<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED NOVEMBER 2, 1997
[ ] 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.
----------------------------------------
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0888429
------------------------------- --------------------
(State or other (I.R.S. Employer
jurisdiction of incorporation or Identification No.)
organization)
815 MATTHEWS-MINT HILL ROAD
MATTHEWS, NORTH CAROLINA 28105
-------------------------------
(Address of principal executive offices)
(Zip Code)
(704) 847-8011
----------------------------------
(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, $0.20 PAR VALUE 7,876,229
- - ------------------------------- ------------------------------
CLASS OUTSTANDING AT DECEMBER 2, 1997
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PCA INTERNATIONAL, INC. AND SUBSIDIARIES
I N D E X
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets - November 2, 1997 and
February 2, 1997 ............................................. 1
Consolidated Statements of Income - Three Months and Nine
Months Ended November 2, 1997 and October 27, 1996 ........... 2
Consolidated Statement of Changes in Shareholders' Equity -
Nine Months Ended November 2, 1997 ........................... 3
Consolidated Statements of Cash Flows - Nine Months Ended
November 2, 1997 and October 27, 1996 ........................ 4
Condensed Notes to Consolidated Financial Statements ........... 5
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 5-7
PART II. OTHER INFORMATION:
ITEM 6. Exhibits and Reports on Form 8-K ................................ 8
SIGNATURES ................................................................. 8
EXHIBIT INDEX ................................................................. 9-10
</TABLE>
<PAGE> 3
PCA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
November 2, February 2,
ASSETS 1997 1997
- - --------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................$ 3,936,773 $ 1,536,234
Accounts receivable (net of allowance for
doubtful accounts of $1,611,292 and $867,961):
Due from licensor stores and customers .... 11,189,802 6,702,335
Other, including employee advances......... 577,545 602,349
Inventories.................................... 6,847,147 9,814,682
Deferred income taxes.......................... 8,124,285 6,853,985
Prepaid expenses............................... 1,264,096 1,490,918
------------ ------------
TOTAL CURRENT ASSETS................ 31,939,648 27,000,503
------------ ------------
PROPERTY:
Land and improvements.......................... 2,380,984 2,443,939
Building and improvements...................... 12,400,819 12,883,962
Photographic and sales equipment............... 56,552,863 61,902,588
Photographic finishing equipment............... 15,335,694 18,660,080
Furniture and equipment........................ 11,450,793 14,188,792
Transportation equipment....................... 280,735 477,073
Leasehold improvements......................... 17,962,356 17,935,712
Construction in progress....................... 2,489,643 1,120,788
------------ ------------
Total Property..................... 118,853,887 129,612,934
Less: Accumulated depreciation and
amortization......................... 61,075,533 71,348,374
------------ ------------
PROPERTY, NET..................... 57,778,354 58,264,560
------------ ------------
INTANGIBLE ASSETS............................... 61,219,697 60,256,854
OTHER ASSETS.................................... 2,334,974 1,139,305
------------ ------------
TOTAL ASSETS....................................$153,272,673 $146,661,222
============ ============
</TABLE>
<TABLE>
<CAPTION>
November 2, February 2,
LIABILITIES AND SHAREHOLDERS EQUITY 1997 1997
- - --------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings........................ $ 9,000,000 $ -
Current portion of long-term debt ........... 5,000,000
Accounts payable-trade....................... 21,499,788 19,799,067
Accrued insurance............................ 4,609,738 2,705,199
Accrued income taxes......................... 193,799 1,643,816
Accrued compensation......................... 6,156,278 5,924,407
Other accrued liabilities ................... 11,749,919 15,399,563
------------ ------------
TOTAL CURRENT LIABILITIES ................. 58,209,522 45,472,052
------------ ------------
LONG-TERM DEBT................................ 49,576,925 58,679,770
------------ ------------
DEFERRED INCOME TAXES......................... 347,941 -
------------ ------------
OTHER LIABILITIES............................. 8,226,405 8,868,660
------------ ------------
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--7,863,129 shares and
7,607,129 shares)........................... 1,572,626 1,521,426
Additional paid-in capital .................. 9,397,438 5,838,131
Retained earnings............................ 26,163,499 26,334,992
Cumulative foreign currency translation
adjustments................................ (221,683) (53,809)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY ................ 36,911,880 33,640,740
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $153,272,673 $146,661,222
============ ============
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
1
<PAGE> 4
PCA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- ------------------------------
November 2, October 27, November 2, October 27,
1997 1996 1997 1996
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
SALES............................. $61,235,465 $37,093,025 $167,064,104 $104,297,847
----------- ----------- ------------ ------------
COSTS AND EXPENSES:
Advertising and promotional costs 5,218,214 4,799,759 13,194,294 11,864,291
Costs of photographic sales...... 21,411,971 13,005,884 61,907,588 36,256,693
Store commissions and selling costs 20,309,908 12,121,559 56,599,036 34,434,883
General and administrative expenses 8,409,817 6,054,604 27,177,110 18,219,525
Amortization of intangibles...... 482,477 - 1,447,052 -
----------- ----------- ------------ ------------
Total costs and expenses........ 55,832,387 35,981,806 160,325,080 100,775,392
----------- ----------- ------------ ------------
INCOME FROM OPERATIONS............ 5,403,078 1,111,219 6,739,024 3,522,455
Interest expense, net............ 1,719,380 48,178 4,989,876 83,485
----------- ----------- ------------ ------------
INCOME BEFORE INCOME TAXES........ 3,683,698 1,063,041 1,749,148 3,438,970
INCOME TAX PROVISION.............. 1,763,854 421,929 825,598 1,426,783
----------- ----------- ------------ ------------
NET INCOME........................ $ 1,919,844 $ 641,112 $ 923,550 $ 2,012,187
=========== =========== ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Primary.......................... 8,659,875 8,131,921 8,413,323 8,019,678
=========== =========== ============ ============
Fully Diluted.................... 8,702,670 8,132,376 8,641,240 8,147,005
=========== =========== ============ ============
PRIMARY AND FULLY DILUTED EARNINGS PER
COMMON SHARE:
Net Income...................... $ 0.22 $ 0.08 $ 0.11 $ 0.25
=========== =========== ============ ============
CASH DIVIDENDS PER COMMON SHARE... $ 0.07 $ 0.07 $ 0.14 $ 0.21
=========== =========== ============ ============
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
2
<PAGE> 5
PCA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED NOVEMBER 2, 1997
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Foreign
Common Stock Additional Currency
------------------------- Paid-In Retained Translation
Shares Amount Capital Earnings Adjustments
----------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 2, 1997.................... 7,607,129 $ 1,521,426 $ 5,838,131 $26,334,992 $ (53,809)
Net income.................................. 923,550
Dividends................................... (1,095,043)
Exercise of stock options................... 256,000 51,200 3,559,307
Foreign currency translation
adjustment............................ (167,874)
--------- ----------- ----------- ----------- ---------
BALANCE, NOVEMBER 2, 1997................... 7,863,129 $ 1,572,626 $ 9,397,438 $26,163,499 $(221,683)
========= =========== =========== =========== =========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
3
<PAGE> 6
PCA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
November 2, October 27,
1997 1996
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.............................................. $ 923,550 $ 2,012,187
Adjustments to reconcile net income to net cash provided from
operating activities:
Depreciation and amortization.......................... 11,256,532 6,743,401
Increase in allowance for doubtful accounts............ 745,067 557,366
Provision for deferred income taxes.................... (922,359) (354,608)
Loss on disposal of property........................... 1,636,368 406,726
Decrease in other liabilities.......................... (656,767) (332,087)
(Increase) decrease in other noncurrent assets......... (1,195,669) 1,140
Changes in operating assets and liabilities:
Increase in accounts receivable....................... (5,215,226) (5,446,911)
Decrease (increase) in inventories.................... 2,965,303 (2,576,605)
Decrease (increase) in prepaid expenses............... 239,855 (253,023)
Increase in accounts payable.......................... 1,707,858 3,330,202
Decrease in accrued expenses.......................... (2,866,905) (982,121)
---------- ------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES:........... 8,617,607 3,105,667
---------- ------------
INVESTING ACTIVITIES:
Purchase of property.................................... (11,074,008) (11,537,593)
Purchase of Canadian assets ............................ - (1,194,795)
Purchase of American Studios............................ (2,526,814) -
Proceeds from sale of fixed assets...................... 1,200 10,151
---------- ------------
NET CASH USED IN INVESTING ACTIVITIES................... (13,599,622) (12,722,237)
---------- ------------
FINANCING ACTIVITIES:
Increase in short-term borrowings....................... 4,897,155 7,470,964
Exercise of stock options............................... 3,610,507 4,046,263
Acquisition of Company stock............................ - (4,190,625)
Cash dividends.......................................... (1,095,043) (1,577,571)
---------- ------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES............. 7,412,619 5,749,031
---------- ------------
Effect of exchange rate changes on cash................. (30,065) 187,319
---------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... 2,400,539 (3,680,220)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......... 1,536,234 3,914,513
---------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............... $ 3,936,773 $ 234,293
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Flow Data:
Interest paid.......................................... $ 6,678,863 $ 108,458
============ ============
Income taxes paid...................................... $ 2,378,313 $ 3,004,904
============ ============
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
4
<PAGE> 7
PCA INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 February 2, 1997. 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. Certain
reclassifications have been made to the February 2, 1997, balance sheet to
conform to the fiscal 1997 presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
PCA International, Inc. is engaged, through its subsidiaries, in the
sale and marketing of professional photographic color portraits of children,
adults, and families. The Company operates more than 2,000 retail portrait
studios in the United States, Canada, Puerto Rico, Mexico, and South America.
The Company also operates an extensive traveling business providing portrait
photography services in approximately 1,400 additional retail locations
throughout the United States and to church congregations and other
institutions.
The Company operates portrait studios principally within Kmart and
Wal-Mart stores. Portrait sales in discount stores were $58.8 million, or
96.0% of total sales, and $159.4 million, or 95.4% of total sales,
respectively, for the third quarter and nine months of fiscal 1997. PCA's
fiscal 1997 results include the operations of American Studios acquired in
January 1997. As of November 2, 1997, the Company operated 2,069 portrait
studios worldwide, with 1,950 in the United States and 119 internationally.
The Company utilizes a proprietary digital imaging system which was
designed and engineered in-house by the Company's technology and manufacturing
staff, ensuring complete control of all aspects of the system, from photography
and sales through production. At the studio level, the digital imaging system
allows customers to view each pose on a color monitor immediately as they are
photographed and customers select several poses for order consideration.
Following the photography session, the customer chooses the exact poses to be
produced in specific portrait sizes and quantities for a custom portrait
package. With the digital imaging system the Company has benefited from higher
average customer purchases, improved customer satisfaction, and lower
production costs realized through the elimination of waste from speculative
portrait production.
SEASONALITY
The Company's portrait photography business is seasonal with the
greatest volume of sales and earnings occurring in the fourth quarter during
the Thanksgiving and Christmas holiday seasons.
RESULTS OF OPERATIONS
PCA's fiscal 1997 third quarter and year-to-date results include the
operations of American Studios acquired in January 1997. The Company's
consolidated sales for the third quarter were $61.2 million, an increase of
65.1% compared with sales of $37.1 million in the third quarter of 1996.
Consolidated sales for the nine months of fiscal 1997 were $167.1 million, an
increase of 60.2% compared
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
with $104.3 million reported in the nine months of 1996. The increase in sales
for the third quarter and nine months was due to two primary factors: an
increase in customers photographed due in large part to the acquisition of the
American Studios' Wal-Mart business which more than offset the loss of
customers due to studio closings, and higher customer sales averages due to the
implementation of digital imaging technology in acquired studios. The Company
operated 2,069 portrait studios at the end of the third quarter, an increase of
507 over comparable 1996 third quarter.
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 Nine Months Ended
--------------------------- -----------------------------
November 2, October 27, November 2, October 27,
1997 1996 1997 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Costs and expenses . . . . . . 90.4% 97.0% 95.1% 96.6%
Amortization of intangible
assets. . . . . . . . . . . . 0.8% 0.0% 0.8% 0.0%
------- ------- -------- ---------
Income from operations . . . . 8.8% 3.0% 4.1% 3.4%
Interest expense . . . . . . . 2.8% 0.1% 3.0% 0.1%
------- ------- -------- ---------
Income before income taxes . . 6.0% 2.9% 1.1% 3.3%
Income tax provision . . . . . 2.9% 1.2% 0.5% 1.4%
------- ------- -------- ---------
Net income . . . . . . . . . . 3.1% 1.7% 0.6% 1.9%
======= ======= ======== =========
</TABLE>
Noted in the table above, the Company reported a 5.8 percentage point
improvement in income from operations in the third quarter to 8.8% of sales
from 3.0%, resulting principally from increased operating leverage with the
American Studios integration and improved operating performance of the portrait
studio business. Specifically, advertising and promotional expenses declined
4.4 percentage points to 8.5% of sales from 12.9% of sales in the 1996 third
quarter due in part to a lessening of the promotional environment in the
discount retail portrait market. Cost of photographic sales declined slightly
to 35.0% of sales from 35.1% of sales in the year-ago quarter. Commission and
selling expense levels rose 0.5 percentage points to 33.2% of sales from 32.7%
of sales in the 1996 third quarter due in part to increased labor expenses to
operate a greater number of 7-day studios. General and administrative expenses
declined 2.6 percentage points to 13.7% of sales from 16.3% in the prior third
quarter due to organizational synergies. Included in the 1997 third quarter
are costs and expenses related to the acquisition, specifically $1.7 million in
interest expense and $0.5 million in amortization of intangible assets. The
increase in the income tax provision as a percentage of sales in the 1997
period is attributable to the amortization of intangible assets expense which
does not provide any tax benefit.
The Company reported net income of $1.9 million in the 1997 third
quarter compared to net income of $0.6 million in the year-ago quarter. On a
per common share basis, primary and fully diluted earnings were $0.22 for the
1997 third quarter compared with $0.08 in the same quarter last year. There
were 8,702,670 fully diluted common shares outstanding for the third quarter,
compared to 8,132,376 in the fiscal 1996 third quarter.
For the nine months, the Company reported net income of $0.9 million
versus net income of $2.0 million in the 1996 nine-month period. The decline
in net income is due to significant planned investments and expenditures
related to the American Studios' acquisition, digital studio conversion, costs
associated with the closing of underperforming portrait photography studios,
and other Company initiatives completed in the 1997 first half. Also included
in the 1997 nine-month results are $5.0 million in interest
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
expense and $1.4 million amortization of intangible assets, expenses related to
the acquisition of American Studios.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of working capital are cash from
operations and the Company's $25 million revolving line of credit. As of
November 2, 1997, the Company had $3.9 million in cash and cash equivalents,
$9.0 million in short-term borrowings and letters of credit, with $11.0 million
available under its revolving credit facility. The Company reduced its
short-term borrowings by $4.5 million during the third quarter. Subsequent to
the third quarter ending, the Company repaid the remaining $9.0 million of the
short-term borrowings. The terms of the Senior Term Loan and the Revolving
Credit Facility were amended on September 15, 1997, reflecting a lower
applicable margin range of 0.0% to 1.75%, reduced from the range of 0.75% to
2.5% in the original loan agreement.
Capital expenditures were $5.6 million during the third quarter,
principally for materials and equipment for additional permanent portrait
studios in Wal-Mart and Kmart stores, the upgrading of certain equipment in the
Company's two lab and processing facilities, and new computing equipment in the
corporate office. Currently, the Company estimates capital expenditures for
fiscal 1997 will be approximately $13.0 million which includes the planned
opening of approximately 200 new digital portrait studios during the year. 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 1997 from operations, cash on hand, and its revolving credit facility.
Shareholders' equity increased by $2.1 million to $36.9 million in the
third quarter of 1997. Net income of $1.9 million plus $0.8 proceeds from the
exercise of stock options were partially offset by $0.6 million of dividends
paid in the quarter. The Board of Directors of the Company approved a $0.07
per share quarterly cash dividend payable on January 7, 1998, for shareholders
of record as of December 15, 1997.
NOTE REGARDING PRIVATE SECURITIES LITIGATION REFORM ACT
The foregoing discussion contains certain forward-looking statements
regarding expected studio openings and capital expenditures. 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, new studio openings will depend on the economy
generally, the operations of Kmart and Wal-Mart, the performance of the
portrait studio industry generally, and of the Company and other factors.
7
<PAGE> 10
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: December 10, 1997 /s/ John Grosso
-------------------------------------
John Grosso
President
(Principal Executive Officer)
Date: December 10, 1997 /s/ Bruce A. Fisher
-------------------------------------
Bruce A. Fisher
Senior Vice President
(Principal Accounting Officer)
8
<PAGE> 11
EXHIBIT INDEX
PCA INTERNATIONAL, INC.
INDEX TO EXHIBITS
<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, Commission File No. 0-8550, for the quarter ended May 3, 1992.
10(a) License Agreement dated July 29, 1992, between Wal-Mart Corporation and American Studios, Inc.,
incorporated by reference to Exhibit 10.1 to American Studios, Inc. 1992 Form S-1 (Registration No. 33-
58958).
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(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 January 27, 1997, between PCA International, Inc., PCA Photo Corporation of Canada,
Inc., PCA Specialty Retail Photo Corporation, Inc., Photo Corporation of America, PCA National, Inc., ASI
Acquisition Corp., and NationsBank, N.A., as Agent, incorporated by reference to the Company's Schedule
14D-1 and Schedule 13-D, Amendment No. 3, dated January 27, 1997.
10(g) Loan Agreement dated February 28, 1997, between PCA International, Inc., PCA Photo Corporation of Canada,
Inc., PCA Specialty Retail Photo Corporation, Inc., Photo Corporation of America, PCA National, Inc., ASI
Acquisition Corp., and NationsBank, N.A., as Agent, incorporated by reference to Exhibit 10(g) to the
Company's Annual Report on Form 10-K for the year ended February 2, 1997.
10(i) Merger Agreement dated December 17, 1996, between PCA International, Inc., ASI Acquisition Corp., and
American Studios, Inc., incorporated by reference to the Company's Form 8-K dated January 23, 1997.
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.
10(l)* Employment and Noncompete Agreement dated December 17, 1996, between Randy J. Bates and PCA International,
Inc., incorporated by reference to Exhibit 10(l) to the Company's Annual Report on Form 10-K for the year
ended February 2, 1997.
10(m)* Employment and Noncompete Agreement dated December 17, 1996, between Robert Kent Smith and PCA
International, Inc., incorporated by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K
for the year ended February 2, 1997.
10(n)* Employment and Noncompete Agreement dated December 17, 1996, between J. Robert Wren, Jr., and PCA
International, Inc., incorporated by reference to Exhibit 10(n) to the Company's Annual Report on Form 10-K
for the year ended February 2, 1997.
10(o)* Employment and Noncompete Agreement dated June 9, 1997, between John Grosso and PCA International, Inc.,
incorporated by reference to Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1997.
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
INDEX PAGE
NO. DESCRIPTION NO.
--- ----------- ----
<S> <C> <C>
10(p)* Employment and Noncompete Agreement dated June 9, 1997, between Eric Jeltrup and PCA International,Inc.,
incorporated by reference to Exhibit 10(p) to the Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1997.
10(q)* Employment and Noncompete Agreement dated June 9, 1997, between Bruce Fisher and PCA International, Inc.,
incorporated by reference to Exhibit 10(q) to the Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1997.
10(r) Sales contract dated August 1, 1997, between PCA International, Inc., and Agfa Division of Bayer
Corporation.
11 Computation of Primary and Fully Diluted Earnings per Common Share.
27 Financial Data Schedule.
</TABLE>
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit.
10
<PAGE> 1
EXHIBIT 10(r)
PCA INTERNATIONAL, INC.
SALES CONTRACT
DATED AS OF AUGUST 1, 1997
SCHEDULE A
PERIOD AND RENEWAL PROVISIONS:
This Agreement is effective as of August 1, 1997 and
contemplates purchases through January 31, 2000. The contemplated total purchase
volume over the term of this Agreement is set forth on Schedule D to this
Agreement. If this total purchase volume is not met by Buyer on or before
January 31, 2000, the term of this Agreement will automatically be extended
until this total purchase volume is met or until July 31, 2000, whichever comes
first. This Agreement is irrevocable and is to be renegotiated 180 days prior to
January 31, 2000.
TECHNOLOGY CO-OPERATION:
PCA and Agfa will continue their on-going relationship and
explore in good faith the possibility of developing future equipment
technologies and systems.
OLD CONTRACTS:
This Agreement replaces (i) the Sales Contract between PCA and
Agfa that was effective August 1, 1994 and (ii) the Sales Contract between
American Studios, Inc. and Agfa that was effective February 22, 1993, and both
will become null and void upon the execution of this Agreement.
<PAGE> 2
PCA INTERNATIONAL, INC.
SALES CONTRACT
DATED AS OF AUGUST 1, 1997
SCHEDULE B
SPECIAL PROVISIONS:
Buyer will receive a XXXX percent Advertising Allowance on its U.S. paper, film,
and chemistry purchases calculated at invoice price less any discounts taken for
early payment and less any returns (based on actual purchases), for promoting
Agfa's product and name in the United States. PCA will incorporate the Agfa
product name and logo on substantially all television advertising, printed
advertising, and merchandising materials printed, such as newspapers. slicks,
banners, in-store signage, all direct mail pieces, and in-store fliers.
Buyer shall purchase XXXX percent of its United States consumable requirements
from Seller during the contract period except that from time to time, Buyer may
purchase minimum quantities of competitive products, not to exceed XXXX percent
of Buyer's annual U.S. consumable requirements, for testing and evaluation
purposes.
Buyer agrees that in the event that this agreement is not renewed, Buyer shall
purchase color paper, film, and chemistry which is in the Seller delivery
pipeline not to exceed the normal six-month forecast of Buyer.
WARRANTIES:
All film, paper, and chemistry sold to Buyer by Seller shall conform to the
then-current quality, standards, and production specifications of Agfacolor
film, paper, and chemistry.
If, for any reason, goods sold by Seller to Buyer do not meet such requirements,
Seller agrees to replace such goods at no additional cost to Buyer, provided
that the following conditions have been met:
1. PCA shall take all reasonable efforts to save all allegedly defective and
used film, chemistry, and paper for examination and verification by
Seller;
2. All film shall be used prior to its expiration date;
3. Seller receives from PCA within ten (10) days from the date of discovery
written notice describing the nature of the defect, quantity, and emulsion
numbers involved;
<PAGE> 3
4. All inventories must be properly rotated.
Such goods shall be replaced if defective in manufacture, labeling or
packaging. EXCEPT FOR SUCH REPLACEMENT, PRODUCTS ARE SOLD WITHOUT WARRANTY
OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. SELLER OR
ANY MEMBER OF THE AGFA-GEVAERT GROUP SHALL NOT BE LIABLE FOR SPECIAL,
INDIRECT, OR CONSEQUENTIAL DAMAGES RESULTING FROM ANY GOODS SOLD, EVEN
WHERE SUCH DAMAGES ARE CAUSED BY SELLER OR ANY MEMBER OF THE AGFA-GEVAERT
GROUP.
TRADEMARKS:
1. PCA shall refer to Agfa-Gevaert, N.V. ("Agfa-Gevaert") as the
manufacturer of the products covered under this Agreement in its
advertising, literature, or otherwise, and to that effect shall refer
to and use the "AGFA" name and rhombus and applicable Agfa trademarks
(the "AGFA TRADEMARKS") in connection with the advertising, promotion,
and distribution of the products covered under this Agreement. In
advertising, promoting, and distributing the products covered under
this Agreement, PCA shall abide by AGFA's policies regarding
advertising and trademark usage as established from time to time by
AGFA, including, without limitation, the particulars of the Corporate
Design Manual, which has been provided to PCA, and as it may be
modified by Agfa from time to time. PCA shall not alter, remove or
tamper with the labeling on or of any of the products covered under
this Agreement except as specifically approved by AGFA in writing in
advance.
2. Each time a registered trademark of Agfa-Gevaert is used, PCA will print
it in between inverted commas and the words "registered trademark of
Agfa-Gevaert Leverkusen/MortzelAntwerp" shall be included with an
addendum or footnote.
3. To maintain the reputation of the AGFA TRADEMARKS, PCA shall, from time to
time as requested by AGFA, supply AGFA with specimens of its use of the
AGFA TRADEMARKS. Furthermore, PCA hereby authorizes AGFA to enter and
inspect PCA's premises and to take samples for inspection during normal
business hours at least two times in any calendar year upon prior
reasonable notice.
4. THIS AGREEMENT, INCLUDING THIS ARTICLE, IS NOT INTENDED TO GIVE AND DOES
NOT GIVE PCA ANY RIGHTS OR LICENSE WHATSOEVER IN OR TO ANY TRADEMARKS,
TRADE NAME, PATENT, COPYRIGHT, OR OTHER INTELLECTUAL PROPERTY RIGHT OF
AGFA OR OF ITS PARENT OR THEIR AFFILIATES. DURING THE TERM OF THIS
AGREEMENT AND THEREAFTER, PCA SHALL NOT CLAIM OWNERSHIP OF NOR CHALLENGE
AGFA'S OWNERSHIP OR REGISTRATION OF THE TRADEMARK AGFA, AGFA RHOMBUS, THE
TRADE NAME AGFA, OR ANY MARK OR NAME USED BY AGFA OR ITS RELATED COMPANIES
AND THEIR SUCCESSORS.
3
<PAGE> 4
5. Failure of PCA to comply with any provision of this Article will result in
the immediate termination of this Agreement. Upon termination of this
Agreement, PCA shall not make use of any trademarks that might be confused
in their pronunciation, matter of writing, design, or meaning, or
otherwise with trademarks belonging to AGFA or its parent or their
affiliates.
6. THIS ARTICLE STATES ALL OF THE RESPONSIBILITIES OF AGFA CONCERNING PATENT,
TRADEMARK COPYRIGHT, OR OTHER INTELLECTUAL PROPERTY INFRINGEMENT.
4
<PAGE> 5
PCA INTERNATIONAL, INC.
SALES CONTRACT
DATED AS OF AUGUST 1, 1997
SCHEDULE C
In consideration of PCA's performance of this Agreement during
its term, Agfa has granted to PCA an up-front contract allowance in the amount
of $XXXX in the form of credit to existing accounts receivable owed to Agfa by
PCA; provided that, if this Agreement is terminated prior to January 31, 2000,
then the overall credit will be reduced to an amount equal to (x) $XXXX times
(y) a fraction the numerator of which is the time this Agreement actually was in
effect and the denominator of which is the total contract period, and PCA will
immediately pay to Agfa the difference between the initial total credit of $XXXX
and the reduced credit as calculated above.
<PAGE> 6
PCA INTERNATIONAL INC.
SALES CONTRACT
DATED AS OF AUGUST 1, 1997
SCHEDULE D
PCA projected 30-month (August 1, 1997 to January 31, 2000) purchase volume for
color paper, film, and chemistry from Seller with no relationship to allowances
given for sales, gross invoice price before cash discount and advertising, is
$XXXX.
Broken down as follows:
Color Paper $XXXX *
Film XXXX **
Chemistry XXXX ***
TOTAL $XXXX
* XXXX sq. ft.
XXXX rolls 10" x 1148 equivalent
** 35 mm x 30 M $XXXX = XXXX rolls
46 mm x 30 M $XXXX = XXXX rolls
*** Approximately XXXX% of paper
<PAGE> 7
PCA INTERNATIONAL, INC.
SALES CONTRACT
DATED AS OF AUGUST 1, 1997
SCHEDULE E
PRICES AND TERMS:
COLOR PAPER: XXXX per sq. ft. Type 8/10 or Equivalent for remainder of period
AGFACOLOR PORTRAIT: XPS160 long roll 30M 35mm unperf. XXXX per roll
XPS 1 60 long roll 30M 46mm XXXX per roll
CHEMICAL PRICES: See attached page
TERMS: 2% 90 Net 270 Date of Invoice.
Agfa Division, Bayer Corporation, hereby acknowledges and agrees that the prices
for its goods hereunder are for goods delivered to Buyer's production facilities
in either Matthews, North Carolina or Charlotte, North Carolina, and that Agfa,
or an Agfa affiliate, is the importer of record for the goods.
<PAGE> 8
PCA INTERNATIONAL, INC.
SALES CONTRACT
DATED AS OF AUGUST 1, 1997
SCHEDULE E CONTINUED
CHEMICAL PRICING
<TABLE>
<CAPTION>
Chemistry Size Description Invoice Price
- - --------- ---- ----------- -------------
<S> <C> <C> <C>
AP-70 CDLR PT A 300 LTR Low Replenishment Developer $ XXXX
AP-70 CDLR PT B&C 300 LTR Low Replenishment Developer XXXX
AP-70 Light BL-J 6x50 LTR Light Bleach Regenerator XXXX
AP-94 Light BL-J 1000 LTR Light Bleach Regenerator XXXX
AP-94 Light BL-J 300 LTR Light Bleach Regenerator XXXX
AP-94 CDJ PT A Conc. 60 LTR Developer Regenerator/RA-4 XXXX
AP-94 CDJ PT B Conc. 60 LTR Developer Regenerator/RA-4 XXXX
AP-94 CDJ PT C Conc. 60 LTR Developer Regenerator/RA-4 XXXX
AP-94 CLDR PT A 75 GAL Low Replenishment Developer/RA-4 XXXX
AP-94 CDLR PT B 75 GAL Low Replenishment Developer/RA-4 XXXX
AP-94 CDLR PT C 75 GAL Low Replenishment Developer/RA-4 XXXX
AP-92 CDJ PT A 50 GAL Developer Regenerator/EP-2 XXXX
AP-92-CDJ PT B 50 GAL Developer Regenerator/EP-2 XXXX
AP-92 CDJ PT C 50 GAL Developer Regenerator/EP-2 XXXX
AP-92 CDJ PT D 50 GAL Developer Regenerator/EP-2 XXXX
FX Universal Fix Conc. 15 GAL Universal Fix Concentrate XXXX
AP-70 DS 1 GAL Color Developer Starter/Film XXXX
AP-92 CDS 1 GAL Color Developer Starter/EP-2 XXXX
AP-94 CDS 1 GAL Color Developer Starter/RA-4 XXXX
</TABLE>
8
<PAGE> 9
PCA INTERNATIONAL, INC.
SALES CONTRACT
DATED AS OF AUGUST 1, 1997
SCHEDULE F
A. The Sales Contract Form is hereby amended by adding the following:
This Agreement is subject to the form terms and conditions attached to
this Agreement (the "Terms and Conditions") and to the letter agreement
regarding confidentiality, dated as of August 1, 1997, all of which are
part of this Agreement.
B. The Terms and Conditions are hereby amended as follows:
1. Under the caption "General," Paragraph 3 is hereby deleted and
replaced with the following
In the event that Agfa Division, Bayer Corporation, reasonably
believes that Buyer may lack the requisite financial resources
to fulfill Buyer's obligations under this Agreement, Agfa may,
by written notice to Buyer stating the grounds therefor, have
reasonable immediate access to the financial records of Buyer
for the sole purpose of determining Buyer's creditworthiness;
in the event that Agfa's review of Buyer's financial records
causes Agfa reasonably to conclude, or Agfa otherwise
reasonably concludes, that Buyer's credit has become impaired
and that reasonable grounds for insecurity exist with respect
to the continued performance of Buyer, the parties agree in
good faith to negotiate new payment terms.
When Agfa has so concluded, it shall give written notice to
Buyer, and the date of such notice is referred to as a "Notice
Date." If the parties cannot agree on new payment terms within
ten (10) days after a Notice Date, the firm of independent
certified public accountants then regularly engaged by Bayer
Corporation shall be requested to determine what would be
reasonable payment terms under the circumstances and this
Agreement shall be deemed amended to provide for the terms so
determined by the accountants. The accountants shall be
requested to make such determination as soon as possible, but
in any event shall make such determination within twenty (20)
days after the Notice Date.
Not in limitation of the foregoing, if for any reason, other
than the failure of Agfa to reasonably cooperate in the
process described above, the payment terms have not been
amended as set forth above and/or Buyer has not come into
compliance with such amended terms within thirty (30) days
after the Notice Date, Agfa may
<PAGE> 10
on at least thirty (30) days written notice to Buyer suspend
shipments under this Agreement until the payment terms have
been deemed amended as set forth above and Buyer has come into
compliance with such amended terms. During the continuance of
any such suspension by Agfa, Buyer may purchase Reasonable
Quantities (as defined below) from other suppliers. Nothing in
this paragraph or the preceding paragraph shall limit Seller's
rights under the first paragraph of this section.
2. The "Force Majeure" provision is hereby deleted and replaced
with the following:
The non-performance of Agfa Division, Bayer Corporation, of
its obligation to deliver any merchandise ordered hereunder
shall be excused if such nonperformance is occasioned by any
strike or any other labor trouble, flood, fire, accident, or
any other casualty, act of God, war, adoption or imposition of
governmental restrictions, shortage of or inability to obtain
raw materials, damage by the elements, failure of equipment or
other cause of like or unlike nature beyond the control of
Agfa Division, Bayer Corporation. In the event of such force
majeure, Agfa Division, Bayer Corporation may, in the exercise
of reasonable discretion, discontinue shipments and/or
allocate distribution until the cause of the delay is removed.
Buyer shall have the right, without breaching this Agreement,
to purchase products from other suppliers during the period
Seller has discontinued or delayed shipments, provided that
during such period Buyer shall not purchase in excess of
Reasonable Quantities (as defined below). As used in this
Schedule F, "Reasonable Quantities" shall mean reasonable
quantities of the products covered by this Agreement based on
purchases for the associated time period in previous years,
but no more than Buyer's reasonable requirements under
then-current business conditions.
In the event that shipments are suspended or delayed for
ninety (90) days or more due to such force majeure, Buyer may
terminate this Agreement upon written notice; in such event,
the overall credit provided for in Schedule C of this
Agreement shall be reduced in accordance with Schedule C;
provided, however, that the overall credit shall not be so
reduced if the force majeure event giving rise to the
suspension of performance by Agfa consists of (i) a shortage
of raw materials that does not prevent Agfa from performance,
(ii) a governmental restriction that does not have the effect
of actually prohibiting the sale or the importation of the
goods, or (iii) any other cause that does not prevent Agfa
from performance but merely makes performance by Agfa more
expensive.
3. The "Termination" provision is hereby revised to read as
follows:
Seller reserves the right, among other remedies, to either
cancel this Agreement or suspend further deliveries under it
in the event Buyer fails to pay for any one shipment when the
same becomes due, provided that Seller has given Buyer the
2
<PAGE> 11
opportunity to cure the default for a period of thirty (30)
days after receipt of written notice from Seller.
Buyer reserves the right, among other remedies, to either
cancel this Agreement or suspend further payments under it in
the event Seller is unable (other than due to force majeure),
after notice and a reasonable opportunity to cure such
failure, to provide goods in compliance with then current
quality, standards, and production specifications of Agfacolor
film, paper and chemistry; or if Seller breaches in any
material respect any warranty or other obligation of Seller
contained in this Agreement and does not rectify such breach
after notice and a reasonable opportunity to cure such breach.
3
<PAGE> 1
EXHIBIT 11
PCA INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND FULLY DILUTED
EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- ------------------------------
November 2, October 27, November 2, October 27,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE:
EARNINGS APPLICABLE TO COMMON STOCK:
Net income.......................... $1,919,844 $ 641,112 $ 923,550 $2,012,187
========== ========== ========== ==========
COMPUTATION OF COMMON SHARES AND
COMMON EQUIVALENT SHARES:
Weighted average number of common shares 7,843,276 7,556,349 7,745,409 7,498,032
Dilutive effect of stock options... 816,599 575,572 667,914 521,646
---------- ---------- ---------- ----------
Weighted average number of common shares
after dilutive effect............. 8,659,875 8,131,921 8,413,323 8,019,678
========== ========== ========== ==========
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE:
Net income......................... 0.22 $ 0.08 $ 0.11 $ 0.25
========== ========== ========== ==========
FULLY DILUTED EARNINGS PER COMMON SHARE:
EARNINGS APPLICABLE TO COMMON STOCK:
Net income.......................... $1,919,844 $ 641,112 $ 923,550 $2,012,187
========== ========== ========== ==========
COMPUTATION OF COMMON SHARES AND
COMMON EQUIVALENT SHARES:
Weighted average number of common
shares outstanding................ 7,843,276 7,556,349 7,745,409 7,498,032
Dilutive effect of stock options... 859,394 576,027 895,831 648,973
---------- ---------- ---------- ----------
Weighted average number of common shares
after dilutive effect............. 8,702,670 8,132,376 8,641,240 8,147,005
========== ========== ========== ==========
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARE ASSUMING FULL DILUTION:
Net income......................... $ 0.22 $ 0.08 $ 0.11 $ 0.25
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1998
<PERIOD-START> FEB-03-1997
<PERIOD-END> NOV-02-1997
<CASH> 3,936,773
<SECURITIES> 0
<RECEIVABLES> 13,378,639
<ALLOWANCES> 1,611,292
<INVENTORY> 6,847,147
<CURRENT-ASSETS> 31,939,648
<PP&E> 118,853,887
<DEPRECIATION> 61,075,533
<TOTAL-ASSETS> 153,272,673
<CURRENT-LIABILITIES> 58,209,522
<BONDS> 0
0
0
<COMMON> 1,572,626
<OTHER-SE> 35,339,254
<TOTAL-LIABILITY-AND-EQUITY> 153,272,673
<SALES> 167,064,104
<TOTAL-REVENUES> 167,064,104
<CGS> 131,700,918
<TOTAL-COSTS> 131,700,918
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,989,876
<INCOME-PRETAX> 1,749,148
<INCOME-TAX> 825,598
<INCOME-CONTINUING> 923,550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 923,550
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
