FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended
December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File No: 0-7475
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PHOTO CONTROL CORPORATION
(Exact name of Registrant as specified in its charter)
Minnesota
(State or other jurisdiction of 41-0831186
incorporation or organization) (I.R.S. Employer
Identification No.)
4800 Quebec Avenue North
Minneapolis, Minnesota 55428
(Address of principal executive offices)
Registrant's telephone number, including area code:
(612) 537-3601
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.08
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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 ____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will 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.(X)
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 3, 1997 was approximately $3,948,000 (based on the
closing sale price of the Registrant's Common Stock on such date).
- -------------------------------------------------------------------------------
Number of shares of $0.08 par value Common Stock outstanding
at March 3, 1997: 1,604,163
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Report to Shareholders for the year ended
December 31, 1996 are incorporated by reference into Part II.
2. Portions of the Registrant's definitive Proxy Statement to be dated April 1,
1997 for its Annual Meeting of Shareholders are incorporated by reference into
Part III.
This document contains 35 pages;
Exhibit Index is on page 13
PART I
ITEM 1. BUSINESS
(a) General Development of Business.
Photo Control Corporation (the "Registrant" or the "Company") was
organized as a Minnesota corporation in 1959. The Registrant acquired all of the
outstanding stock of Norman Enterprises, Inc. ("Norman"), a California
corporation, in 1973. In June, 1983 the Registrant acquired all of the
outstanding stock of Nord Photo Engineering, Inc. ("Nord"), a Minnesota
corporation. In October, 1986 the Registrant acquired all of the outstanding
stock of Bardwell & McAlister, Inc. ("Bardwell"), a California corporation. As
of December 31, 1987, Bardwell was liquidated and its assets and liabilities
were transferred to Norman. Norman discontinued the manufacture and sale of the
Bardwell product line during 1994.
The Registrant designs, manufactures, and markets professional cameras,
long-roll film magazines, photographic accessories, Norman electronic flash
equipment, and Nord photographic package printers. All references to the
"Registrant" or the "Company" also include "Norman" and "Nord" unless indicated
otherwise.
(b) Financial Information About Industry Segments.
During the years ended December 31, 1996, 1995, and 1994, the
Registrant was engaged in one industry which consisted of designing,
manufacturing, and marketing professional photographic equipment.
(c) Narrative Description of Business.
(c) (l)(i) Principal Products, Services and Markets. The Registrant
designs, manufactures and markets professional cameras, long-roll film
magazines, photographic accessories, Norman electronic flash, cine and video
lighting equipment, and Nord photographic package printers.
The principal market for the Registrant's long-roll camera equipment is
the sub-segment of the professional photography market requiring high-volume
equipment, such as elementary and secondary school photographers. The market
with respect to the Norman electronic flash equipment is broader, extending to
all professional photographers and to experienced amateur photographers. The
market for Nord photographic package printers is photographic processing labs
which specialize in producing photographic color print packages such as those
often produced for weddings and school photography. The geographic market in
which the Registrant competes with respect to long-roll camera equipment, flash
equipment, printers, and cine and video lights consists of the entire United
States and, to a lesser extent, some foreign countries.
The Registrant markets most of its cameras, film magazines, and
photographic accessories through its two employee salesmen and one independent
sales representative and part-time use of a service employee. Such equipment is
marketed primarily under the tradename, "Camerz". Norman markets its electronic
flash and lighting equipment through two full-time employee salesmen, and eleven
independent sales representatives. Nord markets its printers through three
employee salesmen, one independent sales representative, and by part-time use of
three service employees. The Camerz division and Nord utilize the same
independent sales representative to sell both product lines. It is expected that
the sales force will remain at the current level during 1997.
(c)(1)(ii) New Products and Services. The Camerz division introduced
the ZIIE Camera which reflects significant electronic design changes to the ZII
Camera. The ZIIE features a new shutter power board, magazine interlocks,
internal wiring for electronic preview and redesigned internal wiring and wire
connectors. A split view option for the digital preview system was released
which uses a beam splitter and special housing to place the electronic camera
and ZII lenses on the same optical plane, eliminating all parallax. The Pose
Verification System (PVS) was also introduced which captures the image on a
small black and white video camera mounted on the ZII and allows the
photographer to verify that an acceptable image has been captured.
Nord introduced the Accudata Controller by Bremson for the MI 1100 multi-image
printer. Accudata is considered the industry standard for printer controllers
and is compatible with Bremson's Central System.
Norman introduced the Illuminator Lamphead which is two lampheads in one. The
travel head features a 5 inch reflector/flashtube assembly which boosts the
light output by fifty percent and the studio head uses the FQ5 flashtube and all
of the Norman studio reflectors.
(c)(1)(iii) Sources and Availability of Raw Materials. Materials
required for the Registrant's photographic equipment consist primarily of
fabricated parts, lenses, electronic components, and lights, most of which are
readily available from numerous sources.
(c)(1)(iv) Patents, Trademarks, Licenses, Franchises and Concessions.
The Registrant, on February 16, 1982, obtained United States patent number
4,319,819 for a reflex shutter, which is used in conjunction with a zoom lens.
The Registrant has incorporated the shutter into a zoom lens camera which was
first introduced in fiscal 1980.
The Registrant on June 7, 1988, obtained a United States Patent number
4,750,012 for a reflex shutter for SLR cameras. The shutter is incorporated into
the "Z35" camera which was first introduced in 1987.
In 1991, the Registrant was granted United States Patent number
5,055,863 for a multiple image transfer camera system for the simultaneous
transfer of light rays from an object to a pair of separate, discrete mediums to
provide for substantially exact image reproduction and capture thereof at either
or both of two media.
The Registrant received U.S. Patent No. 5,294,950 on March 15, 1994 for
an identification system for automated film and order processing including
machine and human readable code.
On July 12, 1994, the U.S. Patent and Trademark Office granted the
Registrant patent number 5,329,325 for the Registrant's synchronized zoom
electronic camera system.
Nord holds two patents. Patent number 4,213,689 granted July 22, 1980
relates to a camera shutter which is electromagnetically activated and is not
currently in production. The Additive Color Lamphouse patent, granted in 1991,
United States Patent number 5,032,866, covers a closed loop light intensity
feedback control system for regulating the light sources within the lamphouse.
The Registrant believes that it is the owner of two unregistered
trademarks, "Camerz" and the logo-type used in connection with the sale of
photographic equipment under the name Camerz. Also, the Registrant owns one
registered trademark called "Smart System".
Nord is the owner of four registered trademarks; "Portrait Express,"
"Nord", "ESP", and a logo-type design referred to as the "Micrometer."
Although the Registrant's patents and trademarks are valuable, they are
not considered to be essential to the Company's success. Innovative application
of existing technology along with providing efficient and quality products are
of primary importance.
The Registrant has entered into agreements with employees which
agreements grant the Registrant a exclusive right to use, make and sell
inventions conceived by employees during their employment with the Registrant.
The Registrant believes that the right to use, make and sell such inventions
adequately protects the Registrant against any employee who might claim an
exclusive proprietary right in an invention developed while the employee was
employed by the Registrant.
(c)(1)(v) Seasonal Fluctuations. The photographic equipment business,
including that of Norman and Nord, is somewhat seasonal. There is a larger
volume of sales from March through October.
(c)(1)(vi) Working Capital Practices. The Registrant believes that its
working capital needs are typical to the industry. The nature of the
Registrant's business does not require that it maintain a high volume of
finished goods inventory or provide extended payment terms to customers. The
Registrant maintains an inventory of raw material and finished products and
permits customers to return only defective merchandise.
(c)(1)(vii) Single Customer. During the years ended December 31, 1996,
1995 and 1994, the company derived 14.3%, 20.2% and 24.2%, respectively, of its
sales from one unaffiliated customer, Lifetouch Inc. and its affiliates. During
year ended December 31, 1996, 11.0% of its sales was from another unaffiliated
customer, CPI Corp.
(c)(1)(viii) Backlog. The dollar amount of backlog believed by the
Registrant to be firm as of December 31, is as follows:
1996 1995 1994
---- ---- ----
Company $81,000 $1,397,000 $4,994,000
Nord 487,000 426,000 1,109,000
Norman 65,000 1,035,000 83,000
------ --------- ------
Total $633,000 $2,858,000 $6,186,000
======== ========== =========
The Registrant anticipates that it and its subsidiaries will be able to fill all
current backlog orders during the fiscal year ending December 31, 1997.
(c)(1)(ix) Government Contracts. No material portion of the
Registrant's or its subsidiaries' business is subject to renegotiation of
profits or termination of any contract or subcontract at the election of the
Government.
(c)(1)(x) Competition. Primary methods of competition for the Company's
products are product performance, reliability, service, and delivery. The
Registrant's two primary competitors with respect to such equipment are Lucht
Engineering, Inc., which sells photographic printers, and Beattie Systems, Inc.,
which sells long-roll cameras. Because of varying product lines, the Registrant
is unable to state accurately its competitive position in relation to such
competitors. In the somewhat broader market in which Norman competes in the sale
of professional studio electronic flash equipment, there are approximately
fourteen significant competitors, several of which are well established. The
Registrant is unable to state accurately Norman's overall competitive position
in relation to such competitors. Norman's dominant competitors are Broncolor,
Dynalite, White Lighting, Photogenic, and Speed-O-Tron.
(c)(1)(xi) Research and Development. The Registrant spent the following
amounts on research activities relating to the development of new products,
services, and production engineering for the years ended December 31:
1996 1995 1994
---- ---- ----
Camerz Division $417,000 $408,000 407,000
Nord 366,000 520,000 730,000
Norman 325,000 382,000 403,000
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Total $1,108,000 $1,310,000 $1,540,000
========== ========== ==========
The Company intends to maintain its level of spending on research and
development.
(c)(1)(xii) Environmental Regulation. Federal, state and local laws and
regulations with respect to the environment have had no material effect on the
Registrant's or its subsidiaries' capital expenditures, earnings, or respective
competitive positions.
(c)(1)(xiii) Employees. As of December 31, 1996, the Registrant had the
following employees:
FULL-TIME PART TIME
--------- ---------
Camerz Division 48 2
Nord 23 -
Norman 40 2
--- --
Total 111 4
=== ==
The Registrant utilizes subcontract personnel on a temporary basis to supplement
its regular work force which totaled 30 people as of December 31, 1996.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales. The Registrant has no operations based outside of the United
States. During each of the last three years ended December 31, 1996, slightly
more than 5% of the Registrant's consolidated sales were derived from export
sales.
ITEM 2. PROPERTIES
The Registrant's principal property is located at 4800 Quebec Avenue
North, Minneapolis, Minnesota. The building at that location consists of 60,000
square feet and is located on 3 1/2 acres of land. The building was constructed
in 1971 and was purchased in 1980. Extensive remodeling has been done to meet
the specific needs of the Company. The Registrant first occupied the building
during the fall of 1980, and uses the building for camera production, Nord
printer manufacturing, and as corporate offices.
Nord owns a 5,000 square foot building in Hinckley, Minnesota, on one
acre of land, which houses optical production and was built in 1981. In February
1996, the production was moved to Minneapolis and the building listed for sale.
Norman occupies a 32,000 square foot building in Burbank, California
which was constructed in 1977 and expanded in 1984. The facility is located on
50,000 square feet of land and houses all of Norman's operations. The land and
building are financed through the issuance of an industrial development bond by
the Industrial Development Authority of the County of Los Angeles and are owned
by Norman subject to a mortgage in favor of the note holder.
The Registrant believes its present facilities are adequate for its
current level of operation and provide for a reasonable increase in production
activities.
ITEM 3. LEGAL PROCEEDINGS
Neither the Registrant nor any of its subsidiaries is a party to, and
none of their property is the subject of, any material pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Registrant's shareholders
during the Registrant's quarter ending December 31, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME, AGE AND
PRESENT POSITION OF OFFICER BUSINESS EXPERIENCE
- --------------------------- -------------------
Leslie A. Willig, 71 Mr. Willig, who received a Ph.D in
Industrial Management from the School of
Chairman of the Board of Business of the University of Iowa in 1956,
Directors, Chief Executive has been a member and Chairman of the Board
Officer, and President of the of Directors of Registrant since June, 1974,
Registrant has been its Chief Executive Officer since
August, 1974, and has been its President
since May, 1975. Mr. Willig has been a
director and Secretary of North Snow Bay
Inc., Freemont, Indiana, a real estate
development company, since 1965. Mr. Willig
has acted as a self-employed business and
real estate broker in Indiana, since March,
1970.
William L. Norman, 56 Since it was acquired in 1973, Mr. Norman
has served as President of the Registrant's
Director of the Registrant and wholly-owned subsidiary Norman Enterprises,
President of Norman Inc., located and in Burbank, California. He
was Secretary of the Registrant from May,
1987 to May, 1993.
Curtis R. Jackels, 50 Mr. Jackels has been Vice
President-Treasurer of the Registrant since
Vice President - August, 1985 and Treasurer since November,
Treasurer of the 1980. Mr. Jackels was controller from June,
Registrant 1978 to November, 1980. Prior to June, 1978,
Mr. Jackels was employed by two public
accounting firms. Mr. Jackels is a certified
public accountant and has a Master of
Business Administration degree from the
University of Wisconsin.
Mark J. Simonett, 40 Mr. Simonett has served as the Registrant's
General Counsel and Personnel Director since
Secretary of the September, 1992 and as Secretary since May,
Registrant 1993. He has served part-time from April
1995 to February 1997 and full-time since.
He was associated with the Minneapolis law
firm of Gray, Plant, Mooty, Mooty and Bennet
P.A. from 1991 to 1992, and with the
consulting firm Delta Environmental
Consultants, Inc. From 1990 to 1992.
Patrick J. Gilligan, 56 Mr. Gilligan has been President of the
Company's wholly-owned subsidiary, Nord
Executive Vice President Photo Engineering, Inc., since November,
of the Registrant 1990. Since May, 1993, he has been Executive
President of Nord Vice President of the Registrant. From
August 1988 to October, 1990, he was
employed by Pakor, Inc of Minneapolis,
Minnesota, a manufacturer of Pako service
parts, and a distributor of photographic
processing equipment. The last position held
at Pakor was President. From 1986 to 1988 he
was employed by PhotoTek, a Division of
Pako, the predecessor to Pakor, Inc. and a
subsidiary of Pako. His position with
PhotoTek was Vice President and General
Manager. From 1968 to 1985 he was employed
by Pako with his last position being
Director of Photo Engineering.
The term of office for each executive officer is from one annual meeting of
directors until the next annual meeting or until a successor is elected. There
are no arrangements or understandings between any of the executive officers and
any other person (other than arrangements or understandings with directors or
officers acting as such) pursuant to which any of the executive officers were
selected as an officer of the Registrant.
There are no family relationships between any of the Registrant's directors or
executive officers.
PART II
The information required by Items 5, 6, 7 and 8 of Part II is incorporated
herein by reference to the sections labeled "Stock Market Information,"
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Consolidated Financial Statements and
Notes and the Independent Auditor's Report which appear in the Registrant's
Annual Report to Shareholders for the year ended December 31, 1996. With respect
to Item 9, no change of accountants or disagreements on any matter of accounting
principles or practices or financial statement disclosure has occurred.
PART III
Items 10, 11, 12 and 13 of Part III, except for certain information relating to
Executive Officers included in Part I, are omitted inasmuch as the Company
intends to file with the Securities and Exchange Commission within 120 days of
the close of the year ended December 31, 1996, a definitive proxy statement
containing information pursuant to Regulation l4A of the Securities Exchange Act
of 1934 and such information shall be deemed to be incorporated herein by
reference from the date of filing such document.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) Documents filed as Part of this Report.
(a)(l) Consolidated Financial Statements.
Page
----
Independent Auditor's Report............................................ *
Consolidated Statements of Opera-
tions for the years ended
December 31, 1996, 1995 and 1994........................................ *
Consolidated Statements of Changes
in Stockholders' Equity for the
years ended December 31, 1996, 1995
and 1994, .............................................................. *
Consolidated Balance Sheets at December
31, 1996 and 1995....................................................... *
Consolidated Statements of Cash Flows
for the years ended December 31,
1996, 1995 and 1994..................................................... *
- -------------------------------
*Incorporated by reference to the Registrant's Annual Report to Shareholders for
the year ended December 31, 1996, a copy of which is included in this Form 10-K
as Exhibit 13.
Page
----
Notes to Consolidated Financial
Statements ............................................................. *
(a)(2) Consolidated Financial Statement Schedules.
Auditor's Consent and Report on Schedules............................... 10
Schedule VIII - Valuation and Qualifying Accounts
for the years ended December 31, 1996, 1995
and 1994............................................ 11
All other schedules have been omitted because they are not applicable or are not
required, or because the required information has been given in the Consolidated
Financial Statements or notes thereto.
(a)(3) Exhibits. See "Exhibit Index" on page following signatures.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the last fiscal quarter of the Registrant's 1996 fiscal year.
(c) Exhibits. Reference made to item 14 (A)(3)
(d) Schedules. Reference made to item 14 (A)(2)
AUDITOR'S CONSENT AND REPORT ON SCHEDULES
Board of Directors and
Stockholders
Photo Control Corporation
We hereby consent to the incorporation by reference in this Annual Report on
Form 10-K of Photo Control Corporation for the year ended December 31, 1996 of
our report, dated January 31, 1997, appearing in the Company's 1996 Annual
Report to Shareholders. We also consent to the incorporation by reference of
such report in the registration statements on Form S-8 for the Photo Control
Stock Option Plan.
In the course of our audit of the financial statements referred to in our
report, dated January 31, 1997, included in the Company's 1996 Annual Report to
Shareholders, we also audited the supporting schedule listed in Item 14(a)(2) of
this Annual Report on Form 10-K. In our opinion, the schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
VIRCHOW, KRAUSE & COMPANY, LLP
January 31, 1997
Minneapolis, Minnesota
<TABLE>
<CAPTION>
PHOTO CONTROL CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
ADDITIONS
CHARGED ADDITIONS
BALANCE (CREDITED) CHARGED
AT TO COSTS TO OTHER BALANCE
BEGINNING AND ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES DESCRIBE DESCRIBE OF YEAR
- ----------- --------- ---------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowance for Doubtful
Accounts $ 153,000 $ 18,434 $ 1,710(a) $ (81,144)(b) $ 92,000
========= ========= ======== ========== =========
YEAR ENDED DECEMBER 31, 1995
Allowance for Doubtful
Accounts $ 142,000 $ 61,325 $ 710(a) $ (51,035)(b) $ 153,000
========= ========= ======== ========== =========
YEAR ENDED DECEMBER 31, 1994
Allowance for Doubtful
Accounts $ 97,000 $ 39,231 $ 9,367(a) $ (3,598)(b) $ 142,000
========= ========= ======== ========== =========
</TABLE>
(a) Recoveries of amounts written off in prior years.
(b) Uncollectible accounts written off.
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.
PHOTO CONTROL CORPORATION
Date: March 14, 1997 By/s/ Leslie A. Willig
Leslie A. Willig, Chairman
of the Board of Directors, Chief Executive
Officer and President
Pursuant to the requirements of the Securities 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.
Date: March 14, 1997 /s/ Leslie A. Willig
Leslie A. Willig, Chief Executive Officer,
President and Director (principal
executive officer)
Date: March 14, 1997 /s/ Curtis R. Jackels
Curtis R. Jackels, Vice President
and Treasurer (principal financial and
principal accounting officer)
Date: March 14, 1997 /s/ George A. Kiproff
George A. Kiproff, Director
Date: March 14, 1997 /s/ James R. Loomis
James R. Loomis, Director
Date: March 14, 1997 /s/ William L. Norman
William L. Norman, Director
Date: March 14, 1997 /s/ Thomas J. Cassady
Thomas J. Cassady, Director
Date: March 14, 1997 /s/ Joe M. Kilgore
Joe M. Kilgore, director
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PHOTO CONTROL CORPORATION
COMMISSION FILE NO.: 0-7475
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E X H I B I T I N D E X
FOR
FORM 10-K FOR YEAR ENDED DECEMBER 31, 1996
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Page Number
in Sequential
Numbering
of all Form
10-K and
Exhibit Pages
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EXHIBIT
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3.1 Registrant's Restated Articles of Incorporation, as
amended-incorporated by reference to Exhibit 3.1 to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1988 *
3.2 Registrant's bylaws as amended-incorporated by
reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended June 30, 1989 *
4.1 Loan Agreement between Industrial Development Authority
of the County of Los Angeles and Norman Enterprises, Inc.,
dated as of December 1, 1983-incorporated by
reference to Exhibit 4.3 to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended June 30, 1989 *
4.2 Trust Deed among Industrial Development Authority of the
County of Los Angeles, Norman Enterprises, Inc. and First
National Bank of Minneapolis, dated as of December 1,
1983-incorporated by reference to Exhibit 4.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1989 *
4.3 Guaranty Agreement from Photo Control Corporation
as Guarantor to First National Bank of Minneapolis,
dated December 1, 1983-incorporated by
reference to Exhibit 4.5 to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended June 30, 1989 *
4.4 Supplemental Agreement between Photo Control
Corporation and First National Bank of Minneapolis,
dated as of December 29, 1983-incorporated by
reference to Exhibit 4.6 to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended June 30, 1989 *
10.1 Executive Salary Continuation Plan adopted August 9, 1985
together with Exhibits - incorporated by reference to
Exhibit 10.4 to the Registrant's Annual Report on Form 10-K *
for the year ended June 30, 1986 **
10.2 The Registrant's 1983 Stock Option Plan - incorporated by
reference to Exhibit 10.4 to the Registrant's
Annual Report on Form 10-K for the fiscal year *
ended June 30, 1989 **
10.3 Form of Stock Option Agreement under the Registrant's
1983 Stock Option Plan - incorporated by reference to
Exhibit 5 to the Registrant's Registration Statement on *
Form S-8, Reg. No. 2-85849 **
10.4 Cash bonus plan for officers - incorporated by reference
to the description of such plan contained in the Registrant's
definitive Proxy Statement for its 1996 Annual Meeting of *
Shareholders **
10.5 Amendment to Stock Option Plan August 29, 1994 - incorporated
by reference to Exhibit 10.5 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994 *
10.6 Amendment to Stock Option Plan, February 23, 1996-incorporated **
by reference to Exhibit 10.6 to the Registrant's annual report
on form 10-K for the fiscal year ended December 31, 1995.
</TABLE>
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*Incorporated by reference
** Indicates management contracts or compensation plans or arrangements required
to be filed as exhibits.
Page Number
in Sequential
Numbering
of all Form
10-K and
Exhibit Pages
-------------
EXHIBIT
- -------
11 Statement re computation of per share earnings 16
13 Report to Shareholders for the year
ended December 31, 1996 17 to 32
21 Subsidiaries of the Registrant 32
23 Consent of Independent Auditors 33
25 Power of Attorney from Messrs. Willig, Jackels, Kiproff,
Kilgore, Loomis, Norman and Cassady 34
27 Financial Data Schedule 35
EXHIBIT 11
COMPUTATION OF NET INCOME PER COMMON SHARE
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DECEMBER 31
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1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(A) Net Income (Loss) $ 68,279 $ (581,864) $ 459,290 $ 843,479 $ 834,705
=========== =========== =========== =========== ===========
Weighted Average of
Common Shares Out-
standing 1,608,163 1,550,685 1,541,670 1,590,653 1,308,037
Potential Shares
Attributable to
Options Outstanding 1,969 38,676 107,976 121,808 57,413
----------- ----------- ----------- ----------- -----------
(B) Weighted Average of Common
and Common Equivalent
Shares Outstanding 1,610,132 1,589,361 1,649,646 1,712,461 1,365,450
=========== =========== =========== =========== ===========
Primary Net Income (Loss) Per Common
Share (A/B) $ .04 $ (.37) $ .28 $ .49 $ .49*
=========== =========== =========== =========== ===========
</TABLE>
*Restated to reflect a five-for-four stock split, effected in the form of a 25%
stock dividend to Shareholders of record on March 19, 1993.
PHOTO CONTROL
CORPORATION
1996
ANNUAL REPORT
17
BUSINESS DESCRIPTION
Photo Control Corporation designs, manufactures, and markets
professional cameras, long-roll film magazines, package printers, electronic
flash equipment and photographic accessories. The principal market for the
camera and magazine equipment is the sub-segment of the professional photography
market which requires high-volume equipment, such as school photographers. The
market for photographic package printers is photographic processing labs which
specialize in producing photographic color print packages such as wedding and
school photography. The market for the electronic flash equipment extends to all
professional and to more experienced amateur photographers. The geographic area
in which the equipment is marketed consists of the entire United States and to
some foreign countries. Most marketing personnel are full-time employees of the
Company.
ANNUAL MEETING
The annual meeting of shareholders will be held on
May 8, 1997, at 3:30 p.m., at the
First Bank, Marquette Office
Sixth and Marquette, Minneapolis, MN.
All shareholders are invited to attend.
CORPORATE COMMUNICATIONS
Requests for annual, and Form 10-K
reports or other Company financial communications
should be directed to:
Vice-President-Treasurer
Photo Control Corporation
4800 Quebec Ave. N.
Minneapolis, MN 55428
The above reports will be mailed without charge.
CORPORATE OFFICES
Photo Control Corporation
4800 Quebec Ave. N.
Minneapolis, MN 55428
(612) 537-3601
18
To Our Shareholders:
For several years, considerable engineering efforts have been placed on the
development of an all-new and technologically-advanced camera system. During the
last quarter of 1996 and into the first quarter of 1997 those efforts and
expenses associated therewith intensified to complete the final design and
testing stages in time for the annual trade show held in the latter part of
February.
It was necessary to involve some customers in the design of the new camera to
help ensure that it would have the features they wanted and would buy. This
involvement, while obviously prudent on the one hand, caused a temporary
reduction in sales as the market adopted a "wait and see" posture before
spending large sums of money on the older models which might become outdated
soon. This posture, it is felt, caused the sales in the fourth quarter to be
lower than one year ago. Even with lower sales, improvement in cost reduction
and product mix enabled slightly better bottom-line results than the 4th quarter
of 1995.
The new camera, which we named the "Camerz ZIII", has many entirely new
features. It enables the simultaneous captureof a digital image and an image on
film. It is the first ever long-roll camera to have automatic focus as well as
manual focus. It has a new cassette system for handling the film which enables
the photographer to easily shoot short segments of filmand which can be used
instead of the typical large and cumbersome film magazines. It connects to a
separate color monitor on which the subject's images are displayed and those
images can be immediately reviewed at the end of the shooting. The investment of
time and money into the new camera system while costly in the short run, will
help secure Photo Control's strength and growth in the long run.
Norman Enterprises, our California subsidiary which manufactures professional
photographic electronic flash equipment, showed much improvement over the
previous year. It has developed some unique products to meet the specialized
needs of several large users. It received and expects to continue to receive
significant orders from those users.
Our Nord Photo Engineering subsidiary, which manufactures package printers and
precision photographic lenses, restructured its lines so that it can promote
future sales on products which are in higher demand and yield better margins.
Continued exchange of technological advances with Bremson, Inc. of Lenexa,
Kansas has opened new markets for some of Nord's products which were previously
inaccessible. Also recent promotion of optics outside of the traditional
photographic markets is opening new opportunities and is already yielding sales
growth.
On behalf of the Board,
L. A. Willig
Chairman
19
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales........................... $14,211,920 $14,698,526 $17,590,481 $17,809,220 $16,131,596
Net Income (Loss) .................. 68,279 (581,864) 459,290 843,479 834,705
Net Income (Loss) Per Share......... .04 (.37) .28 .49 .49*
Return on Sales..................... .5% (4.0)% 2.6% 4.7% 5.2%
Return on Beginning Net Worth....... .7% (6.1)% 4.9% 9.6% 10.2%
Return on Beginning Assets.......... .5% (4.8)% 3.6% 6.7% 7.5%
Working Capital..................... $6,351,386 $6,133,435 $6,378,530 $6,994,937 $6,357,194
Plant and Equipment................. 3,441,430 3,614,104 3,813,339 3,692,698 3,909,808
Total Assets........................ 11,269,911 12,595,111 12,064,139 12,661,072 12,617,495
Long-Term Debt...................... 530,000 600,000 670,000 1,551,590 1,667,519
Shareholders' Equity................ 9,227,083 9,172,308 9,509,595 9,318,098 8,824,026
Book Value Per Share................ 5.75 5.70 6.28 5.99 5.47*
Shares Outstanding.................. 1,604,163 1,608,163 1,514,813 1,556,155 1,290,552
</TABLE>
*Restated to reflect a five-for-four stock split, effected in the form of a 25%
stock dividend to shareholders of record on March 19, 1993.
STOCK MARKET INFORMATION
The Company's Common Stock is listed on the National Association of Securities
Dealers Automated Quotation System (NASDAQ) on the National Market System under
the symbol PHOC. The Company has never paid any cash dividends. It intends to
retain earnings to finance the development of its business. On February 5, 1993,
the Board of Directors declared a five-for-four stock split in the form of a 25%
stock dividend payable on April 2, 1993 to shareholders of record on March 19,
1993. Shareholders of record on December 31, 1996 numbered 453. The Company
estimates that an additional 900 shareholders own stock held for their account
at brokerage firms and financial institutions. The following table sets forth
the high and low transactions for the eight fiscal quarters ending during the
years set forth below. The source of the quotations is the National Association
of Securities Dealers Inc. Monthly Statistical Report.
1996 1995
------------------------------------------------
QUARTER HIGH LOW HIGH LOW
---- --- ---- ---
March 31 4 1/8 3 3/8 6 1/4 5
June 30 3 7/8 3 1/4 5 3/8 4 1/2
September 30 5 1/2 3 1/4 4 3/4 3 1/2
December 31 3 15/16 3 1/8 4 3 1/2
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents selected items from the Company's Consolidated
Statements of Operations expressed as percentages of sales for the year
indicated.
<TABLE>
<CAPTION>
PERCENT
INCREASE (DECREASE)
(BASED ON AMOUNTS)
YEAR ENDED DECEMBER 31 1996 1995
------------------------------- vs vs
1996 1995 1994 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales..................................... 100.0% 100.0% 100.0% (3.3)% (16.4)%
Gross Margin.............................. 28.6 26.6 32.3 4.0 (31.1)
Marketing & Administrative................ 19.7 23.0 18.7 (17.0) 2.5
Research, Development & Engineering....... 7.8 8.9 8.8 (15.4) (15.0)
Interest.................................. .5 .7 .5 (34.4) 14.3
Income Before Taxes....................... .6 (6.0) 4.3 110.4 (216.1)
Net Income................................ .5 (4.0) 2.6 111.7 (226.7)
</TABLE>
SALES
The Company's sales are made up of three product lines; professional cameras,
photographic printers and electronic flash equipment. Consolidated sales in 1996
decreased by $486,606 or 3.3% from 1995. Consolidated sales in 1995 decreased by
$2,891,955 or 16.4% from 1994. Sales to a major customer decreased by $927,000
in 1996 from 1995 and by $1,285,000 in 1995 from 1994. This customer comprised
14.3% of consolidated sales in 1996, 20.2% in 1995 and 24.2% in 1994. A
substantial portion of the sales to this customer consisted of a dual-ported
zoom lens camera that were made under a multi-year contract. The customer has
not indicated whether any additional dual-ported lens cameras will be required
but they have continued to purchase the standard zoom lens camera.
Sales of professional cameras declined by $936,000 in 1996 from 1995 of which
$644,000 is attributable to the customer discussed above. The standard zoom lens
camera comprises the majority of the sales for the professional camera line.
Because this unit has been sold for over twelve years, the market has become
somewhat saturated. A new zoom lens camera is being introduced in 1997 which
will encourage customers to purchase new units. Sales of the printer line
decreased by $494,000 in 1996 as compared to 1995, of which $326,000 is
attributed to the major customer previously discussed. Sales of flash equipment
increased $943,000 in 1996 from 1995 which is attributed to higher OEM sales.
Two customers account for substantially all the OEM sales with one customer
accounting for 11.0% of consolidated sales. It is not known at what level these
sales will continue but the customers have placed some orders in 1997. Prices of
the regular dealer flash equipment were raised five percent in 1996 and the
camera products prices raised four percent.
Sales of professional cameras declined by $3,200,000 in 1995 from 1994 due to
completion of studio expansion by several significant customers during 1995 and
the reduction in sales of dual-ported zoom lens cameras. Sales of the printer
line declined by $1,300,000 in 1995 as compared to 1994 reflecting the decrease
in the relatively high sales of customized printer lenses and film coaters in
1994. Sales of flash equipment increased $1,600,000 in 1995 from 1994. OEM sales
primarily account for the flash equipment sales increase, however, the gross
margin on these sales were significantly lower than on the standard dealer flash
equipment lines. With the exception of a three percent price increase on the
camera products, prices were not increased in 1995 from 1994.
21
GROSS MARGINS
The gross margins were 28.6%, 26.6% and 32.3% for the years ended December 31,
1996, 1995 and 1994, respectively. The gross margin increase in 1996 from 1995
primarily reflects the price increases implemented during 1996. The gross margin
decline in 1995 from 1994 is attributable to all three product lines. Gross
margins on camera and printer sales declined primarily as a result of the sales
volume declines. Gross margins on flash equipment sales account for the majority
of the decline due to the poor margin on OEM sales. The Company anticipates that
the gross margin in future periods will approximate the 1996 level. However,
gross margins are expected to fluctuate on a quarterly basis because of product
mix changes and the seasonality of sales.
MARKETING AND ADMINISTRATIVE
Marketing and administrative expense have remained relatively level at
$2,804,186, $3,377,883 and $3,296,119 for the years ended December 31, 1996,
1995 and 1994, respectively. As a percentage of sales, marketing and
administrative expenses have changed to 19.7% in 1996 from 23.0% in 1995 and
from 18.7% in 1994. The dollar decrease in 1996 from 1995 reflects lower
marketing expenses due to a revision in the commission programs and reduced
compensation cost. The dollar increase in 1995 from 1994 is due to additional
compensation of $165,000 paid under the terms of the option agreements to option
holders who exercised options under the Company's non-qualified stock option
plan
RESEARCH, DEVELOPMENT AND ENGINEERING
The Company believes that timely development of new products and features is
required to maintain and enhance its competitive position. Accordingly, the
Company is committed to an aggressive level of research, development and
engineering spending. Research, development and engineering expenses were
$1,107,985, $1,309,738 and $1,540,174 for the years ended December 31, 1996,
1995 and 1994, respectively. These expenses as a percentage of sales were 7.8%
in 1996, 8.9% in 1995 and 8.8% in 1994 The 1996 expense decrease of $201,753 and
1995 expense decrease of $230,436 is primarily attributable to the printer
product line. A number of projects were completed and the related use of outside
engineers declined.
INTEREST
Interest expense decreased to $67,818 for the year ended December 31, 1996 as
compared to $103,387 for the year ended December 31, 1995 and $90,430 for the
year ended December 31, 1994. The decrease reflects lower usage during 1996 of
the Company's line of credit.
QUARTERLY RESULTS
Historically, second and third quarter sales are relatively high which reflects
the Company's seasonal nature. 1996, 1995 and 1994 reflected the typical
seasonality. Sales in the fourth quarter of 1996 were abnormally low due to the
softening of the market for cameras. In addition to the normal poor fourth
quarter results, the fourth quarter results for 1995 and 1994 reflect the
discontinuance of flash equipment product lines. In the fourth quarter of 1995
the Venca power pack was discontinued and in the fourth quarter of 1994 the
Bardwell cine lights were discontinued with inventory disposed of or an
allowance established to cover subsequent disposal.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased to $736,031 at December 31, 1996 from $145,899 at December 31,
1995. Working capital increased to $6,351,386 at December 31, 1996 from
$6,133,435 at December 31, 1995.
Capital expenditures were $207,009 in 1996, $231,817 in 1995 and $535,337 in
1994. The Company estimates that additional capital investments for property and
equipment will be approximately $200,000 in 1997.
The Company has an unsecured line of credit for $1,500,000 at the prime rate of
interest and at December 31, 1996, there were no borrowings under the line. The
ratio of long-term debt to stockholder's equity at December 31, 1996, 1995 and
1994 was .06, .07 and .07, respectively.
The Company has repurchased its common stock in the amounts of $13,504, $285,320
and $292,126 for the years ended December 31, 1996, 1995 and 1994, respectively.
The Board of Directors had authorized the purchase of common stock of up to a
total of $2,000,000. At December 31, 1996 $388,000 of this authorized amount
remained available to repurchase common stock.
22
The Company has not paid any cash dividends on its common stock and currently
expects that any future earnings will be retained for use in its business.
The Company believes that its current cash position, its cash flow from
operations and amounts available from bank borrowing should be adequate to meet
its anticipated cash needs for working capital and capital expenditures during
1997.
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Photo Control Corporation
We have audited the accompanying consolidated balance sheets of Photo
Control Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of changes in stockholders' equity, operations
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Photo
Control Corporation and subsidiaries as of December 31, 1996 and 1995 and the
consolidated results of operations and cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Virchow, Krause & Company, LLP
Minneapolis, Minnesota
January 31, 1997
23
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
--------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales ........................................... $14,211,920 $14,698,526 $17,590,481
----------- ----------- -----------
Cost and Expenses
Cost of Goods Sold......................... 10,140,652 10,783,382 11,909,468
Marketing and Administrative............... 2,804,186 3,377,883 3,296,119
Research, Development and Engineering...... 1,107,985 1,309,738 1,540,174
Interest................................... 67,818 103,387 90,430
----------- ----------- -----------
14,120,641 15,574,390 16,836,191
----------- ----------- -----------
Income (Loss) Before Income Taxes................ 91,279 (875,864) 754,290
Income Tax Provision (Benefit) (Note 5)......... 23,000 (294,000) 295,000
----------- ------------ -----------
Net Income (Loss)................................ $ 68,279 $ (581,864) $ 459,290
=========== =========== ===========
Net Income (Loss) Per Common Share (Note 2)...... $ .04 $ (.37) $ .28
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK
----------------------
NUMBER ADDITIONAL
OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993.................. 1,556,155 $124,492 $939,632 $8,253,974
Repurchase of Stock......................... (47,175) (3,774) (35,853) (252,499)
Stock Options Excercised (Note 7)........... 5,833 467 23,866 -
Net Income.................................. - - - 459,290
-------- -------- --------- -------
Balance at December 31, 1994.................. 1,514,813 121,185 927,645 8,460,765
Repurchase of Stock......................... (63,750) (5,100) (48,450) (231,770)
Stock Options Exercised (Note 7)............ 148,752 11,900 484,605 -
Contribution to Profit Sharing Plan......... 8,348 668 32,724 -
Net Income (Loss)........................... - - - (581,864)
---------- -------- ---------- -----------
Balance at December 31, 1995.................. 1,608,163 128,653 1,396,524 7,647,131
Repurchase of Stock......................... (4,000) (320) (3,040) (10,144)
Net Income.................................. 68,279
---------- -------- ---------- -----------
Balance at December 31, 1996.................. 1,604,163 $128,333 $1,393,484 $7,705,266
========= ======== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
24
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
--------------------------------
ASSETS 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and Cash Equivalents....................................... $ 736,031 $ 145,899
Accounts Receivable, Less Allowance of $92,000 and $153,000..... 522,279 1,262,540
Other Receivables............................................... 2,700 15,706
Inventories (Notes 2 and 3)..................................... 5,804,503 6,658,336
Prepaid Expenses................................................ 270,101 351,263
----------- -----------
Total Current Assets......................................... 7,335,614 8,433,744
----------- -----------
Investments and Other Assets
Cash Value of Life Insurance.................................... 238,867 215,263
Deferred Income Taxes (Note 5).................................. 254,000 332,000
----------- -----------
Total Investments and Other Assets........................... 492,867 547,263
----------- -----------
Plant and Equipment (Notes 2 and 4)
Land and Building............................................... 4,240,777 4,197,081
Machinery and Equipment......................................... 3,363,630 3,551,997
Accumulated Depreciation........................................ (4,162,977) (4,134,974)
----------- -----------
Total Plant and Equipment.................................... 3,441,430 3,614,104
----------- -----------
$11,269,911 $12,595,111
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------
Current Liabilities
Note Payable to Bank (Note 4)................................... $ $ 450,000
Current Maturities of Long-Term Debt (Note 4)................... 111,296 130,616
Accounts Payable................................................ 453,572 1,384,830
Accrued Payroll and Employee Benefits........................... 303,320 213,872
Accrued Expenses................................................ 116,040 120,991
----------- -----------
Total Current Liabilities.................................... 984,228 2,300,309
----------- -----------
Long-Term Debt (Note 4)............................................ 530,000 600,000
----------- -----------
Deferred Compensation.............................................. 528,600 522,494
----------- -----------
Stockholders' Equity (Note 7)
Common Stock
Par Value $.08 Authorized 5,000,000
Shares Issued 1,604,163 and 1,608,163........................ 128,333 128,653
Additional Paid-In Capital...................................... 1,393,484 1,396,524
Retained Earnings............................................... 7,705,266 7,647,131
----------- -----------
Total Stockholders' Equity................................... 9,227,083 9,172,308
----------- -----------
$11,269,911 $12,595,111
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
25
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
--------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (Loss) from operations......................... $68,279 $ (581,864) $ 459,290
Items not affecting cash-
Depreciation........................................... 374,797 401,444 414,694
Amortization........................................... - 19,352 25,836
Deferred compensation.................................. 30,726 26,453 23,109
(Gain) Loss on sale of equipment....................... 3,886 8,774 (2,500)
Deferred income taxes.................................. 78,000 (37,000) (15,000)
Proceeds from life insurance.............................. - - 202,128
Payment of deferred compensation.......................... (24,620) (24,620) (20,516)
Change in operating assets and liabilities:
Receivables......................................... 753,267 249,056 415,415
Inventories......................................... 853,833 (930,976) (287,006)
Prepaid expenses.................................... 81,162 (170,739) 8,824
Accounts payable.................................... (931,258) 602,380 96,152
Accrued expenses.................................... 84,497 (95,566) (98,312)
----------- ----------- -----------
Net cash provided (used) by
operating activities........................... 1,372,569 (533,306) 1,222,114
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of equipment............................ 1,000 20,834 2,500
Additions to plant and equipment........................... (207,009) (231,817) (535,337)
Additions to cash value of life insurance.................. (23,604) (21,228) (21,228)
Collections on notes receivable............................ - - 12,645
----------- ----------- -----------
Net cash used in investing activities............ (229,613) (232,211) (541,420)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of long-term debt............................... (89,320) (56,996) (948,489)
Borrowing (repayment) on line of credit-net............... (450,000) 450,000 -
Proceeds from stock options exercised..................... - 496,505 24,333
Repurchase of Company's common stock...................... (13,504) (285,320) (292,126)
----------- ----------- -----------
Net cash provided (used) by
financing activities.......................... (552,824) 604,189 (1,216,282)
----------- ----------- -----------
Change in cash and cash equivalents.......................... 590,132 (161,328) (535,588)
Cash and cash equivalents at beginning of year............... 145,899 307,227 842,815
----------- ----------- -----------
Cash and cash equivalents at end of year..................... $ 736,031 $ 145,899 $ 307,227
=========== =========== ===========
Supplemental disclosure information:
Income tax payments....................................... $ 176,000 $ 20,900 $ 388,642
=========== =========== ===========
Income tax refunds........................................ $ 360,233 $ 170,562 $ 121,744
=========== =========== ===========
Interest paid............................................. $ 67,818 $ 103,387 $ 90,430
=========== =========== ===========
</TABLE>
Non-Cash Transaction:
The Company contributed 8,343 shares of common stock to its profit sharing
plan at a value of 33,392 during the year ended December 31, 1995.
See accompanying Notes to Consolidated Financial Statements
26
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS DESCRIPTION
Photo Control Corporation (the Company) designs, manufactures and markets
professional cameras, photographic package printers, electronic flash equipment,
and related photographic accessories.
The principal market for the Company's long-roll camera equipment is the
sub-segment of the professional photography market requiring high-volume
equipment, such as elementary and secondary school photographers. The market
with respect to electronic flash equipment is broader, extending to all
professional and commercial photographers and to experienced amateur
photographers. The market for photographic package printers is photographic
processing labs which specialize in producing photographic color print packages
such as those often produced for weddings and school photography. The geographic
market in which the Company competes with respect to long-roll camera equipment,
flash equipment, and printers consists of the entire United States and, to a
lesser extent, some foreign countries.
In 1996, sales of flash equipment was the highest followed by camera sales and
printer sales. Flash equipment operated at a small loss for 1996, camera
equipment at a profit and printer equipment at a loss. In 1995, sales were
highest for camera equipment followed by flash equipment and printer equipment.
Camera equipment was profitable in 1995 and both flash and printer equipment
operated at a loss.
To some extent there has been a consolidation of school photography and studio
portrait photography in recent years which has concentrated the Company's sales
to fewer customers. It is expected that this trend will continue. In 1996, one
customer accounted for 14.3% of the Company's sales and in 1995 for 20.2%. Also
in 1996, another customer accounted for 11.0% of the Company's sales.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Norman Enterprises,
Inc. and Nord Photo Engineering, Inc. All material inter-company transactions
and account balances have been eliminated.
USE OF ESTIMATES - Management uses estimates and assumptions in preparing
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the estimates
that were assumed in preparing the financial statements.
REVENUE RECOGNITION - Sales are recorded when the product is shipped.
INVENTORIES - Inventories of raw materials, work in process and finished goods
are valued at the lower of cost (first-in, first-out) or market. Market
represents estimated realizable value in the case of finished goods and
replacement or reproduction cost in the case of other inventories. Because of
changing technology and market demand, inventory is subject to obsolescence. An
annual review is made of all inventory to determine if any obsolete,
discontinued or slow moving items are in inventory. Based on this review,
inventory is disposed of or an allowance for obsolescence established to cover
any future disposals.
PLANT AND EQUIPMENT - Plant and equipment are stated at cost. Depreciation is
computed primarily on the straight-line method over the estimated useful lives
of 15 to 40 years for the buildings and 3 to 7 years for machinery and
equipment. Ordinary maintenance and repairs are charged to operations, and
expenditures which extend the physical or economic life of property and
equipment are capitalized. Gains and losses on disposition of property and
equipment are recognized in operations and the related asset and accumulated
depreciation accounts are adjusted accordingly.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts for cash,
receivables, accounts payable and accrued liabilities approximate fair value
because of the short maturity of these instruments. The fair value of long-term
debt is estimated based on current rates for tax-exempt debt of similar
maturities and is not materially different than its carrying value.
RESEARCH AND DEVELOPMENT - Expenditures for research and development are charged
against operations as incurred.
INCOME TAXES - Deferred income taxes are provided for expenses recognized in
different time periods for financial reporting and income tax purposes. These
differences consist primarily of depreciation, which is accelerated for tax
purposes, deferred compensation that is not deductible for taxes and inventory
which has a higher tax basis than for financial reporting purposes.
CASH EQUIVALENTS - The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be a cash equivalent. Cash
and cash equivalents consist of money market mutual funds, short-term securities
and bank balances. The Company at December 31, 1996 and periodically throughout
the year has maintained balances in various operating and money market accounts
in excess of federally insured limits.
NET INCOME PER SHARE - Net income per common share was based on the weighted
average number of common shares and common stock equivalents outstanding during
the period. When dilutive, stock options are included as common stock
equivalents using the treasury stock method.
NOTE 3. INVENTORIES
The following inventories were on hand at December 31:
1996 1995 1994
---- ---- ----
Raw Materials................... $3,851,706 $4,272,903 $3,606,564
Work in Process................. 559,321 819,686 942,939
Finished Goods.................. 1,393,476 1,565,747 1,177,857
--------- --------- ---------
$5,804,503 $6,658,336 $5,727,360
========== ========== ==========
NOTE 4. LONG-TERM DEBT AND SHORT-TERM LINE OF CREDIT
Long-term debt at each year ended December 31, consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
65% of Prime Rate Industrial Development Revenue Bond.... $ 600,000 $ 670,000
Other Notes Payable...................................... 41,296 60,616
----------- -----------
641,296 730,616
Less Amount Due Within One Year.......................... 111,296 130,616
----------- -----------
Amount Due After One Year................................ $ 530,000 $ 600,000
=========== ===========
</TABLE>
The Industrial Revenue Bond is secured by land and building and is due in
varying semi-annual principal amounts of $35,000 to $85,000 at the due date of
December 2003.
Maturities of long-term debt for the next five years ending December 31 are
$111,296 in 1997 and $70,000 in each of the four years thereafter.
The Company has a $1,500,000 unsecured line of credit agreement at the prime
rate of interest. The following summarizes the borrowings under the line of
credit during each year ended December 31:
1996 1995
---- ----
Outstanding balance at year end................... $ - $ 450,000
Maximum balance at any month end.................. 750,000 1,000,000
Average month end balance......................... 338,462 683,340
Average interest rate............................. 8.3% 8.9%
28
NOTE 5. INCOME TAXES
The income tax provision shown in the statement of operations is detailed below
for each year ended December 31:
Current 1996 1995 1994
---- ---- ----
Federal................... $ (58,000) $ (260,000) $ 225,000
State..................... 3,000 3,000 85,000
Deferred .......................... 78,000 (37,000) (15,000)
------ -------- --------
$ 23,000 $ (294,000) $ 295,000
========== =========== ==========
The income tax provision for continuing operations varied from the federal
statutory tax rate as follows for each year ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. Statutory Rate...................................... 34.0% (34.0)% 34.0%
Surtax Exemption......................................... (12.9) - -
State Income Taxes, Net of Federal Income Tax Benefit.... 2.7 (.2) 7.4
Amortization of Goodwill................................. - .7 1.1
Miscellaneous Items...................................... 1.4 (.3) (2.1)
Minimum Tax and R & D Tax Credits........................ - (.6) (1.3)
----- ----- ----
25.2% (33.6)% 39.1%
===== ====== ====
</TABLE>
The Company does not file on a unitary tax basis in all states. As a result
certain losses which are offset against income on a federal tax basis cannot be
used in computing taxes in some states, which caused a higher than expected
state income tax provision in the year ended December 31, 1994 and a lower than
expected tax benefit for the year ended December 31, 1995. The company has state
tax loss carryforwards of approximately $985,000 which expire in varying amounts
from 1998 through 2001.
The following summarizes the tax effects of the significant temporary
differences which comprise the deferred tax asset for each year ended December
31:
1996 1995
---- ----
Inventory Costs $ 269,000 $ 306,000
Deferred Compensation 111,000 118,000
Bad Debt Reserves 28,000 50,000
Accrued Benefits 29,000 41,000
========== ==========
437,000 515,000
Less Accelerated Depreciation (183,000) (183,000)
---------- ----------
Net Deferred Tax $ 254,000 $ 332,000
========== ==========
NOTE 6. PROFIT SHARING PLAN
The contribution to the Company's profit sharing plan, which covers qualified
full-time employees was $12,000, $0 and $135,000 for the years ended December
31, 1996, 1995 and 1994, respectively. The 1994 contribution paid in 1995
consisted of $33,392 of the Company's common stock and $101,608 of cash.
NOTE 7. STOCK OPTIONS
Non-qualified stock options to purchase shares of the Company's common stock
have been granted to certain officers, directors, and key employees. Option
prices of all the grants were not less than the fair market value of the
Company's common stock at dates of grants.
29
The following summarizes the changes in the options for the years ended December
31: (Exercise prices are computed on a weighted-average basis).
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- -------------------- -------------------
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Year........ 137,375 $5.08 260,127 $3.92 255,377 $3.63
Granted............................. 115,000 $3.73 29,000 $4.75 29,000 $5.89
Exercised........................... - (148,752) $2.80 (5,833) $2.80
Expired............................. (13,000) $4.47 (3,000) $6.00 (18,417) $4.73
------- ------- -------
Balance at End of Year.............. 239,375 $4.47 137,375 $5.08 260,127 $3.92
======= ======= =======
</TABLE>
The following summarizes the outstanding and excercisable options as of December
31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING EXCERCISABLE OPTIONS
---------------------------------------------------------- ----------------------
RANGE NUMBER OF REMAINING EXERCISE NUMBER OF EXERCISE
OF PRICE SHARES LIFE (YEARS) PRICE SHARES PRICE
-------- ------ ------------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
$4.80 9,375 .7 $4.80 9,375 $4.80
$5.00 76,000 1.6 $5.00 50,666 $5.00
$5.75 to $6.25 26,000 2.5 $5.90 8,667 $5.90
$4.75 13,000 3.4 $4.75
$3.12 to $3.75 115,000 4.5 $3.73
------- ------
239,375 68,708
======= ======
</TABLE>
The compensation element for the options granted in 1996 measured by the fair
value based method would have an insignificant effect on net income and net
income per common share.
NOTE 8. MAJOR CUSTOMER
During the years ended December 31, 1996, 1995, and 1994, the Company derived
14.3%, 20.2%, and 24.2%, respectively, of its sales from one unaffiliated
customer. Also, in 1996, a second unaffiliated customer accounted for 11.0% of
sales.
NOTE 9. QUARTERLY INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information for
the years ended December 31, 1996, 1995 and
1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
-------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Sales.............................. $3,260,981 $4,466,143 $4,618,348 $1,866,448 $14,211,920
Gross Operating Earnings........... 839,392 1,574,513 1,435,081 222,282 4,071,268
Net Income (Loss).................. (196,041) 330,320 224,252 (290,252) 68,279
Net Income (Loss) Per Share........ (.12) .20 .14 (.18) .04
YEAR ENDED DECEMBER 31, 1995 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
-------- -------- -------- -------- -----
Sales.............................. $3,044,080 $3,496,583 $4,858,565 $3,299,298 $14,698,526
Gross Operating Earnings........... 770,677 1,014,055 1,417,375 713,037 3,915,144
Net Income (Loss).................. (396,237) (45,355) 167,427 (307,699) (581,864)
Net Income (Loss) Per Share........ (.25) (.03) .11 (.20) (.37)
YEAR ENDED DECEMBER 31, 1994 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
-------- -------- -------- -------- -----
Sales.............................. $3,714,502 $4,491,738 $5,993,414 $3,390,827 $17,590,481
Gross Operating Earnings........... 1,282,199 1,595,803 2,067,339 735,672 5,681,013
Net Income (Loss).................. 1,132 303,482 372,586 (217,910) 459,290
Net Income (Loss) Per Share........ - .18 .23 (.13) .28
</TABLE>
30
BOARD OF DIRECTORS
Standing: William L. Norman, George A. Kiproff ,Joe A. Kilgore:
Seated: James R. Loomis Leslie A. Willig, Thomas J. Cassady
CORPORATE DIRECTORY CORPORATE OFFICERS
DIRECTORS LESLIE A. WILLIG
Chief Executive Officer
LESLIE A. WILLIG and President
Chairman
PATRICK J. GILLIGAN
THOMAS J. CASSADY Executive Vice President
Retired President of President - Nord Photo Engineering, Inc.
Merrill Lynch Pierce Fenner & Smith
CURTIS R. JACKELS
GEORGE A. KIPROFF Vice President-Treasurer
Retired President of
DEK Identification Systems MARK J. SIMONETT
Fort Wayne, Indiana Secretary
JAMES R. LOOMIS WILLIAM L. NORMAN
Retired President of President - Norman Enterprises, Inc.
Magnavox Electronic System Co
LEGAL COUNSEL
WILLIAM L. NORMAN Gray, Plant, Mooty, Mooty &
President Bennett, P.A.
Norman Enterprises, Inc Minneapolis, Minnesota
Burbank, California
INDEPENDENT PUBLIC ACCOUNTANTS
JOE M. KILGORE Virchow, Krause & Company, LLP
Partner in Law Firm of Minneapolis, Minnesota
McGinnis, Lochridge and
Kilgore STOCK TRANSFER AGENT
Austin, Texas Norwest Bank Minnesota, N.A.
South St. Paul, Minnesota
STOCK LISTED
NASDAQ
Stock symbol: PHOC
31
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NAME OF SUBSIDIARY STATE OF INCORPORATION PERCENT OWNED
- ------------------ ---------------------- -------------
Norman Enterprises, Inc. California 100%
Nord Photo Engineering, Inc. Minnesota 100%
EXHIBIT 23
AUDITOR'S CONSENT AND REPORT ON SCHEDULES
Board of Directors and
Stockholders
Photo Control Corporation
We hereby consent to the incorporation by reference in this Annual Report on
Form 10-K of Photo Control Corporation for the year ended December 31, 1996, of
our report, dated January 31, 1997, appearing in the Company's 1996 Annual
Report to Shareholders. We also consent to the incorporation by reference of
such report in the registration statements on Form S-8 for the Photo Control
Stock Option Plan.
In the course of our audit of the financial statements referred to in our
report, dated January 31, 1997, included in the Company's 1996 Annual Report to
Shareholders, we also audited the supporting schedule listed in Item 14(a)(2) of
this Annual Report on Form 10-K. In our opinion, the schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
VIRCHOW KRAUSE, & COMPANY, LLP
January 31, 1997
Minneapolis, Minnesota
EXHIBIT 25
POWER OF ATTORNEY
CONCERNING
FORM 10-K FISCAL 1996
Each person whose signature appears below constitutes and appoints
LESLIE A. WILLIG his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place, and stead,
in any and all capacities to sign the Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, and any or all amendments to such Annual Report on
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
Signature Date
- --------- ----
/s/Leslie A. Willig March 14, 1997
Leslie A. Willig, Chief Executive Officer
President and Director (principal executive
officer)
/s/Curtis R. Jackels March 14, 1997
Curtis R. Jackels, Vice President
and Treasurer (principal financial and principal
accounting officer)
/s/George A. Kiproff March 14, 1997
George A. Kiproff, Director
/s/James R. Loomis March 14, 1997
James R. Loomis, Director
/s/William L. Norman March 14, 1997
William L. Norman, Director
/s/Thomas J. Cassady March 14, 1997
Thomas J. Cassady, Director
/s/Joe M. Kilgore March 14, 1997
Joe M. Kilgore, Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 736,031
<SECURITIES> 0
<RECEIVABLES> 522,279
<ALLOWANCES> 0
<INVENTORY> 5,804,503
<CURRENT-ASSETS> 7,335,164
<PP&E> 7,604,407
<DEPRECIATION> 4,162,977
<TOTAL-ASSETS> 11,269,911
<CURRENT-LIABILITIES> 984,228
<BONDS> 530,000
0
0
<COMMON> 128,333
<OTHER-SE> 9,098,750
<TOTAL-LIABILITY-AND-EQUITY> 11,269,911
<SALES> 14,211,920
<TOTAL-REVENUES> 14,211,920
<CGS> 10,140,652
<TOTAL-COSTS> 10,140,652
<OTHER-EXPENSES> 3,912,171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,818
<INCOME-PRETAX> 91,279
<INCOME-TAX> 23,000
<INCOME-CONTINUING> 68,279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,279
<EPS-PRIMARY> .04
<EPS-DILUTED> 0
</TABLE>
