-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WQxHGqDC3ED8Xiu+SaUkuBoSNGMvhNj/itPh5zzKjU66MO0HDsvrfDcg6Q2aPP1w XYytleGsD63KjSjh2YE7Zg== 0000897101-97-000268.txt : 19970317 0000897101-97-000268.hdr.sgml : 19970317 ACCESSION NUMBER: 0000897101-97-000268 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970314 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHOTO CONTROL CORP CENTRAL INDEX KEY: 0000078311 STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861] IRS NUMBER: 410831186 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-07475 FILM NUMBER: 97556377 BUSINESS ADDRESS: STREET 1: 4800 QUEBEC AVE N CITY: MINNEAPOLIS STATE: MN ZIP: 55428 BUSINESS PHONE: 6125373601 MAIL ADDRESS: STREET 1: 4800 QUEBEC AVENUE NORTH STREET 2: 4800 QUEBEC AVENUE NORTH CITY: MINNEAPOLIS STATE: MN ZIP: 55428 10-K405 1 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 ----------------------------------------------------------------------- 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 ---------------------------------------------------------------------- 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 ------- ------- ------- 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
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 - ----------- --------- ---------- --------- ---------- ------- 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 ========= ========= ======== ========== =========
(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 - ------------------------------------------------------------------------------- PHOTO CONTROL CORPORATION COMMISSION FILE NO.: 0-7475 - ------------------------------------------------------------------------------- E X H I B I T I N D E X FOR FORM 10-K FOR YEAR ENDED DECEMBER 31, 1996
Page Number in Sequential Numbering of all Form 10-K and Exhibit Pages ------------- EXHIBIT - ------- 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.
- -------------------------------- *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 EX-11 2 COMPUTATION OF NET INCOME PER COMMON SHARE EXHIBIT 11 COMPUTATION OF NET INCOME PER COMMON SHARE
DECEMBER 31 ---------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (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* =========== =========== =========== =========== ===========
*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. EX-13 3 1996 ANNUAL REPORT 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
SELECTED FINANCIAL DATA YEAR ENDED DECEMBER 31 --------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- 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
*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.
PERCENT INCREASE (DECREASE) (BASED ON AMOUNTS) YEAR ENDED DECEMBER 31 1996 1995 ------------------------------- vs vs 1996 1995 1994 1995 1994 ---- ---- ---- ---- ---- 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)
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
CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31 -------------------------------------------------- 1996 1995 1994 ---- ---- ---- 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 =========== =========== ===========
See accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY COMMON STOCK ---------------------- NUMBER ADDITIONAL OF PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS ---------------------------------------------------- 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 ========= ======== ========== ==========
See accompanying Notes to Consolidated Financial Statements 24
CONSOLIDATED BALANCE SHEETS DECEMBER 31 -------------------------------- ASSETS 1996 1995 - ------------------------------------------------------------------------------------------------------ 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 =========== ===========
See accompanying Notes to Consolidated Financial Statements 25
CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31 -------------------------------------------------- 1996 1995 1994 ----------- ----------- ----------- 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 =========== =========== ===========
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:
1996 1995 ---- ---- 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 =========== ===========
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:
1996 1995 1994 ---- ---- ---- 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% ===== ====== ====
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).
1996 1995 1994 --------------------- -------------------- ------------------- NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE --------- -------- --------- -------- --------- -------- 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 ======= ======= =======
The following summarizes the outstanding and excercisable options as of December 31, 1996:
OPTIONS OUTSTANDING EXCERCISABLE OPTIONS ---------------------------------------------------------- ---------------------- RANGE NUMBER OF REMAINING EXERCISE NUMBER OF EXERCISE OF PRICE SHARES LIFE (YEARS) PRICE SHARES PRICE -------- ------ ------------ ----- ------ ----- $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 ======= ======
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.
YEAR ENDED DECEMBER 31, 1996 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL -------- -------- -------- -------- ----- 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
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 EX-21 4 SUBSIDIARIES OF THE REGISTRANT 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% EX-23 5 AUDITOR'S CONSENT AND REPORT ON SCHEDULES 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 EX-25 6 POWER OF ATTORNEY CONCERNING FORM 10-K FISCAL 1996 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 EX-27 7 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 736,031 0 522,279 0 5,804,503 7,335,164 7,604,407 4,162,977 11,269,911 984,228 530,000 0 0 128,333 9,098,750 11,269,911 14,211,920 14,211,920 10,140,652 10,140,652 3,912,171 0 67,818 91,279 23,000 68,279 0 0 0 68,279 .04 0
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