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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
---
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JULY 28, 1996
---
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---
SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM _______________ TO ________________
Commission File Number: 0-8550
PCA INTERNATIONAL, INC.
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(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)
(704) 847-8011
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(Registrant's telephone number, including area code)
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 report), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO____
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
COMMON STOCK, $0.20 PAR VALUE 7,567,229
- - ----------------------------------- ---------------------------------
CLASS OUTSTANDING AT AUGUST 30, 1996
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<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
I N D E X
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION: PAGE NO.
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets - July 28, 1996 and
January 28, 1996................................... 1
Consolidated Statements of Income - Three Months and Six Months
Ended July 28, 1996 and July 30, 1995.......................... 2
Consolidated Statement of Changes in Shareholders' Equity - Six
Months Ended July 28, 1996...................................... 3
Consolidated Statements of Cash Flows - Six Months Ended July
28, 1996 and July 30, 1995.................................. 4
Condensed Notes to Consolidated Financial Statements............ 5-6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................... 7-9
PART II. OTHER INFORMATION:
ITEM 6. Exhibits and Reports on Form 8-K................................ 10
SIGNATURES ................................................................ 10
EXHIBIT INDEX ................................................................ 11
</TABLE>
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 28, January 28,
ASSETS 1996 1996
Current Assets:
Cash and cash equivalents.................... $ 416,310 $ 3,914,513
Accounts receivable (net of allowance for
doubtful accounts of $1,255,319 and
$1,011,350):
Due from licensor stores and customers..... 9,980,877 7,342,232
Other, including employee advances......... 360,463 677,334
Inventories.................................. 4,794,970 2,488,964
Deferred income taxes........................ 2,467,809 2,167,152
Prepaid expenses............................. 543,296 513,685
---------- ----------
Total Current Assets..................... 18,563,725 17,103,880
---------- ----------
Property:
Land and improvements........................ 1,177,805 1,177,805
Building and improvements.................... 7,779,479 7,730,952
Photographic and sales equipment............. 45,499,039 44,183,975
Photographic finishing equipment............. 12,507,525 12,501,537
Furniture and equipment...................... 10,919,020 10,010,818
Transportation equipment..................... 217,532 208,795
Leasehold improvements....................... 11,629,242 11,508,810
Construction in progress..................... 3,001,225 946,478
---------- ----------
Total.................................... 92,730,867 88,269,170
Less: Accumulated depreciation and
amortization............................. 49,208,238 45,516,802
---------- ----------
Property, net.......................... 43,522,629 42,752,368
---------- ----------
Other Assets................................. 1,493,641 28,228
---------- ----------
Total Assets.................................$63,579,995 $59,884,476
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings......................$ 4,419,048 $ -
Accounts payable-trade..................... 10,161,065 9,178,213
Accrued insurance.......................... 3,908,464 2,247,693
Accrued income taxes....................... 81,080 2,317,974
Accrued compensation....................... 2,917,439 3,779,849
Other accrued liabilities.................. 3,440,324 3,457,973
----------- ------------
Total Current Liabilities.............. 24,927,420 20,981,702
----------- ------------
Deferred Income Taxes........................ 4,862,539 4,562,570
----------- ------------
Other Liabilities............................ 3,035,804 3,105,595
----------- ------------
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; issued--7,494,229 shares and
7,482,071 shares)........................ 1,498,846 1,496,415
Additional paid-in capital................. 4,066,939 5,045,578
Retained earnings.......................... 25,242,437 24,918,709
Cumulative foreign currency translation
adjustments.............................. (53,990) (226,093)
---------- -----------
Total Shareholders' Equity.............. 30,754,232 31,234,609
---------- -----------
Total Liabilities and Shareholders' Equity...$63,579,995 $59,884,476
=========== ===========
See Condensed Notes to Consolidated Financial Statements.
1
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 28, July 30, July 28, July 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
SALES ................................... $31,116,836 $28,629,613 $67,204,822 $61,238,244
COSTS AND EXPENSES:
Advertising and promotional costs .. 3,430,743 3,301,889 7,064,532 6,933,418
Costs of photographic sales ........ 11,346,407 10,161,151 23,250,809 20,926,906
Store commissions and selling costs. 10,565,958 9,386,383 22,313,324 19,761,622
General and administrative expenses. 5,373,681 5,227,037 12,164,921 11,545,000
----------- ------------ ------------ ------------
Total costs and expenses ...... 30,716,789 28,076,460 64,793,586 59,166,946
----------- ------------ ------------ ------------
INCOME FROM OPERATIONS .................. 400,047 553,153 2,411,236 2,071,298
Interest expense, net .............. 16,760 211,584 35,307 265,545
----------- ------------ ------------ ------------
INCOME BEFORE INCOME TAXES .............. 383,287 341,569 2,375,929 1,805,753
INCOME TAX PROVISION .................... 150,990 143,067 1,004,854 756,250
----------- ------------ ------------ ------------
NET INCOME .............................. $ 232,297 $ 198,502 $ 1,371,075 $ 1,049,503
=========== ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Primary ............................ 8,058,625 7,942,103 7,963,550 8,211,481
=========== ============ ============ ============
Fully Diluted ...................... 8,069,996 8,063,348 8,127,361 8,384,172
=========== ============ ============ ============
PRIMARY AND FULLY DILUTED EARNINGS PER
COMMON SHARE:
Net Income ......................... $ 0.03 $ 0.02 $ 0.17 $ 0.13
=========== ============ ============ ============
CASH DIVIDENDS PER COMMON SHARE ......... $ 0.07 $ 0.07 $ 0.14 $ 0.14
=========== ============ ============ ============
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
2
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JULY 28,1996
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Foreign
Additional Currency
Common Stock Paid-In Retained Translation
Shares Amount Capital Earnings Adjustments
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 28,1996:..... 7,482,071 $ 1,496,415 $ 5,045,578 $ 24,918,709 $(226,093)
Net income.................... 1,371,075
Exercise of stock options..... 321,400 64,280 3,150,137
Dividends..................... (1,047,347)
Acquisition of Company stock.. (309,242) (61,849) (4,128,776)
Foreign currency translation
adjustment................. 172,103
---------- ----------- ----------- ----------- --------
BALANCE, JULY 28,1996:........ 7,494,229 $ 1,498,846 $ 4,066,939 $ 25,242,437 $(53,990)
========== =========== =========== ============ ========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
3
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
July 28, July 30,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES:
Net income .................................................................. $ 1,371,075 $ 1,049,503
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization .......................................... 4,486,704 4,071,946
Increase in allowance for doubtful accounts ............................ 243,761 382,417
Provision for deferred income taxes .................................... (323,554) 72,341
Loss on disposal of property ........................................... 208,987 80,070
Compensatory stock option expense ...................................... -- 20,050
(Decrease) increase in other liabilities ............................... (69,791) 101,488
Decrease (increase) in other noncurrent assets ......................... 1,140 (10,100)
Changes in operating assets and liabilities:
Increase in accounts receivable ................................... (2,565,284) (2,562,255)
(Increase) decrease in inventories ................................ (2,305,781) 463,523
(Increase) decrease in prepaid expenses ........................... (29,560) 167,780
Increase (decrease) in accounts payable ........................... 981,936 (1,515,784)
Decrease in accrued expenses ...................................... (1,460,471) (108,187)
----------- ----------
NET CASH PROVIDED FROM OPERATING ACTIVITIES: ........................... $ 539,162 2,212,792
----------- ----------
INVESTING ACTIVITIES:
Purchase of property ........................................................ (5,426,876) (2,115,147)
Purchase of certain assets from two Canadian companies ...................... (1,193,311) --
Proceeds from sale of fixed assets .......................................... 8,721 43,298
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES ....................................... (6,611,466) (2,071,849)
----------- ----------
FINANCING ACTIVITIES:
Increase in short-term borrowings ........................................... 4,419,048 8,351,859
Exercise of stock options ................................................... 3,214,417 328,829
Acquisition of Company stock ................................................ (4,190,625) (7,713,952)
Cash dividends .............................................................. (1,047,347) (1,095,243)
----------- ----------
NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES ....................... 2,395,493 (128,507)
----------- ----------
Effect of exchange rate changes on cash ..................................... 178,608 31,804
----------- ----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............................ (3,498,203) 44,240
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................................. 3,914,513 311,759
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................................... $ 416,310 $ 355,999
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Flow Data:
Interest paid .......................................................... $ 62,160 $ 182,520
=========== ===========
Income taxes paid ...................................................... $ 2,872,023 $ 2,307,431
=========== ===========
Schedule of Non-Cash Financial Activities:
Stock options canceled and unearned compensation credited .............. $ -- $ 6,682
=========== ===========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
4
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
With respect to the significant accounting policies of PCA
International, Inc., and its subsidiaries (the "Company"), which are
wholly-owned, reference is made to note 1 of the financial statements in the
Company's Form 10-K filed for the fiscal year ended January 28, 1996. The
interim financial statements reflect all adjustments (consisting of normal
recurring accruals) which are, in the opinion of management, necessary for a
fair statement of the results for the interim periods presented.
2. ACQUISITION:
On April 15, 1996, the Company's Canadian subsidiary purchased certain
assets of two related Canadian portrait businesses, Portrait Works, Inc., and
Portrait Experience of Canada, Ltd., for $1.2 million. The Company is amortizing
over fifteen years the excess of the purchase price over the value assigned to
the purchased assets.
3. STOCK OPTIONS:
On March 6, 1996, the Board of Directors adopted the 1996 Omnibus
Long-Term Compensation Plan (the "1996 Plan") providing for the issuance of up
to 811,550 shares (the same number that had been available for issuance under
the Company's 1990 Non-Qualified Stock Option Plan (the "1990 Plan") and the
1992 Non-Qualified Stock Option Plan (the "1992 Plan") of the Company's common
stock. The 1996 Plan is designed to give the Board of Directors flexibility to
adapt the long-term incentive compensation of key employees to changing business
conditions through a variety of long-term incentive awards and was approved by
the Company's shareholders at the 1996 Annual Meeting on May 22, 1996. Under the
1996 Plan, the Stock Option Plan Administration Committee may approve the grant
of employee Stock Options, Stock Appreciation Rights (SARs), Performance
Restricted Stock Awards, Performance Awards, and Performance Units ("Awards") to
senior level employees of the Company and to nonemployee directors upon their
election to the Board and allows nonemployee directors to elect to take their
compensation as directors in the form of options. The exercise price for stock
options and stock Awards may not be less than the fair market value of the
common stock on the date of grant. As of July 28, 1996, options for 792,850
shares were available for future grant. The Plan replaced and superseded the
1990 Plan and the 1992 Plan, except with respect to options and shares of common
stock issued and outstanding under those plans which will continue to be
governed by the terms of such plans.
The 1990 Plan provides for the grant of up to 1,425,000 non-qualified
stock options to key employees and nonemployee directors. As of July 28, 1996,
options for approximately 595,450 shares were exercisable and in-the-money;
options for 900 shares were exercisable and out-of-the-money. As of July 30,
1995, options for 521,050 shares were exercisable and in-the-money, and options
for 137,800 shares were exercisable and out-of-the-money.
The 1992 Plan provides for the grant of non-qualified stock options to
key employees and nonemployee directors of the Company. As of July 28, 1996,
options for 229,600 shares were exercisable and in-the-money; no options were
exercisable and out-of-the-money. As of July 30, 1995, options for 120,300
shares were exercisable and in-the-money, and options for 201,500 shares were
exercisable and out-of-the-money.
5
<PAGE>
The following table summarizes all stock option activity for the six
months ended July 28, 1996:
<TABLE>
<CAPTION>
NUMBER OF OPTION
SHARES PRICE
----------------- -----------------
<S> <C> <C>
OPTIONS OUTSTANDING
JANUARY 28, 1996.................................. 1,904,450 $ 1.67-$17.00
Exercised...................................... (321,400) $ 1.67-$16.33
Expired........................................ (87,000) $ 15.25-$16.33
Granted........................................ 18,700 $ 16.25-$16.50
-----------------
OPTIONS OUTSTANDING
JULY 28, 1996..................................... 1,514,750 $ 1.67-$17.00
=================
</TABLE>
The following table summarizes all stock option activity for the six
months ended July 30, 1995:
<TABLE>
<CAPTION>
NUMBER OF OPTION
SHARES PRICE
----------------- -----------------
<S> <C> <C>
OPTIONS OUTSTANDING
JANUARY 29, 1995.................................. 1,880,550 $ 1.67-$17.00
Exercised...................................... (52,400) $ 1.67-$10.00
Canceled....................................... (98,200) $ 1.67-$16.33
Granted........................................ 136,800 $ 10.13-$11.00
-----------------
OPTIONS OUTSTANDING
JULY 30, 1995..................................... 1,866,750 $ 1.67-$17.00
=================
</TABLE>
4. COMMON STOCK:
On March 20, 1996, the Company's Board of Directors increased the
number of shares authorized for repurchase by 744,300, bringing the total number
of shares authorized for repurchase to 1,000,000. During the first six months,
the Company purchased, in various transactions, 309,242 shares. The average
purchase price per share was $13.55.
6
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company, through its subsidiaries, provides portrait photography
services, primarily in permanent studios operated in Kmart stores throughout the
United States, Puerto Rico, and the Virgin Islands, and in PETsMART stores in
the United States. In Canada, the Company provides portrait photography services
in Wal-Mart stores. The Company operates portrait studios in 1,388 Kmart stores,
50 Wal-Mart stores, and 75 PETsMART stores as of July 28, 1996. In its
Institutional Division, the Company also provides portrait services to church
congregations through traveling promotions. Sales in Kmart stores accounted for
approximately 88% of sales during the second quarter of fiscal 1996. On May 10,
1996, the Company and Kmart Corporation entered into a five-year, non-exclusive
license agreement pursuant to which the Company will operate permanent studios
in Kmart stores in the United States.
In April 1996, the Company closed 107 Canadian Kmart portrait studios
and 4 Mexican Kmart studios and ceased operations in those locations. In the
United States, the Company opened 5 new Kmart portrait studios and closed 9
studios for a net decrease of 4 studios in the second fiscal quarter. The
Company currently operates portrait studios in 1,388 of Kmart's approximately
2,150 discount stores operating in the United States. The Company is not aware
of any plans by Kmart to close a significant number of additional stores in the
United States. The closing of a significant number of additional stores by Kmart
could have a material impact on the Company's revenues and could result in a
write-off of leasehold improvements and furniture and equipment in the affected
locations. No estimate can be made of the impact to earnings if Kmart should
close a significant number of locations.
During the first quarter of fiscal 1996, the Company's Canadian
subsidiary purchased certain assets of two related Canadian portrait businesses,
Portrait Works, Inc., and Portrait Experience of Canada, Ltd. In connection with
the purchase, PCA's Canadian subsidiary entered into a long-term license
agreement with Wal-Mart's Canadian subsidiary to operate permanent studios in
Wal-Mart's Canadian stores. The Company opened 44 portrait studios in Wal-Mart
stores in Canada in April 1996. The Company opened 6 portrait studios in
Canadian Wal-Mart stores in the second quarter. Wal-Mart currently operates
approximately 130 stores in Canada.
The Company has agreed with Wal-Mart Stores, Inc., in the United States
to operate portrait studios in 15 Wal-Mart stores in three markets: Denver,
Phoenix, and Salt Lake City. The Company expects to begin photography utilizing
the Company's proprietary digital imaging system in these locations during the
third quarter of 1996.
The Company operated a test in 14 PETsMART stores in 1995,
photographing pets and pets with their owners. During the second quarter of
fiscal 1996, the Company added 53 portrait studios in PETsMART, with 75 studios
operational at the end of the second quarter. Current plans are to open portrait
studios in approximately 40 additional PETsMART stores by the end of fiscal
1996. PETsMART currently operates approximately 300 superstores specializing in
products and services for pets.
The Company utilizes a proprietary digital imaging system in all of its
portrait studios. The system was designed and engineered in-house by the
Company's technology and manufacturing staff, ensuring complete control of all
aspects of the system. The system allows customers to instantly view digital
proofs of each pose on a color monitor as they are photographed and select only
the highest quality and most pleasing poses for further consideration. Following
photography, the customer chooses the exact poses to be produced in the specific
portrait sizes and quantities desired. The digital imaging system is integrated
with the Company's automated production facility. With the digital imaging
system, the
7
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Company has benefited from higher average sales and lower production
costs, primarily through the elimination of waste from speculative portrait
production.
The foregoing discussion contains certain forward-looking statements
regarding expected store openings. These statements are based on the Company's
belief and assumptions, as well as information currently available to the
Company's management. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct. In particular,
expected store openings will depend on the economy generally, the operations of
Kmart and other companies in which the Company operates studios, the performance
of the portrait studio industry generally and of the Company, and other factors.
SEASONALITY
The Company's portrait photography business is seasonal, with the
greatest sales volume occurring in the fourth fiscal quarter during the
Thanksgiving and Christmas holiday seasons. The fourth quarters of fiscal 1995
and 1994 contributed approximately 32% and 31%, respectively, of annual sales
and 64% and 79%, respectively, of earnings for such years. The Company's
operations can also be adversely affected by inclement weather.
RESULTS OF OPERATIONS
The following table presents the percentage of sales represented by the
following line items from the Company's statements of income for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
JULY 28, July 30, JULY 28, July 30,
1996 1995 1996 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Sales................................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses...................... 98.7 98.1 96.4 96.6
------------ ------------ ------------ -------------
Income from operations.................. 1.3 1.9 3.6 3.4
Interest expense........................ 0.1 0.7 0.1 0.4
------------ ------------ ------------ -------------
Income before income taxes.............. 1.2 1.2 3.5 3.0
Income tax provision.................... 0.5 0.5 1.5 1.3
============ ============ ============ =============
Net income.............................. 0.7% 0.7% 2.0% 1.7%
============ ============ ============ =============
</TABLE>
The Company's sales for the second quarter were $31.1 million, an
increase of 9% as compared with sales of $28.6 million in the second quarter of
1995. The increase in sales was attributable to increases in customers and the
average customer purchase in both the U.S. Kmart studios and portrait studios
operated in Canada. The Company operated portrait studios in 1,388 Kmarts in the
U.S. at the end of the second quarter, an increase of 52 from July 30, 1995, and
a net decline of 9 locations from January 28, 1996. The Company operated 50
portrait studios in Wal-Mart stores in Canada as of July 28, 1996 as compared to
95 Kmarts in Canada at the end of the second quarter of fiscal 1995. Sales from
PETsMART stores also contributed to the sales increase.
8
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Consolidated sales for the first six months of fiscal 1996 were $67.2
million, an increase of 10% or $6.0 million. Increased customer traffic in U.S.
Kmart studios and the addition of PETsMART studios contributed to the sales
increase.
Income from operations, as a percentage of sales, decreased to 1.3%
from 1.9% in the second quarter. The decline in operating margin was the result
of costs associated with the start-up of 53 PETsMART studios in the second
quarter of 1996. Partially offsetting these costs were higher operating margins
in U.S. Kmart studios. Operating margins for the six months increased to 3.6%
from 3.4%. The increase in operating margins for the six months was attributable
to higher average sales per studio in U.S. Kmart stores partially offset by
operating losses incurred in PETsMART and expenses incurred for the closing of
the Mexican Kmart studios and the transition to and start-up of the Canadian
Wal-Mart stores.
The income tax provision for the first six months of fiscal 1996 was
$1.0 million. This resulted in an effective tax rate of 42.3% versus 41.9% in
fiscal 1995.
Net income increased by 17%, to $0.2 million, for the second quarter.
Earnings per share were $0.03 in the second quarter of fiscal 1996 and $0.02 in
1995. Net income for the first six months increased by 31%, to $1.4 million, or
$0.17 per share, as compared to $0.13 per share in the previous year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of working capital are cash from
operations and the Company's revolving line of credit. On July 28, 1996, the
Company had $0.4 million in cash and cash equivalents and short-term debt of
$4.4 million. The Company has a $16.0 million revolving line of credit with
NationsBank of North Carolina, N.A., ("NationsBank") to meet seasonal capital
requirements. On June 3, 1996, the Company entered into an amendment of its loan
agreement with NationsBank to allow the Company to repurchase up to an
additional $2 million of its shares.
During May, June, and July of 1996 (the second quarter of fiscal 1996),
the Company had property additions of $3.7 million, principally for materials
and equipment for the PETsMART and Wal-Mart permanent studios. The Company
expects to enlarge portrait studios in approximately 75 Super Kmarts, open
approximately 40 portrait studios in PETsMART stores, and open 15 to 35 new
studios in Wal-Mart stores in Canada and the U.S. during the remainder of fiscal
1996. Currently, the Company estimates capital expenditures for fiscal 1996 will
approximate $12 million. Operating activities used $1.1 million in cash for the
quarter.
Shareholders' equity increased by $0.2 million to $30.8 million in the
second quarter, principally due to options exercised increasing shareholders'
equity by $2.4 million. Net income for the quarter was $0.2 million. Dividends
paid in the quarter totaled $0.5 million. The Company repurchased 110,942 shares
in the quarter for $1.9 million.
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 1996 from operations, augmented by borrowings under its line of
credit for seasonal credit needs.
9
<PAGE>
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of Primary and Fully Diluted Earnings Per
Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements 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.
-----------------------------
(Registrant)
Date: September 10, 1996 /s/ John Grosso
-----------------------------
John Grosso
President
(Principal Executive Officer)
Date: September 10, 1996 /s/ Bruce A. Fisher
-----------------------------
Bruce A. Fisher
Senior Vice President
(Principal Accounting Officer)
10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
INDEX PAGE
NO. DESCRIPTION NO.
<S> <C> <C>
3(a) Restated Charter, as amended to date.
3(b) 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) License Agreement dated May 10, 1996, between Kmart Corporation
and PCA International, Inc. Incorporated by reference to Exhibit
10(b) to the Company's Quarterly Report on Form 10-Q for the
quarter ended April 28, 1996.
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.
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.,
incorporated by reference to Exhibit 10(h) to the Company's
Annual Report on Form 10-K for the year ended January 29, 1995.
10(i) Amendment dated June 3, 1996 to Loan Agreement between PCA
International, Inc., Photo Corporation of America, PCA National,
Inc., PCA Corporation of Canada, Inc., and PCA Specialty Photo
Retail Corporation, and NationsBank of North Carolina, N.A.
Incorporated by reference to Exhibit 10(I) to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 28,
1996.
10(j)* 1996 Omnibus Long-Term Compensation Plan. Incorporated by
reference to Exhibit 10(j) to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 28, 1996.
11 Computation of Primary and Fully Diluted Earnings per Common Share. 12
27 Financial Data Schedule. 13
*Management contract or compensatory plan or arrangement required
to be filed as an exhibit.
</TABLE>
11
<PAGE>
EXHIBIT 11
PCA INTERNATIONAL, INC., AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND FULLY DILUTED
EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 28, July 30, July 28, July 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE:
EARNINGS APPLICABLE TO COMMON STOCK:
Net income.................................... $ 232,297 $ 198,502 $1,371,075 $1,049,503
========= ========== ========== ==========
COMPUTATION OF COMMON SHARES AND
COMMON EQUIVALENT SHARES:
Weighted average number of common shares ...... 7,469,353 7,461,168 7,468,868 7,785,287
Dilutive effect of stock options .............. 589,272 480,935 494,682 426,194
========= ========== ========== ==========
Weighted average number of common shares after
dilutive effect ............................. 8,058,625 7,942,103 7,963,550 8,211,481
========= ========== ========== ==========
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE:
Net income .................................... $ 0.03 $ 0.02 $ 0.17 $ 0.13
========= ========== ========== ==========
FULLY DILUTED EARNINGS PER COMMON SHARE:
EARNINGS APPLICABLE TO COMMON STOCK:
Net income .................................... $ 232,297 $ 198,502 $1,371,075 $1,049,503
========= ========== ========== ==========
COMPUTATION OF COMMON SHARES AND
COMMON EQUIVALENT SHARES:
Weighted average number of common shares
outstanding ................................... 7,469,353 7,461,168 7,468,868 7,785,287
Dilutive effect of stock options .............. 600,643 602,180 658,493 598,885
--------- ---------- ---------- ----------
Weighted average number of common shares after
dilutive effect ............................... 8,069,996 8,063,348 8,127,361 8,384,172
========= ========== ========== ==========
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE ASSUMING FULL DILUTION:
Net income .................................... $ 0.03 $ 0.02 $ 0.17 $ 0.13
========= ========== ========== ==========
</TABLE>
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-2-1997
<PERIOD-START> JAN-28-1996
<PERIOD-END> JUL-28-1996
<CASH> 416,310
<SECURITIES> 0
<RECEIVABLES> 11,596,659
<ALLOWANCES> 1,255,319
<INVENTORY> 4,794,970
<CURRENT-ASSETS> 18,563,725
<PP&E> 92,730,867
<DEPRECIATION> 49,208,238
<TOTAL-ASSETS> 63,579,995
<CURRENT-LIABILITIES> 24,927,420
<BONDS> 0
0
0
<COMMON> 1,498,846
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 63,579,995
<SALES> 67,204,822
<TOTAL-REVENUES> 67,204,822
<CGS> 52,628,665
<TOTAL-COSTS> 52,628,665
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,307
<INCOME-PRETAX> 2,375,929
<INCOME-TAX> 1,004,854
<INCOME-CONTINUING> 1,371,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,371,075
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
