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.
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.
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.
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.
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
(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
- -------------------------------- *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