitalized. When property is retired or otherwise disposed of, the
related costs and accumulated depreciation are removed from the
respective accounts and any gain or loss is credited or charged to
income. A summary of the estimated useful lives used in computing
depreciation and amortization, principally on the straight-line method,
is as follows:
F-8
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 29, 1995;
JANUARY 30, 1994; AND JANUARY 31, 1993
1. Significant Accounting Policies (continued):
Land improvements 5 to 30 years
Building and improvements 10 to 55 years
Leasehold improvements 5 to 10 years
Photographic and sales equipment 3 to 13 years
Photographic finishing equipment 5 to 15 years
Furniture and equipment 5 to 10 years
Transportation equipment 2 to 3 years
Photographic Sales and Deferred Costs:
Digital photographic sales are recorded when portraits are purchased.
All sales in the fourth quarter of fiscal 1994 were digital photographic
sales. In fiscal 1993, digital sales were recorded when the portraits
were produced. The change in 1994 did not significantly affect the
Company's results of operations.
Traditional photographic sales are recorded when portraits are delivered
to studios and sold to customers. Costs relating to portraits
processed, or in process, but not recorded as sales prior to the fiscal
year-end, are deferred. Substantially all portraits are subsequently
delivered and offered for sale to the customer within three weeks. The
primary components of deferred costs are advertising and promotional
expenses, acquisition and photographer salaries and certain benefits,
film, photographic paper and supplies, laboratory labor, processing
chemicals, and other expenses directly associated with the acquisition
and photography functions.
Income Taxes:
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes." This statement requires a change from the deferred
method of income taxes of APB Opinion 11, previously applied, to the
asset and liability method of accounting for income taxes. Under SFAS
No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date of the change in tax rates.
Under APB Opinion 11, deferred taxes are recognized for income and
expense items that are reported in different years for financial
reporting purposes and income tax purposes using the tax rate applicable
in the year of the calculation. Under the deferred method, deferred
taxes are not adjusted for subsequent changes in the rates. SFAS No.
109, "Accounting for Income Taxes," was adopted during 1992 and the
cumulative effect of that change in the method of accounting for income
taxes was reported in the fiscal 1992 Consolidated Statement of Income.
Postretirement Benefits:
The Company sponsors a postretirement health care plan for retirees and
certain current employees. Effective February 3, 1992, the Company
adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions," which
establishes a new accounting principle for the cost of retiree health
care and other postretirement benefits. (Also see Note 5.) Prior to
fiscal 1992, the Company recognized these benefits on a pay-as-you-go
method (i.e., cash basis). The cumulative effect of the change in the
method of accounting for postretirement benefits other than pensions is
reported in the fiscal 1992 Consolidated Statement of Income.
F-9
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 29, 1995;
JANUARY 30, 1994; AND JANUARY 31, 1993
1. Significant Accounting Policies (continued):
Costs and Expenses:
Advertising and promotional costs consist of the direct mail, television
broadcasting and print media costs for the children's market and the
payroll and related taxes, benefits and other costs for employees in the
adult/family market who directly promote and acquire customers, as well
as the cost of church directories.
Costs of photographic sales are all the direct and indirect portrait
production costs: salaries, commissions, payroll taxes, related benefits
and traveling costs for all photography personnel, as well as the
recruiting and training costs of these employees. The costs of film,
accessories, photography equipment depreciation and maintenance,
supplies and distribution are also included in this category.
Store commissions and selling costs include the commissions paid to each
chain based on a percentage of net sales, salaries, commissions, payroll
taxes, related benefits and travel costs for all sales personnel, and
recruiting and training, sales supplies and related distribution costs.
Research and Development:
The Company spent $748,000; $444,000; and $304,000 on research and
development activities during the years ended January 29, 1995; January
30, 1994; and January 31, 1993, respectively. Such costs are charged to
operations as incurred.
Earnings per Share:
Earnings per share are determined by dividing income from continuing
operations before the cumulative effect of changes in accounting
principles and net income by the weighted average number of common
shares and common equivalent shares outstanding during the period.
Reclassifications:
Certain reclassifications have been made to the fiscal year 1993 amounts
to conform to the fiscal 1994 presentation.
2. Debt:
The Company signed a new loan agreement on September 8, 1992, amended
June 1, 1994, with NationsBank of North Carolina, N.A. ("NationsBank")
for a $16,000,000 revolving credit facility. The revolving line of
credit matures on May 31, 1997 with interest computed at the Company's
option, either (a) the 90-day Certificate of Deposit Rate ("CD Rate")
plus 100 basis points, adjusted daily; (b) the 30-, 60-, 90-, or 180-day
London Interbank Offered Rate ("LIBOR") plus 100 basis points, adjusted
monthly, bimonthly, quarterly, or semiannually, respectively, or (c) the
Prime Rate.
F-10
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 29, 1995;
JANUARY 30, 1994; AND JANUARY 31, 1993
2. Debt (continued):
On March 31, 1995, the Company amended the loan agreement with
NationsBank to allow the Company to repurchase up to $10,000,000 of the
Company's Common Stock. The credit facility was extended for an
additional year, expiring on May 31, 1998.
Borrowings under the agreement are unsecured, and debt-to-net worth
ratios, minimum levels of tangible net worth, and a fixed charge ratio
must be maintained in addition to other financial covenants.
From time to time the Company issues letters of credit to camera
component manufacturers to secure the purchase of camera parts. As of
January 29, 1995, there were no outstanding letters of credit. As of
January 30, 1994, outstanding letters of credit totaled $481,000.
The components of net interest expense (income) were:
For the Fiscal Years Ended
January 29, January 30 January 31,
1995 1994 1993
Interest Income $(156,424) $(220,451) $(205,301)
Interest Expense 562,571 215,343 241,239
$406,147 $(5,108) $35,938
3. Income Taxes:
As discussed in Note 1, the Company adopted SFAS No. 109 as of February
3, 1992. The cumulative effect of this change in accounting for income
taxes of $450,000, determined as of February 3, 1992, is reported
separately in the Consolidated Statement of Income for the year ended
January 31, 1993. This change in accounting principle is reflected in
the first quarter of 1992.
PCA International, Inc., and its domestic subsidiaries file a
consolidated federal income tax return. The components of income tax
expense, attributable to income from continuing operations, are as
follows:
For the Fiscal Years Ended
January 29, January 30, January 31,
1995 1994 1993
Current:
Federal $1,457,788 $2,633,531 $3,118,077
State 361,835 590,145 729,108
International - (40,860) 165,697
1,819,623 3,182,816 4,012,882
Deferred:
Federal 919,088 92,574 697,091
State 335,639 21,125 159,073
1,254,727 113,699 856,164
Total Provision $3,074,350 $3,296,515 $4,869,046
F-11
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 29, 1995;
JANUARY 30, 1994; AND JANUARY 31, 1993
3. Income Taxes (continued):
A reconciliation of the amount computed by applying the statutory
federal income tax rate to income from continuing operations to the
consolidated income tax provision follows:
For the Fiscal Years Ended
January 29, January 30, January 31,
1995 1994 1993
Tax expense at statutory
federal rates $2,531,916 $2,790,920 $4,299,937
Tax effect of expenses
not deductible pursuant to
Tax Reform Act of 1986 88,885 64,346 75,284
State income taxes, net
of federal income tax
benefit 460,333 403,439 611,501
Tax effects related to
foreign subsidiary 6,297 (27,553) (11,843)
Prior year over-accrual
of state and federal
income tax - - (95,482)
Other (13,081) 65,363 (10,351)
Total Provision $3,074,350 $3,296,515 $4,869,046
F-12
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 29, 1995;
JANUARY 30, 1994; AND JANUARY 31, 1993
3. Income Taxes (continued):
Deferred income taxes are provided to reflect differences between income
and expenses recognized in one accounting period for financial reporting
purposes and a different period for income tax purposes. Such
differences attributable to continuing operations and their tax effects
are as follows:
For the Fiscal Years Ended
January 29, January 30, January 31,
1995 1994 1993
Depreciation $1,831,023 $1,334,327 $299,477
Alternative minimum tax (231,199) - -
Deferred costs (540,160) (339,112) (62,081)
Self-insurance and
various other reserves 251,285 (800,053) 533,191
Restructuring costs 39,906 16,428 73,629
Amortization of unearned
compensation (92,562) (101,314) (88,271)
Other (3,566) 3,423 100,219
Total $1,254,727 $113,699 $856,164
F-13
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 29, 1995;
JANUARY 30, 1994; AND JANUARY 31, 1993
3. Income Taxes (continued):
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
January 29, 1995 and January 30, 1994 are presented below:
January 29, January 30,
1995 1994
Deferred Tax Assets:
Current:
Accounts receivable principally
due to allowance for
doubtful accounts $337,397 $251,997
Inventory principally due to
obsolescence reserve 142,039 155,145
Life and health, principally due
to adoption of SFAS No. 106 99,850 99,850
Alternative minimum tax 732,326 -
Stock options, principally due
to compensation element 285,671 202,289
Department Store Studio shutdown 4,846 980,745
Reserves, principally due to accrual
for financial reporting purposes 352,544 577,329
Gross current deferred tax assets 1,954,673 2,267,355
Noncurrent:
Life and health, principally due to
adoption of SFAS No. 106 1,199,335 1,140,922
Gross deferred tax assets 3,154,008 3,408,277
Deferred Tax Liabilities:
Current:
Portrait cost, principally due to
expenses not accrued for financial
reporting purposes (2,380) (678,224)
Noncurrent:
Plant and equipment, principally due
to differences in depreciation (4,282,397) (2,284,436)
Gross deferred tax liabilities (4,284,777) (2,962,660)
Net Deferred Tax Assets/(Liabilities) $(1,130,769) $445,617
In assessing the ability to realize deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the Company
will realize the benefits of these deductible differences that were
available at January 29, 1995.
F-14
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 29, 1995;
JANUARY 30, 1994; AND JANUARY 31, 1993
4. Other Accrued Liabilities:
January 29, January 30,
1995 1994
Costs accrued to complete church
directories $1,081,271 $772,999
Accrued insurance 727,125 899,519
Accrual for legal settlement - 1,300,000
Accrued expenses 893,897 1,041,114
Other 577,531 837,753
$3,279,824 $4,851,385
The Company and Kmart were defendants in a case in the United States
District Court for alleged, among other things, breach of confidence,
fraud, negligent misrepresentation, conversion and unfair competition.
The case was settled on March 2, 1994 for an after-tax cost, net of
insurance proceeds, of $0.8 million. Additionally, the Company expended
approximately $0.8 million after taxes in professional fees for its
defense.
5. Employee Benefits:
The Company has a profit sharing plan for all employees who meet certain
eligibility requirements with annual contributions by the Company as
directed by the Board of Directors. For fiscal 1994, the contribution
was equal to 10% of consolidated income before income taxes and profit
sharing. Company contributions, net of forfeitures, are as follows:
For the Fiscal Years Ended
January 29, January 30, January 31,
1995 1994 1993
Contributions $904,000 $557,000 $1,284,000
Forfeitures (253,000) (195,000) (278,000)
Net Contribution $651,000 $362,000 $1,006,000
The Company provides health and life insurance benefits to retirees;
however, the plan was amended as of February 1, 1992, to provide
benefits only to those persons already retired on February 1, 1992 and
to those employees who were 55 years of age with 5 years of service on
February 1, 1992. The plan provides for annual benefits of $2,000
(single) or $4,000 (married) toward the purchase of supplemental health
care coverage. To receive benefits, an eligible employee who retires
after February 1, 1992 can retire after attaining the age of 65.
F-15
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 29, 1995;
JANUARY 30, 1994; AND JANUARY 31, 1993
5. Employee Benefits (continued):
In fiscal 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." In applying this
pronouncement, the Company immediately recognized the accumulated
postretirement benefit obligation of $2,950,000, as of the beginning of
fiscal 1992. This change in accounting principle is reflected in the
first quarter of 1992. On an after-tax basis, this charge was
$1,806,816 or $0.22 per share. The impact on the second, third, and
fourth quarters of 1992 was immaterial.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7% at January 29, 1995; January
30, 1994; and January 31, 1993. There were no assumptions for trends
since the Company's obligation was limited to the dollar amounts
previously stated.
The Company's net periodic cost of this program, not included in the
accumulated obligation, including service cost and interest related cost
for the most recent three years are:
For the Fiscal Years Ended
January 29, January 30, January 31,
1995 1994 1993
Service Cost $83,000 $83,000 $63,000
Interest Related Cost 192,000 192,000 192,000
Net Periodic Cost $275,000 $275,000 $255,000
On January 29, 1995, the accrued cost was $3.2 million, of which
$250,000 was classified as current liabilities.
6. Commitments and Contingencies:
The Company is obligated under operating leases with initial or
remaining noncancelable terms in excess of one year which provide, in
some instances, for the payment of taxes, insurance, and maintenance, in
addition to the following future minimum rental payments:
Fiscal Years Ending
Approximately January 31,
1996 $66,655
1997 $10,414
F-16
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 29, 1995;
JANUARY 30, 1994; AND JANUARY 31, 1993
6. Commitments and Contingencies (continued):
The operating leases cover office, computer, and transportation
equipment. Contingent rental payments are not material. Certain of the
Company's operating lease agreements have renewal options. Rental
expense for all operating leases was $254,494; $412,056; and $571,475
for the fiscal years ended January 29, 1995; January 30, 1994; and
January 31, 1993, respectively.
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a materially adverse
effect on the Company's consolidated financial position, results of
operations, or liquidity.
7. Stock Options:
The Company's 1990 Non-Qualified Stock Option Plan (the "1990 Plan")
provides for the grant of up to 1,425,000 non-qualified stock options to
key employees and non-employee Directors. The plan is administered by
the Stock Option Plan Administration Committee, which is appointed by
the Board of Directors, subject to the terms of the 1990 Plan. Subject
to certain provisions, no option granted will be exercisable at any time
during the first year following the date of its grant. Following the end
of the first year, each option will become exercisable to the extent of
20%, and thereafter, at the end of each of the succeeding four years on
a cumulative basis as to an additional 20% of the shares of Common Stock
covered thereby. As of January 29, 1995; January 30, 1994; and January
31, 1993, options for 57,150; 133,550; and 115,650, respectively, were
available for future grant, and 514,950; 319,950; and 180,400 options,
respectively, were exercisable. As of January 29, 1995, 322,550 of the
exercisable options were in-the-money.
The Company's 1992 Non-Qualified Stock Option Plan (the "1992 Plan")
provides for the grant of up to 1,725,000 non-qualified stock options to
key employees and non-employee Directors of the Company. Subject to
certain provisions set forth in the 1992 Plan, no options granted
pursuant to the 1992 Plan will be exercisable at any time during the
first six months following the date of grant. Thereafter, each option
will become exercisable on the date determined by the Stock Option Plan
Administration Committee at the time of grant. No options may be
granted under the 1992 Plan after February 27, 2002. As of January 29,
1995 and January 30, 1994, options for 256,200 and 221,000 shares were
exercisable. No options were exercisable on January 31, 1993. As of
January 29, 1995; January 30, 1994; and January 31, 1993, options for
844,500; 881,500; and 829,500 shares, respectively, were available for
future grant under the 1992 Plan. As of January 29, 1995, no
exercisable options were in-the-money.
When options are exercised, authorized shares are issued. The 1990 and
1992 Plans are deemed to be compensatory plans (compensation for
services) to the extent the difference in the market price of the stock
on the date of grant exceeds the exercise price of the option, and such
difference is recorded as unearned compensation and charged to
shareholders' equity. The unearned compensation is subsequently
amortized against income over the five-year vesting period.
F-17
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 29, 1995;
JANUARY 30, 1994; AND JANUARY 31, 1993
7. Stock Options (continued):
The following table sets forth information regarding the 1990 Plan and
1992 Plan with respect to the exercise, cancellation, expiration, and
grant of options during the previous three fiscal years:
Number of Option
Shares Price
Options outstanding February 2, 1992 1,063,350 $ 1.67_$14.50
Exercised (178,400) $ 1.67_$14.33
Canceled (59,100) $ 1.67_$16.33
Granted 553,500 $14.13_$20.25
Options outstanding January 31, 1993 1,379,350 $ 1.67_$20.25
Exercised (121,700) $ 1.67_$16.33
Canceled (782,900) $ 1.67_$16.33
Granted 1,313,000 $ 9.50_$17.00
Options outstanding January 30, 1994 1,787,750 $ 1.67_$20.25
Exercised (22,100) $ 1.67_$ 4.13
Canceled (101,600) $ 1.67_$20.25
Granted 216,500 $ 9.50_$10.25
Options outstanding January 29, 1995 1,880,550 $ 1.67_$17.00
All options and option prices have been adjusted for the three-for-two
stock split paid on April 8, 1992.
8. Common Stock:
On March 14, 1990, Reprise Capital Corporation converted its $1,500,000
convertible debenture into 5,371,978 shares of Common Stock of the
Company. On April 8, 1992, Reprise Capital Corporation was issued
34,838 shares of Common Stock, fulfilling the terms of its $1,500,000
convertible debenture.
On September 6, 1990, the Company's Board of Directors authorized the
purchase by the Company of up to 450,000 shares of its outstanding
Common Stock from time to time in the open market or in privately
negotiated transactions. As of January 29, 1995, the Company had
purchased 204,490 shares pursuant to this program. On March 8, 1995,
the Company's Board of Directors increased the number of shares
authorized for repurchase by 754,490, bringing the total authorization
to 1,000,000 shares. Subsequent to March 8, 1995, the Company had
purchased 93,100 shares.
F-18
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 29, 1995;
JANUARY 30, 1994; AND JANUARY 31, 1993
8. Common Stock (continued):
On February 27, 1992, the Company announced the declaration of a
three-for-two stock split, payable April 8, 1992 to shareholders of
record as of March 18, 1992. Information throughout these financial
statements has been restated for the stock split to present all data on
a comparable and consistent basis.
On August 12, 1992, the Company filed a Registration Statement on Form
S-2 with the Securities Exchange Commission relating to a public
offering of up to 1,380,000 shares of the Company's Common Stock,
including 180,000 shares subject to an over-allotment option granted to
the underwriters. The offering included 690,000 authorized but unissued
shares offered by the Company and 690,000 issued and outstanding shares
offered by certain selling shareholders. The Registration Statement
became effective on August 27, 1992, at a public offering price of
$14.75 per share and was completed on September 3, 1992. The net
proceeds of the sale of 690,000 shares by the Company (after deducting
the underwriting discount and estimated expenses payable by the Company)
of approximately $9,148,000 was added to working capital, and used
primarily to open new Kmart permanent studios. The Company did not
receive any proceeds of the sale of shares by the selling shareholders.
9. Discontinued Operations:
During the third quarter of fiscal 1993, the Company discontinued its
Department Store Division, consisting of 67 family portrait studios and
13 fashion photography studios operating in five department store
chains. As of January 30, 1994, the Company had accrued for the costs
associated with discontinuing this division, which included severance
expenses, insurance cost, reserves for refunds, operating losses during
the shutdown period, and other costs associated with the closings.
Except for the camera equipment, property and leasehold improvements
have been written off as of January 30, 1994. As of January 30, 1994,
seven portrait studios were still in operation. These studios were
closed in March of 1994. During the second quarter of fiscal 1994, the
Company adjusted downward, by $0.4 million after-taxes, the reserve for
discontinued operations. As of January 29, 1995, there was less than
$0.1 million accrued for the discontinuance of the Department Store
Division.
F-19
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 29, 1995;
JANUARY 30, 1994; AND JANUARY 31, 1993
10. Unaudited Quarterly Financial Data:
<TABLE>
<CAPTION>
For the Fiscal Year Ended January 29, 1995
January 29, October 30, July 31, May 1,
1995 1994 1994 1994
<S> <C> <C> <C> <C>
Sales $45,143,637 $38,695,847 $31,104,809 $29,936,444
Studio Contribution $13,307,437 $7,964,182 $4,340,315 $5,177,059
Income (loss) from
Continuing Operations
before Cumulative Effect
of Changes in Accounting
Principles $3,793,745 $1,094,603 $(579,538) $63,651
Net Income (Loss) $3,793,745 $1,094,603 $(167,132) $63,651
Fully Diluted Earnings Per
Common Share:
Income (loss) from
Continuing Operations
before Cumulative Effect
of Changes in Accounting
Principles $0.44 $0.13 $(0.07) $0.01
Net Income (Loss) $0.44 $0.13 $(0.02) $0.01
</TABLE>
<TABLE>
<CAPTION>
For the Fiscal Year Ended January 30, 1994
January 30, October 31, August 1, May 2,
1994 1993 1993 1993
<S> <C> <C> <C> <C>
Sales $52,162,943 $36,850,457 $30,555,412 $29,581,633
Studio Contribution $11,030,637 $5,610,322 $5,702,145 $6,454,053
Income from Continuing
Operations before
Cumulative Effect of
Changes in Accounting
Principles $2,142,400 $781,797 $742,407 $1,245,470
Net Income (Loss) $2,508,572 $(1,699,715) $625,238 $1,278,153
Fully Diluted Earnings Per
Common Share:
Income from Continuing
Operations before
Cumulative Effect of
Changes in Accounting
Principles $0.25 $0.08 $0.08 $0.15
Net Income (Loss) $0.29 $(0.19) $0.07 $0.15
</TABLE>
F-20
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
Schedule II. Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Balance at Charged to Balance at
Beginning of Costs and End of
CLASSIFICATION Period Expenses Write-offs Period
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED JANUARY 29, 1995:
Allowance for doubtful accounts $658,349 $82,427 $(105,067) $845,843
FISCAL YEAR ENDED JANUARY 30, 1994:
Allowance for doubtful accounts $128,736 $665,215 $135,602 $658,349
FISCAL YEAR ENDED JANUARY 31, 1993:
Allowance for doubtful accounts $105,909 $145,552 $122,725 $128,736
</TABLE>
S-1
<PAGE>
Exhibit 10(h)
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT, dated as of the 31st
day of March, 1995 (the "Third Amendment"), is by and between
PCA INTERNATIONAL, INC. ("PCA International"), a North
Carolina corporation with its offices in Matthews, North
Carolina, PHOTO CORPORATION OF AMERICA ("Photo Corporation"), a
North Carolina corporation with its offices in Matthews, North
Carolina, PCA NATIONAL, INC. ("PCA National"), a North Carolina
corporation with its offices in Matthews, North Carolina, PCA
PHOTO CORPORATION OF CANADA, INC. (formerly known as PCA Canada,
Inc.; hereinafter "PCA Canada"), a North Carolina corporation
with its offices in Matthews, North Carolina and PCA MEXICO, S.A.
de C.V. ("PCA Mexico"), a Mexican limited liability company
(collectively referred to as "Borrowers" and individually as a
"Borrower"); and
NATIONSBANK, N.A. (CAROLINAS) (formerly NationsBank of North
Carolina, N.A.), a national banking association with its
principal offices in Charlotte, North Carolina (the "Lender").
Recitals
A. Borrowers and Lender have entered into a Loan Agreement
dated as of the 8th day of September, 1992, as amended by the
First Amendment to Loan Agreement dated September 14, 1993 and by
the Second Amendment to Loan Agreement dated June 1, 1994 (as
further amended, modified, restated or supplemented from time to
time, the "Loan Agreement").
B. Borrowers and Lender have mutually agreed to amend the
Loan Agreement, as more particularly set forth in this Third
Amendment.
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties
hereto agree as follows:
1. Effect of Third Amendment. Except as expressly amended
hereby, the Loan Agreement shall be and remain in full force and
effect.
2. Capitalized Terms. All capitalized undefined terms
used in this Third Amendment shall have the meanings assigned
thereto in the Loan Agreement.
3. Modification of Loan Agreement. The Loan Agreement is
hereby modified as follows:
<PAGE>
(a) Paragraph B of the Recitals is hereby amended and
restated as follows:
B. The Borrowers will use the proceeds of the
Loans (as defined below) (i) to provide working
capital, (ii) to support Letters of Credit (as defined
below), (iii) for share repurchases as permitted
pursuant to Section 7.18 hereof and (iv) for such other
uses as the Borrowers shall determine, other than uses
restricted hereunder, all as more fully set forth
herein.
(b) Section 1.1 of the Loan Agreement is hereby amended as
follows:
(i) The definition of Interest Period is hereby amended
and restated as follows:
"Interest Period" shall mean, in the case of any LIBOR
Loan, (a) initially, the period commencing on the date
such LIBOR Loan is made or on the date of conversion of
a Loan to a LIBOR Loan and ending 30, 60, 90 or 180
days thereafter as selected by the Borrowers in their
Interest Rate Election Notice given to the Lender, and
(b) thereafter, if such LIBOR Loan is continued, a
period commencing on the last day of the immediately
preceding Interest Period for such LIBOR Loan and
ending 30, 60, 90 or 180 days thereafter, as selected
by the Borrowers in their Interest Rate Election Notice
given to the Lender; provided, however, all of the
foregoing provisions relating to Interest Periods with
respect to LIBOR Loans are subject to the following:
(i) If the Borrowers shall fail to give
irrevocable written notice of the length
of any Interest Period, then the
Borrowers shall be deemed to have
selected the Adjusted Floating Adjusted
Certificate of Deposit Rate.
(ii) If any Interest Period otherwise would
end on a day which is not a Business
Day, such Interest Period shall be
extended to the next succeeding Business
Day.
(iii)The Borrower may not select any Interest
Period which ends after the Revolving Loan
Termination Date.
(ii) The definition of "Revolving Loan Termination
Date" is hereby amended and restated as follows:
2
<PAGE>
"Revolving Loan Termination Date" shall mean the
earliest of (i) prepayment by the Borrowers in whole of
all Obligations, including without limitation all
principal and interest on the Note, together with a
notice from the Borrowers terminating this Agreement;
(ii) May 31, 1998; (iii) the date of termination by the
Lender after the occurrence of an Event of Default;
(iv) such date of termination as is mutually agreed
upon by the Lender and the Borrowers; and (v) the date
after which all Obligations have been paid in full and
the Lender is no longer obligated to make advances or
Loans hereunder; provided, however, that the Revolving
Loan Termination Date may be extended annually
hereafter by mutual agreement of the Borrowers and the
Lender.
(iii) The following definitions shall be inserted in
the appropriate alphabetical order:
"Base Rate" shall mean, at any time, the higher of (a)
the Prime Rate or (b) the Federal Funds Rate plus 1/2
of 1%; each change in the Base Rate shall take effect
simultaneously with the corresponding change or changes
in the Prime Rate or the Federal Funds Rate.
"Base Rate Loan" shall mean, at any time, any
outstanding Loan that bears interest at the Base Rate.
"Federal Funds Rate" shall mean, for any day, a
fluctuating interest rate per annum equal to the
weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published
at 11:00 a.m. (Charlotte time) for such day (or, if
such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for
such day on such transactions received by the Lender
from three Federal funds brokers of recognized standing
selected by it.
"Prime Rate" shall mean the rate of interest announced
by the Lender in Charlotte, North Carolina from time to
time as its prime rate with each change in the prime
rate to be effective as of the opening of business on
the effective date of the change in the prime rate.
The prime rate is established by the Lender as an index
or base rate and may or may not at any time be the best
or lowest rate charged by the Lender on any loan.
3
<PAGE>
(c) Section 2.5(b) is hereby amended and restated as
follows:
(b) All interest accrued (i) on CD Rate Loans and Base
Rate Loans, shall be due and payable on the last
Business Day of each calendar month, (ii) on LIBOR
Loans with Interest Periods of 30, 60 or 90 days, shall
be due and payable on the last day of the applicable
Interest Period and (iii) on LIBOR Loans with Interest
Periods of 180 days, shall be due and payable at
intervals of 90 days after the first day of the
applicable Interest Period and on the last day of such
Interest Period.
(d) Section 2.5A (a) is hereby amended and restated as
follows:
2.5A Interest Rate Options. (a) Subject to the
conditions established herein, the Borrower shall have
the option, by delivering to the Lender an Interest
Rate Election Notice, to cause the Loans to bear
interest at one of the following rates: (i) the Base
Rate, (ii) the Adjusted LIBOR Rate or (iii) the
Adjusted Floating Adjusted Certificate of Deposit Rate.
(e) Section 2.5B is hereby amended and restated as follows:
2.5B Conversion to and Renewal of LIBOR Loans. On the
terms and subject to the conditions of this Agreement,
the Borrowers may elect (a) at any time, to convert a
Loan which is a CD Rate Loan or a Base Rate Loan into a
LIBOR Loan, CD Rate Loan or Base Rate Loan or (b) at
the end of any Interest Period with respect to a LIBOR
Loan, to convert such LIBOR Loan into a CD Rate Loan or
a Base Rate Loan or to renew such a LIBOR Loan for an
additional Interest Period. Each such election shall
be made by delivering to the Lender an Interest Rate
Election Notice at least three (3) Business Days prior
to the effective date of any conversion or renewal of a
LIBOR Loan and at least one (1) Business Day prior to
the effective date of any conversion of a CD Rate Loan
or Base Rate Loan, specifying (x) in the case of a
conversion to or a continuation of LIBOR Loan, the
Interest Period; (y) the date of conversion (which date
shall be a Business Day, and in the case of a
conversion from a LIBOR Loan to another type Loan, the
last day of the Interest Period for such LIBOR Loan);
and (z) the amount and type of conversion or
continuation. Upon timely receipt of an Interest Rate
Election Notice, the Lender shall promptly notify the
Borrowers of the applicable Elected Rate for Interest
Periods selected in such Interest Rate Election Notice
as promptly as practicable; provided, however, that the
failure by the Lender to provide any such notice shall
not, in any way, affect or diminish the Borrowers'
4
<PAGE>
obligations to the Lender. If, within the time period
required under this Section 2.5B, the Lender shall not
have received an Interest Rate Election Notice from the
Borrower of an election to continue a LIBOR Loan for an
additional Interest Period, then, upon the expiration
of the Interest Period therefor, such LIBOR Loan shall
be converted automatically to a CD Rate Loan.
(f) Section 2.5C (b) is hereby amended and restated as
follows:
(b) No conversion of a CD Rate Loan or Base Rate Loan
to a LIBOR Loan or continuation of a LIBOR Loan upon
the expiration of the Interest Period therefor shall be
permitted during the continuation of an Event of
Default.
(g) The last phrase of Section 2.5D is hereby amended and
restated as follows:
then the Lender shall give the Borrowers prompt notice
thereof, and so long as such condition remains in
effect, the Lender shall not be under any obligation to
make further LIBOR Loans or to convert CD Rate Loans or
Base Rate Loans into LIBOR Loans.
(h) Section 2.6 of the Loan Agreement is hereby amended and
restated as follows:
2.6 Use of Proceeds. The proceeds of the Loans
shall be used by the Borrower solely (i) to provide
working capital; (ii) to support Letters of Credit;
(iii) for share repurchases as permitted pursuant to
Section 7.18 hereof; and (iv) for such other uses as
the Borrowers may determine, other than uses restricted
hereunder.
(i) Section 2.8(a) of the Loan Agreement is hereby amended
to delete the date "April 15, 1995" therein and to substitute in
lieu thereof the date "April 15, 1998".
(j) Section 7.10 of the Loan Agreement is hereby amended
and restated as follows:
7.10 Tangible Net Worth. Permit Tangible Net
Worth to be less than $27,500,000 at any time from and
after March 31, 1995, such amount to be (a) increased
by (i) at the end of each fiscal year after March 31,
1995, fifty percent (50%) of Consolidated Net Income
for such fiscal year and (ii) as of the date of any
such issuance, the positive amount of all increases in
capital stock and additional paid-in capital from
issuances of equity securities or other capital
investments and (b) decreased
5
<PAGE>
by, as of the date of any such repurchase, an amount
equal to the total amount of cash paid for common stock
repurchases as permitted pursuant to Section 7.18 hereof.
(k) Section 7.11 of the Loan Agreement is hereby amended
and restated as follows:
7.11 Debt to Equity Ratio. Permit the ratio of
Total Liabilities to Tangible Net Worth to be greater
than 2.0 to 1.0 in the first, second and third quarters
of fiscal year 1995 (ending January 31, 1996); and 1.5
to 1.0 for the fiscal year ending 1995 and each quarter
thereafter.
(l) A new Section 7.18 is hereby added to Article VII of
the Loan Agreement:
7.18 Permitted Common Stock Repurchases. From and
after January 1, 1995, purchase, repurchase, redeem,
retire, own, invest in or otherwise acquire, directly
or indirectly, any shares (including without limitation
the purchase, redemption, retirement or other
acquisition of any right or option to acquire any such
shares) of its common stock; provided that, so long as
no Event of Default has occurred and is continuing or
would occur after giving effect thereto, PCA
International, Inc. may repurchase shares of its common
stock having an aggregate fair market value at the time
of such purchase not in excess of $10,000,000.
4. Conditions Precedent. The effectiveness of the
amendments set forth herein shall be conditioned upon delivery to
the Lender of the following items:
(a) Certificate of the Borrowers. A certificate dated
as of the date hereof from the President of each of the
Borrowers, in form and substance satisfactory to the Lender,
to the effect that all representations and warranties of the
Borrowers contained in the Loan Agreement and the other Loan
Documents, are true, correct and complete in all material
respects; that the Borrowers are not in violation of any of
the covenants contained in the Loan Agreement and the other
Loan Documents; that, after giving effect to the trans-
actions contemplated by this Third Amendment, no Event of
Default has occurred and is continuing; and that the
Borrowers have satisfied each of the conditions set forth in
this Section 4.
5. Conditions Subsequent. The Borrowers hereby covenant
and agree to deliver to the Lender, within sixty (60) days after
the date of this Third Amendment, the following items:
6
<PAGE>
(a) Certificate of the Secretary of the Borrowers. A
certificate dated as of the date hereof of the secretary or
assistant secretary of each of the Borrowers certifying that
attached thereto is a true and complete copy of the articles
of incorporation of such Borrower and all amendments
thereto, certified as of a recent date by the appropriate
governmental authority in its jurisdiction of incorporation;
that attached thereto is a true and complete copy of the
bylaws of such Borrower as in effect on the date of such
certification; that attached thereto is a true and complete
copy of resolutions duly adopted by the Board of Directors
of such Borrower authorizing the transactions contemplated
hereunder and the execution, delivery and performance of
this Third Amendment; and as to the incumbency and
genuineness of the signature of each officer of such
Borrower executing this Third Amendment.
(b) Certificates of Good Standing. Long-form
certificates as of a recent date of the good standing of
each of the Borrowers under the laws of its jurisdiction of
organization.
(c) Opinion of Counsel. A favorable opinion of the
law firm of Robinson, Bradshaw & Hinson, P.A., counsel to
the Borrowers, dated as of the date hereof and addressed to
the Lender, in form and substance satisfactory to the
Lender.
6. Cross-References. All references in the Loan Agree-
ment, or in any agreement, document or instrument delivered
pursuant thereto or in connection therewith (collectively,
together with the Loan Agreement, the "Loan Documents"), to the
Loan Agreement shall be deemed to refer to the Loan Agreement as
modified by this Third Amendment. In addition, all notices,
requests, certificates and other instruments executed and
delivered after the execution and delivery of this Third
Amendment may refer to the Loan Agreement without making specific
reference to this Third Amendment, but nevertheless all such
references shall include this Third Amendment unless the context
otherwise requires.
7. Representations and Warranties/No Default. By their
execution hereof, the Borrowers hereby certify that each of the
representations and warranties set forth in the Loan Agreement
and the other Loan Documents is true and correct as of the date
hereof as if fully set forth herein and that as of the date
hereof no Event of Default has occurred and is continuing.
8. Expenses. The Borrowers shall pay all reasonable out-
of-pocket expenses of the Lender in connection with the
preparation, execution and delivery of this Third Amendment,
including without limitation, the reasonable fees and
disbursements of counsel for the Lender.
7
<PAGE>
9. Governing Law. This Third Amendment shall be governed
by and construed in accordance with the laws of the State of
North Carolina.
10. Counterparts. This Third Amendment may be executed in
separate counterparts, each of which when executed and delivered
is an original but all of which taken together constitute one and
the same instrument.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Third Amendment to be duly executed as of the date and year first
above written.
BORROWERS:
[CORPORATE SEAL] PCA INTERNATIONAL, INC.
By: (Signature of John Grosso)
Name: John Grosso
Title: President
[CORPORATE SEAL] PHOTO CORPORATION OF AMERICA
By: (Signature of John Grosso)
Name: John Grosso
Title: President
[CORPORATE SEAL] PCA NATIONAL, INC.
By: (Signature of John Grosso)
Name: John Grosso
Title: President
[CORPORATE SEAL] PCA PHOTO CORPORATION OF CANADA, INC.
By: (Signature of John Grosso)
Name: John Grosso
Title: President
[CORPORATE SEAL] PCA MEXICO S.A. de C.V.
By: (Signature of John Grosso)
Name: John Grosso
Title: President
9
<PAGE>
LENDER:
[CORPORATE SEAL] NATIONSBANK, N.A. (CAROLINAS)
By: (Signature of Mark D. Halmrest)
Name: Mark D. Halmrest
Title: Vice President
10
<PAGE>
Exhibit 11
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND FULLY DILUTED
EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
JANUARY 29, JANUARY 30, JANUARY 31,
1995 1994 1993
<S> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE:
EARNINGS APPLICABLE TO COMMON STOCK:
Income from continuing operations before cumulative effect of changes in
accounting principles $4,372,461 $4,912,074 $7,777,828
Total discontinued operations 412,406 (2,199,826) 989,355
Total cumulative effect of changes in
accounting principles - - (1,356,816)
Net income $4,784,867 $2,712,248 $7,410,367
COMPUTATION OF COMMON SHARES AND COMMON
EQUIVALENT SHARES:
Weighted average number of common shares 8,148,845 8,092,010 7,559,243
Dilutive effect of stock options 415,450 701,866 664,339
Weighted average number of common shares
after dilutive effect 8,564,295 8,793,876 8,223,582
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE:
Income from continuing operations before cumulative effect of
changes in accounting principles $0.51 $0.56 $0.95
Discontinued operations 0.05 (0.25) 0.12
Total cumulative effect of changes
in accounting principles - - (0.17)
Net income $0.56 $0.31 $0.90
FULLY DILUTED EARNINGS PER COMMON SHARE:
EARNINGS APPLICABLE TO COMMON STOCK:
Income from continuing operations before
cumulative effect of
changes in account principles $4,372,461 $4,912,074 $7,777,828
Discontinued operations 412,406 (2,199,826) 989,355
Total cumulative effect of changes in
accounting principles - - (1,356,816)
Net income $4,784,867 $2,712,248 $7,410,367
COMPUTATION OF COMMON SHARES AND COMMON
EQUIVALENT SHARES:
Weighted average number of common shares
outstanding 8,148,845 8,092,010 7,559,243
Dilutive effect of stock options 433,422 730,680 746,416
Weighted average number of common
shares outstanding as adjusted 8,582,267 8,822,690 8,305,659
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE ASSUMING FULL DILUTION:
Income from continuing operations
before cumulative effect of
changes in accounting principles $0.51 $0.56 $0.94
Discontinued operations 0.05 (0.25) 0.12
Total cumulative effect of changes in
accounting principles - - (0.17)
Net income $0.56 $0.31 $0.89
</TABLE>
<PAGE>
Exhibit 21
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the Company's subsidiaries and affiliates at
January 29, 1995 indicating the percentage of ownership and the state or
country of incorporation:
Percentage
of Voting
Securities
State or Owned by
Country of the
Name Incorporation Company
Photo Corporation of America North Carolina 100%
PCA National, Inc. North Carolina *
PCA Photo Corporation of Canada, Inc. North Carolina 100%
PCA of Mexico SA DE CV Mexico 99%
* PCA National, Inc., is a subsidiary of Photo Corporation of America.
<PAGE>
Exhibit 23
The Board of Directors
PCA International, Inc.:
We consent to incorporation by reference in the registration statement
on Form S-8 for the PCA International, Inc. 1990 Non-Qualified Stock
Option Plan and registration statement on Form S-8 for the PCA
International, Inc. 1992 Non-Qualified Stock Option Plan of our report
dated March 17, 1995, relating to the consolidated balance sheets of PCA
International, Inc. and subsidiaries as of January 29, 1995 and January
30, 1994, and the related consolidated statements of income, changes in
shareholders' equity and cash flows and related schedules for each of
the years in the three-year period ended January 29, 1995 which report
appears in the January 29, 1995, annual report on Form 10-K of PCA
International, Inc.
Our report refers to the adoption of the provisions of the Financial
Accounting Standards Board's Statements of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" and No. 106,
"Employers' Accounting for postretirement Benefits Other than Pensions",
in the year ended January 31, 1993.
/s/KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
April 25, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000076791
<NAME> PCA INTERNATIONAL, INC.
<MULTIPLIER> 1
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-29-1995
<PERIOD-START> JAN-31-1994
<PERIOD-END> JAN-29-1995
<EXCHANGE-RATE> 1
<CASH> 311,759
<SECURITIES> 0
<RECEIVABLES> 8,518,153
<ALLOWANCES> 845,843
<INVENTORY> 3,243,571
<CURRENT-ASSETS> 13,816,840
<PP&E> 83,479,677
<DEPRECIATION> 37,752,137
<TOTAL-ASSETS> 59,556,949
<CURRENT-LIABILITIES> 20,513,409
<BONDS> 0
<COMMON> 1,632,035
0
0
<OTHER-SE> 33,032,455
<TOTAL-LIABILITY-AND-EQUITY> 59,556,949
<SALES> 144,880,737
<TOTAL-REVENUES> 144,880,737
<CGS> 114,091,744
<TOTAL-COSTS> 114,091,744
<OTHER-EXPENSES> 22,936,035
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 406,147
<INCOME-PRETAX> 7,446,811
<INCOME-TAX> 3,074,350
<INCOME-CONTINUING> 4,372,461
<DISCONTINUED> 412,406
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,784,867
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
</TABLE>
