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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended November 3, 2002
 
¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                         .
 
Commission file number
 
 
PCA International, Inc.
(Exact name of registrant as specified in its charter)
 
 
North Carolina
  
56-0888429
(State or other jurisdiction of incorporation or organization)
  
(IRS Employer Identification No.)
 
815 Matthews-Mint Hill Road
Matthews, North Carolina
28105
(Address of principal executive offices)
(Zip Code)
 
(704) 588-4351
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes __                     No   X
 
As of December 18, 2002, there were 2,293,152 shares of the Registrant’s common stock outstanding.

Table of Contents
 
Table of Contents
(Page numbers refer to paper document only)
 
           
Page No.
Part 1.
        
  3
Item 1.
        
  3
         
  3
    
Thirteen Weeks and Thirty-Nine Weeks Ended October 28, 2001
(Unaudited) and November 3, 2002 (Unaudited)
     
  4
         
  5
         
  6
Item 2.
        
16
Item 3.
        
20
Item 4.
        
21
Part II.
        
22
Item 6.
        
22

Table of Contents
Part I. Financial Information
 
Item 1. Financial Statements
 
PCA INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar Amounts in Thousands, except share data)
 
    
February 3, 2002
     
November 3, 2002
  
           
(unaudited)
  
ASSETS
              
CURRENT ASSETS:
                  
Cash and cash equivalents
   
$
2,885
 
   
$
5,260
 
Accounts receivable, net
   
 
1,493
 
   
 
2,583
 
Inventories
   
 
7,710
 
   
 
9,526
 
Deferred income taxes
   
 
1,294
 
   
 
1,294
 
Prepaid expenses and other assets
   
 
3,804
 
   
 
5,563
 
    
  
Total current assets
   
 
17,186
 
   
 
24,226
 
PROPERTY AND EQUIPMENT:
                  
Land and improvements
   
 
2,305
 
   
 
2,305
 
Buildings and improvements
   
 
12,404
 
   
 
12,422
 
Photographic, sales and finishing equipment
   
 
109,562
 
   
 
118,503
 
Leasehold improvements
   
 
16,236
 
   
 
18,414
 
Construction in progress
   
 
1,889
 
   
 
3,718
 
    
  
Total
   
 
142,396
 
   
 
155,362
 
Less accumulated depreciation and amortization
   
 
91,500
 
   
 
98,477
 
    
  
Property and equipment, net
   
 
50,896
 
   
 
56,885
 
GOODWILL, NET
   
 
51,531
 
   
 
51,542
 
DEFERRED FINANCING COSTS, NET
   
 
11,317
 
   
 
10,101
 
INTANGIBLE AND OTHER ASSETS, NET
   
 
199
 
   
 
76
 
    
  
TOTAL ASSETS
   
$
131,129
 
   
$
142,830
 
    
  
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
              
CURRENT LIABILITIES:
                  
Short-term borrowings
   
$
9,000
 
   
$
9,300
 
Current portion of long-term debt
   
 
11,333
 
   
 
91
 
Accounts payable—trade
   
 
24,231
 
   
 
29,092
 
Accrued insurance
   
 
3,120
 
   
 
3,686
 
Accrued income taxes
   
 
287
 
   
 
269
 
Accrued compensation
   
 
4,857
 
   
 
5,289
 
Accrued interest
   
 
4,236
 
   
 
9,424
 
Other accrued liabilities
   
 
9,741
 
   
 
15,398
 
    
  
Total current liabilities
   
 
66,805
 
   
 
72,549
 
LONG-TERM DEBT
   
 
197,628
 
   
 
220,747
 
DEFERRED INCOME TAXES
   
 
1,294
 
   
 
1,294
 
OTHER LIABILITIES
   
 
35,104
 
   
 
31,413
 
    
  
TOTAL LIABILITIES
   
 
300,831
 
   
 
326,003
 
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK, $10.00 PAR VALUE
(AUTHORIZED—15,000 SHARES;ISSUED AND OUTSTANDING—15,000 SHARES)
   
 
7,688
 
   
 
8,120
 
COMMITMENTS AND CONTINGENCIES
                  
SHAREHOLDERS’ DEFICIENCY:
                  
Common stock, $0.20 par value (authorized—20,000,000 shares; issued and outstanding—2,293,152 shares)
   
 
458
 
   
 
458
 
Additional paid-in capital
   
 
—  
 
   
 
2,861
 
Warrants to purchase Series A Redeemable Convertible Preferred
                  
Stock (issued and outstanding at November 3, 2002—287)
   
 
—  
 
   
 
642
 
Warrants to purchase common stock (issued and oustanding at February 3, 2002—508,300
and at November 3, 2002—306,610)
   
 
4,843
 
   
 
2,947
 
Deficit
   
 
(182,173
)
   
 
(197,481
)
Accumulated other comprehensive loss
   
 
(518
)
   
 
(720
)
    
  
Total shareholders’ deficiency
   
 
(177,390
)
   
 
(191,293
)
    
  
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
   
$
131,129
 
   
$
142,830
 
    
  
See notes to condensed consolidated financial statements.

3

Table of Contents
 
 
PCA INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollar Amounts in Thousands)
 
    
For the Thirteen
Weeks Ended
     
For the Thirty-Nine
Weeks Ended
  
    
October 28, 2001
     
November 3, 2002
     
October 28, 2001
     
November 3, 2002
  
SALES
   
$
61,097
 
   
$
67,973
 
   
$
167,180
 
   
$
197,419
 
COST OF SALES
   
 
47,654
 
   
 
54,604
 
   
 
132,545
 
   
 
154,051
 
    
  
  
  
GROSS PROFIT
   
 
13,443
 
   
 
13,369
 
   
 
34,635
 
   
 
43,368
 
GENERAL AND ADMINISTRATIVE
   
 
9,553
 
   
 
9,763
 
   
 
27,046
 
   
 
29,870
 
AMORTIZATION OF INTANGIBLES
   
 
493
 
   
 
48
 
   
 
1,479
 
   
 
144
 
    
  
  
  
INCOME FROM OPERATIONS
   
 
3,397
 
   
 
3,558
 
   
 
6,110
 
   
 
13,354
 
INTEREST EXPENSE, net
   
 
(7,690
)
   
 
(7,652
)
   
 
(22,437
)
   
 
(21,462
)
OTHER EXPENSE, net
   
 
(1,516
)
   
 
(92
)
   
 
(5,775
)
   
 
(2,153
)
    
  
  
  
LOSS BEFORE INCOME TAXES, EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE
   
 
(5,809
)
   
 
(4,186
)
   
 
(22,102
)
   
 
(10,261
)
INCOME TAX PROVISION
   
 
(3
)
   
 
—  
 
   
 
(178
)
   
 
(47
)
    
  
  
  
LOSS BEFORE EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE
   
 
(5,812
)
   
 
(4,186
)
   
 
(22,280
)
   
 
(10,308
)
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT, NET OF INCOME TAX BENEFIT AND VALUATION ALLOWANCE
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
(4,568
)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
   
 
—  
 
   
 
—  
 
   
 
(1,728
)
   
 
—  
 
    
  
  
  
NET LOSS
   
$
(5,812
)
   
$
(4,186
)
   
$
(24,008
)
   
$
(14,876
)
    
  
  
  
 
See notes to condensed consolidated financial statements.

4

Table of Contents
 
PCA INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar Amounts in Thousands)
 
   
For the Thirty-Nine Weeks Ended
  
   
October 28,
2001
     
November 3, 2002
  
OPERATING ACTIVITIES:
                 
Net loss
  
$
(24,008
)
   
$
(14,876
)
Adjustments to reconcile net loss to net cash provided by operating activities:
                 
Depreciation and amortization
  
 
8,495
 
   
 
7,156
 
Amortization of deferred financing costs
  
 
2,280
 
   
 
1,689
 
Interest expense-effective interest method
  
 
(87
)
   
 
(509
)
Cumulative effect of accounting change
  
 
1,728
 
   
 
—  
 
Change in fair value of derivative instruments
  
 
5,775
 
   
 
2,153
 
Early extinguishment of debt
  
 
—  
 
   
 
4,568
 
Amortization of debt discounts
  
 
—  
 
   
 
219
 
Decrease in allowance for doubtful accounts
  
 
(31
)
   
 
—  
 
Loss on disposal of property and equipment
  
 
181
 
   
 
36
 
Changes in assets and liabilities which provided (used) cash:
                 
Accounts receivable
  
 
113
 
   
 
(1,090
)
Inventories
  
 
(2,053
)
   
 
(1,816
)
Prepaid expenses and other assets
  
 
(856
)
   
 
(1,759
)
Accounts payable — trade
  
 
6,195
 
   
 
4,861
 
Accrued expenses
  
 
7,585
 
   
 
13,485
 
Other accrued liabilities
  
 
(1,084