-----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, UV4vMw/LYNuC7z0rrtUe5ZUttAhlPBs8awUQswpDezR76n6jHo/f6hU83Dj3qbc3 8Hj6MYx6tjCengtU4/1wrA== 0000912057-96-017815.txt : 19960816 0000912057-96-017815.hdr.sgml : 19960816 ACCESSION NUMBER: 0000912057-96-017815 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIA MERCHANDISING SERVICES INC CENTRAL INDEX KEY: 0001004989 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 330684451 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27408 FILM NUMBER: 96613528 BUSINESS ADDRESS: STREET 1: 19900 MACARTHUR BLVD STREET 2: SUITE 900 CITY: IRVINE STATE: CA ZIP: 92715 BUSINESS PHONE: 7144762200 MAIL ADDRESS: STREET 1: 19900 MACARTHUR BLVD STREET 2: STE 900 CITY: IRVINE STATE: CA ZIP: 92715 FORMER COMPANY: FORMER CONFORMED NAME: PIA MERICHANDISING SERVICES INC DATE OF NAME CHANGE: 19951215 10-Q 1 FORM 10Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q [ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 1996. [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________ to ________. Commission file number 0-27824 PIA MERCHANDISING SERVICES, INC. (Exact name of registrant as specified in its charter) Delaware 33-0684451 (State or color jurisdiction of (I.R.S. Employer Identification No.) incorporate or organization) 19900 MacArthur Blvd., Suite 900, Irvine, CA 92715 (Address of principal executive offices) (714) 476-2200 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) 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: [ X ] Yes [ ] No Applicable only to corporate issuers: Indicate the number of shares outstanding of each of the issuer's classes of stock, as of the latest practicable date. Common Stock, $.01 Par Value: 5,791,626 shares as of July 31, 1996. PIA Merchandising Services, Inc. PART I: FINANCIAL INFORMATION PAGE Item 1: Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1996 (Unaudited) and December 31, 1995 Condensed Consolidated Statements of Income for the Three Months Ended and for the Six Months Ended June 30, 1996 (Unaudited) and June 30, 1995 (Unaudited) Condensed Consolidated Statements of Cash Flows for the Three Months Ended and for the Six Months Ended June 30, 1996 (Unaudited) and June 30, 1995 (Unaudited) Condensed Consolidated Statement of Stockholders' Equity (Unaudited) Notes to Condensed Consolidated Financial Statements Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations PART II: OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K SIGNATURES PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- (IN THOUSANDS) June 30, December 31, 1996 1995 ---- ---- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 20,463 $ 185 Accounts receivable, net of allowance for doubtful accounts 14,966 12,213 Prepaid expenses and other current assets 1,503 638 Deferred income taxes 493 493 ------- ------- Total current assets 37,425 13,529 PROPERTY AND EQUIPMENT, net 2,007 2,110 OTHER ASSETS 454 447 ------- ------- $39,886 $16,086 ------- ------- ------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 675 $ 1,838 Other current liabilities 5,137 4,105 Income taxes payable 74 455 ------- ------- Total current liabilities 5,886 6,398 DEFERRED INCOME TAXES 300 300 LONG-TERM DEBT - 3,400 STOCKHOLDERS' EQUITY 33,700 5,988 ------- ------- $39,886 $16,086 ------- ------- ------- ------- Note: The balance sheet at December 31, 1995 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) For the Three Months Ended June 30, ----------------------------------- 1996 1995 ---- ---- NET REVENUES $26,855 $26,343 OPERATING EXPENSES: Field service costs 21,845 20,759 Selling expenses 2,967 2,484 General and administrative expenses 1,853 1,706 Depreciation and amortization 152 119 ------- ------- Total operating expenses 26,817 25,068 ------- ------- OPERATING INCOME 38 1,275 INTEREST EXPENSE (INCOME), NET (286) 141 ------- ------- INCOME BEFORE PROVISION FOR INCOME TAXES 324 1,134 PROVISION FOR INCOME TAXES 118 398 ------- ------- NET INCOME $ 206 $ 736 ------- ------- ------- ------- NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.03 $ 0.17 ------- ------- ------- ------- WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES 6,454 4,309 ------- ------- ------- ------- See accompanying notes. PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) For the Six Months Ended June 30, --------------------------------- 1996 1995 ---- ---- NET REVENUES $53,114 $50,340 OPERATING EXPENSES: Field service costs 42,108 39,360 Selling expenses 5,623 4,980 General and administrative expenses 3,593 3,291 Depreciation and amortization 299 233 ------- ------- Total operating expenses 51,623 47,864 ------- ------- OPERATING INCOME 1,491 2,476 INTEREST EXPENSE (INCOME), NET (329) 259 ------- ------- INCOME BEFORE PROVISION FOR INCOME TAXES 1,820 2,217 PROVISION FOR INCOME TAXES 717 778 ------- ------- NET INCOME $ 1,103 $ 1,439 ------- ------- ------- ------- NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.19 $ 0.33 ------- ------- ------- ------- WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES 5,692 4,309 ------- ------- ------- ------- See accompanying notes. PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- (IN THOUSANDS) (UNAUDITED) For the Three Months Ended June 30, ----------------------------------- 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 206 $ 736 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 152 119 Amortization of other assets and discount on subordinated debt - 22 Provision for doubtful receivables 96 34 Changes in operating assets and liabilities (3,150) (1,617) ------- ------- Net cash used in operating activities (2,696) (706) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (131) (168) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long term debt (900) Sale (repurchase) of common stock 22 (24) Initial public offering transaction costs (166) 0 ------- ------- Net cash provided by (used in) financing activities (144) 876 ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,971) 2 CASH AND CASH EQUIVALENTS, beginning of period 23,434 259 ------- ------- CASH AND CASH EQUIVALENTS, end of period $20,463 $ 261 ------- ------- ------- ------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ - $ 107 Cash paid for income taxes $ 1,320 $ 705 See accompanying notes. PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- (IN THOUSANDS) (UNAUDITED) For the Six Months Ended June 30, --------------------------------- 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,103 $ 1,439 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 299 233 Amortization of other assets and discount on subordinated debt - 44 Provision for doubtful receivables 169 63 Changes in operating assets and liabilities (4,308) (2,821) ------- ------- Net cash used in operating activities (2,737) (1,042) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (194) (310) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long term debt (3,400) 223 Repurchase of common stock (24) Proceeds from issuance of common stock 26,609 0 ------- ------- Net cash provided by financing activities 23,209 199 ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 20,278 (1,153) CASH AND CASH EQUIVALENTS, beginning of period 185 1,414 ------- ------- CASH AND CASH EQUIVALENTS, end of period $20,463 $ 261 ------- ------- ------- ------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ - $ 189 Cash paid for income taxes $ 1,637 $ 824 See accompanying notes. PIA MERCHANDISING SERVICES INC., AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- (IN THOUSANDS)
Common Stock Additional Accumulated Total ------------ paid-in earnings stockholders' Shares Amount Capital (Deficit) Equity ------ ------ -------- --------- ------- BALANCE, December 31, 1995 3,564 $6,454 --- ($466) $ 5,988 Reincorporation and stipulation of $.01 par value common stock (6,418) 6,418 --- Issuance of common stock in initial public offering, net of offering costs 2,138 21 26,732 26,753 Cashless exercise of warrants 87 1 (1) --- Net income 897 897 ------ ------ ------ ------ ------ BALANCE, March 31, 1996 5,789 $ 58 $33,149 $431 $33,638 Exercise of stock options 3 22 22 Initial public offering costs (166) (166) Net income 206 206 ------ ------ ------ ------ ------ BALANCE, June 30, 1996 5,792 $ 58 $33,005 $637 $33,700 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
See accompanying notes. PIA Merchandising Services, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) The Three and Six Months Ended June 30, 1996 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. This financial information should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1995, included in the Company's Registration Statement on Form S-1, which was declared effective on February 29, 1996. Operating results for the three and six month periods ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. 2. Net Income per Share Net income per share is based on the weighted average number of outstanding shares of common stock and dilutive common equivalent shares from stock options and warrants (using the treasury stock method). 3. Initial Public Offering In March 1996, the Company completed its initial public offering of 2,137,800 shares of unissued common stock and 544,000 shares of outstanding common stock that were offered by certain selling stockholders. The Company received net proceeds of approximately $26.6 million after deducting expenses and underwriting discounts. Concurrent with the offering, the Company was reincorporated in Delaware which resulted in an increase in authorized preferred stock to 3,000,000 shares, an increase in authorized common stock to 15,000,000 shares and a change in the par value of both the Company's common stock and preferred stock from no par value to $.01 par value. This change in par value resulted in a reclassification of $6,418,000 from common stock to additional paid-in capital. 4. Line of credit and long-term obligations In March 1996, $3.0 million of net proceeds from the initial public offering were used for repayment of bank line of credit indebtedness. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Overview PIA Merchandising Services, Inc. (the Company or PIA) provides merchandising services to manufacturers and retailers principally in grocery, mass merchandiser and chain and deep discount drug stores. For the quarters ended June 30, 1996 and 1995, the Company generated approximately 91.4% and 82.4% of its net revenues from manufacturer clients and 8.6% and 17.6% from retailer clients, respectively. For the six month periods ended June 30, 1996 and 1995, the Company generated approximately 90.6% and 83.7% of its net revenues from manufacturer clients and 9.4% and 16.3% from retailer clients, respectively. The mix of the Company's business between manufacturer and retailer clients historically has not had a material impact on the Company's cash flows or results of operations. PIA's quarterly results of operations are subject to certain variability related to the timing of retailer-mandated activity and the receipt of commission overrides. Retailer-mandated activity is typically higher in the second and third quarters of the year due to retailer scheduling of activity in off-peak shopping periods. In addition, new product introductions increase during such periods which require the reset of categories as the new products gain distribution. The amount of commissions earned by PIA under its commission-based contracts varies seasonally, and generally corresponds to the peak selling seasons of the clients that have entered into these types of contracts. Historically, the Company has recognized greater commission income in the first and fourth quarters. See "Risk Factors -- Uncertainty of Commission Income." The Company's quarterly results have in the past been subject to fluctuations and, thus, the operating results for any quarter are not necessarily indicative of results for any future period. Results of Operations - Second Quarter of Fiscal 1996 Compared to Second Quarter of Fiscal 1995: The following table sets forth certain financial data as a percentage of net revenues for the periods indicated: Three Months Ended June 30, --------------------------- 1996 1995 ---- ---- Net revenues 100% 100% Operating expenses: Field service costs 81.3% 78.8% Selling expenses 11.1% 9.4% General and administrative expenses 6.9% 6.5% Depreciation and amortization 0.6% 0.5% ----- ----- Total operating expenses 99.9% 95.2% ----- ----- Operating income 0.1% 4.8% Interest expense, net (1.1%) 0.5% ----- ----- Income before provision for income taxes 1.2% 4.3% Provision for income taxes 0.4% 1.5% ----- ----- Net income 0.8% 2.8% ----- ----- ----- ----- Net revenues increased $0.5 million, or 1.9%, to $26.9 million in the second quarter of 1996 from $26.3 million in the second quarter of 1995. The increase in net revenues was the result of several factors including three months of revenue in 1996 from several manufacturers who became clients in 1995, which contributed $0.5 million, or 100% of the increase; new clients and increases in revenue from existing clients in 1996, which contributed $1.4 million, or 280% of the increase; and an increase in the Company's project business over first quarter 1995 levels in the amount of $2.0 million. These increases were partially offset by client losses of $0.6 million and the conclusion in 1995 of a non-recurring project which contributed $2.8 million of the 1995 net revenue. The increase in net revenues resulted from the demand by packaged goods manufacturers for third party merchandising services as they continued to focus on reducing their costs. Field service costs increased $1.1 million, or 5.2%, to $21.8 million in the second quarter of 1996 compared to $20.7 million in the second quarter of 1995. Field service costs are comprised principally of field labor and related costs and expenses required to provide routed coverage, project activities, key account management and related technology costs, as well as the field overhead required to support the activities of these groups of employees. The increase in field service costs was the result of maintaining employment levels of certain field service and field management personnel in anticipation of new business targeted for April which did not materialize until June 1996 and increased operating costs associated with revenue growth. As a percentage of net revenues, field service costs increased to 81.3% in the second quarter of 1996 from 78.8% in the second quarter of 1995. The increase in the second quarter of 1996 resulted from the maintenance of employment levels in anticipation of new business noted above and higher than expected operating costs as a percentage of net revenues in the event marketing area. Selling expenses increased $0.5 million or 19.4%, to $3.0 million in the second quarter of 1996 from $2.5 million in the second quarter of 1995. As a percentage of net revenues, selling expenses increased to 11.1% in the second quarter of 1996 from 9.4% in the second quarter of 1995 as spending increased at a more rapid pace than net revenues. Selling expenses increased primarily as a result of higher payroll costs resulting from increased staffing due to an expanded sales effort and increased travel. General and administrative expenses increased $0.1 million, or 8.6%, to $1.8 million in the second quarter of 1996 from $1.7 million in the second quarter of 1995. General and administrative expenses increased primarily as a result of higher payroll costs due to increased staffing in general management and management information services that was required to support overall business growth, salary increases in the ordinary course of business, and legal expenses associated with the negotiation of a significant new contract. As a percentage of net revenues, general and administrative expenses increased to 6.9% in the second quarter of 1996 from 6.5% in the second quarter of 1995. The increase was principally the result of the increased spending noted above and lower than anticipated net revenues. Depreciation and amortization expenses remained approximately the same for the second quarter of 1996 and 1995. Interest income was $0.3 million during the second quarter of 1996. Interest expense in the second quarter of 1995 was $0.1 million. The interest income resulted from the investment of a portion of the Company's initial public offering proceeds in interest bearing securities. These investments produced interest earnings throughout the second quarter of 1996. The Company had no interest expense during the second quarter of 1996. Income taxes were $0.1 million in the second quarter of 1996 and approximately $0.4 million in the second quarter of 1995, representing an effective rate of 36.4% and 35.1%, respectively. The 1996 and 1995 tax rates differed from an expected combined federal and state tax rate of 40% due principally to interest earned from tax exempt securities and to a $0.1 million reduction in the valuation allowance caused by the utilization of net operating loss carryforwards, respectively. Net income decreased approximately $0.5 million, or 72.0%, to approximately $0.2 million in the second quarter of 1996, from approximately $0.7 million in the second quarter of 1995, primarily as a result of the increase in field service costs and other spending categories discussed above coupled with approximately flat net revenues. Results of Operations - Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995: The following table sets forth certain financial data as a percentage of net revenues for the periods indicated: SIX MONTHS ENDED JUNE 30, ------------------------- 1996 1995 ---- ---- Net revenues 100% 100% Operating expenses: Field service costs 79.3% 78.2% Selling expenses 10.6% 9.9% General and administrative expenses 6.7% 6.5% Depreciation and amortization 0.6% 0.5% ----- ----- Total operating expenses 97.2% 95.1% ----- ----- Operating income 2.8% 4.9% Interest expense, net (0.6%) 0.5% ----- ----- Income before provision for income taxes 3.4% 4.4% Provision for income taxes 1.3% 1.5% ----- ----- Net income 2.1% 2.9% ----- ----- ----- ----- Net revenues increased $2.8 million, or 5.5%, to $53.1 million in the first six months of 1996 from $50.3 million for the corresponding period of 1995. The increase in net revenues was the result of several factors including six months of revenue in 1996 from several manufacturers who became clients in 1995, which contributed $2.4 million, or 86.3% of the increase; new clients and increases in revenue from existing clients in 1996, which contributed $4.4 million, or 157.1% of the increase; and an increase in the Company's project business over the first six months of 1995 levels in the amount of $2.8 million. These increases were partially offset by client losses of $2.4 million and the conclusion in 1995 of a non-recurring project which contributed $4.4 million of the 1995 net revenue. The increase in net revenues resulted from the demand by packaged goods manufacturers for third party merchandising services as they continued to focus on reducing their costs. Field service costs increased $2.8 million, or 7.0%, to $42.1 million in the first six months of 1996 compared to $39.3 million for the corresponding period of 1995. The increase in field service costs was the result of increased operating costs associated with revenue growth and a reduction of margins due to a strategic decision by the Company to maintain employment levels in field service and field management personnel in anticipation of new business expected to begin in April, 1996 which did not begin until June, 1996. As a percentage of net revenues, field service costs increased to 79.3% in the first six months of 1996 from 78.2% for the corresponding period of 1995. The increase in the first six months of 1996 resulted from the maintenance of employment levels in anticipation of the new business noted above and higher than expected operating costs as a percentage of net revenues in the event marketing area. Selling expenses increased $0.6 million or 12.9%, to $5.6 million in the first six months of 1996 from $5.0 million for the corresponding period of 1995. As a percentage of net revenues, selling expenses increased to 10.6% in the first six months of 1996 from 9.9% for the corresponding period of 1995 as spending increased at a more rapid pace than net revenues due principally to the timing of securing new business. Selling expenses increased primarily as a result of higher payroll costs resulting from increased staffing and increased travel. General and administrative expenses increased $0.3 million, or 9.2%, to $3.6 million in the first six months of 1996 from $3.3 million for the corresponding period of 1995. General and administrative expenses increased primarily as a result of higher payroll costs due to increased staffing in general management and management information services that was required to support overall business growth, salary increases in the ordinary course of business, and legal expenses associated with the negotiation of a significant new contract. As a percentage of net revenues, general and administrative expenses increased to 6.7% in the first six months of 1996 from 6.5% for the corresponding period of 1995. The increase was principally the result of the increased spending noted above and lower than anticipated net revenues. Depreciation and amortization expenses remained approximately the same for the first six months of 1996 and 1995. Net interest income was $0.3 million during the first six months of 1996. Interest expense in the corresponding period of 1995 was $0.3 million. The interest income resulted from the investment of a portion of the Company's initial public offering proceeds in interest bearing securities. These investments produced interest earnings throughout four of the first six months of 1996. Income taxes were $0.7 million for the first six months of 1996 and approximately $0.8 million in the corresponding period of 1995, representing an effective rate of 39.4% and 35.1%, respectively. The 1996 and 1995 tax rates differed from an expected combined federal and state tax rate of 40% due principally to interest earned from tax exempt securities and to a $0.2 million reduction in the valuation allowance caused by the utilization of net operating loss carryforwards, respectively. Net income decreased approximately $0.3 million, or 23.3%, to approximately $1.1 million in the first six months of 1996, from approximately $1.4 million in the corresponding period of 1995, primarily as a result of the increase in field service costs and other spending categories discussed above coupled with approximately flat net revenues. RISK FACTORS The following risk factors should be carefully reviewed in addition to the other information contained in this Quarterly Report on Form 10-Q. Concentrated Client Base The Company's success is dependent in part upon its ability to maintain its existing clients and to obtain new clients. The Company's ten largest clients generated approximately 55.1% and 58.8% and 56.4% and 57.6% of the Company's net revenues for the quarters and six month periods ended June 30, 1996 and 1995, respectively. During these periods, none of the Company's manufacturer or retailer clients accounted for greater than 10% of net revenues, other than S.C. Johnson Wax, which accounted for approximately 13.6% and 13.3% of net revenues for the quarter and for the six month period ended June 30, 1996, respectively and Thrifty Payless, Inc. which accounted for approximately 16.6% and 14.1% for the quarter and for the six month period ended June 30, 1995, respectively. The majority of the Company's contracts with its clients for routed coverage have one-year terms. PIA believes that the uncollectibility of amounts due from any of its large clients, the loss of one or more of such clients, a significant reduction in business from such clients, or the inability to attract new clients, could have a material adverse effect on the Company's results of operations. Increase in Services Required Under Fixed Price Contracts Manufacturers who sell their products through retail grocery stores generally are required by the retailer to provide labor support inside these stores for a variety of purposes, including new store sets and existing store resets, remerchandisings, remodels and category implementations. The Company has historically contracted with its manufacturer clients to provide these services, among others, for a monthly flat fee or, in some cases, for a commission. Substantially all of the Company's current contracts provide for one of these two types of arrangements. As requests for retailer-mandated services and new product introductions by manufacturers have increased over the past several years, the Company's labor expense has increased without any related increase in its revenue. Consequently, the Company has reevaluated its approach to contracting with its clients, and is currently engaged in an effort to revise its existing contracts upon their renewal to implement provisions that charge for retailer-mandated services separately from traditional merchandising and shelf maintenance tasks. In addition, the Company has recently developed a new, standard contract that provides this activity-based approach to pricing for the Company's more recent customers. The Company has recently renewed its contracts with two of its major manufacturer clients using activity-based pricing, and is currently in the process of renegotiating contracts upon their annual renewal with certain of its other major clients. However, no assurance can be given that PIA will be successful in renewing its other contracts on this basis. If PIA is not successful in so renegotiating its major contracts, its margins could be adversely affected. Uncertainty of Commission Income Approximately 19.0% and 19.1% of the Company's net revenues for the quarter and six month period ended June 30, 1996, respectively was earned under commission-based contracts. These contracts provide for commissions based on a percentage of the client's net sales of certain of its products to designated retailers. Some of these contracts also provide for a guaranteed minimum compensation to the Company. Commissions paid to PIA under these contracts have had a significant effect on the Company's profitability in certain quarters. Under these contracts, the Company generally receives a draw on a monthly or quarterly basis, which is then applied against commissions earned. Adjustments are made on a monthly or quarterly basis upon receipt of reconciliations between commissions earned from the client and the draws previously received. The reconciliations typically result in commissions owed to the Company in excess of previous draws; however, the Company cannot predict with accuracy the level of its clients' commission-based sales. Accordingly, the amount of commissions in excess of or less than the draws previously received will fluctuate and can significantly affect the Company's operating results in any quarter. In addition, the amount of commissions earned by the Company under these contracts varies seasonally, and generally corresponds to the peak selling seasons of the clients who have entered into these types of contracts. Historically, the Company has recognized greater commission income in its first and fourth quarters due to the timing of such clients' sales. PIA Merchandising Services, Inc. PART II: OTHER INFORMATION Item 1: Legal Proceedings None Item 2: Changes in Securities None Item 3: Defaults Upon Senior Securities None Item 4: Submission of Matters to a Vote of Security Holders None Item 5: Other Information None Item 6: Exhibits and Reports on Form 8-K. (11) Computation of Earnings Per Share The Company did not file any reports on Form 8-K during the three months ended June 30, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PIA MERCHANDISING SERVICES, INC. (Registrant) By: /s/ Clinton E. Owens ------------------------------- Clinton E. Owens Chairman of the Board and Chief Executive Officer By: /s/ Robert E. Polentz ------------------------------- Robert E. Polentz Senior Vice President and Chief Financial Officer Dated: August 2, 1996 EX-11 2 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE Exhibit 11 PIA MERCHANDISING SERVICES, INC. COMPUTATION OF EARNINGS PER SHARE - -------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 1996 1995 1996 1995 ---- ---- ---- ---- PRIMARY Net income $ 206 $ 736 $1,104 $1,439 ------- ------- ------ ------ ------- ------- ------ ------ Common and common equivalent shares outstanding: Weighted average shares of common stock 5,792 3,084 5,047 3,084 Options 547 175 531 175 Warrants 115 1,050 114 1,050 ------- ------- ------ ------ Common and common equivalent shares used in computing per share amounts 6,454 4,309 5,692 4,309 ------- ------- ------ ------ Net income per common and common equivalent share $ .03 $ .17 $ .19 $ .33 ------- ------- ------ ------ ------- ------- ------ ------ FULLY DILUTED Net income $ 206 $ 736 $1,104 $1,439 ------- ------- ------ ------ ------- ------- ------ ------ Common and common equivalent shares outstanding: Weighted average shares of common stock 5,792 3,084 5,046 3,084 Options 419 175 515 175 Warrants 101 1,050 101 1,050 ------- ------- ------ ------ Common and common equivalent shares used in computing per share amounts 6,311 4,309 5,662 4,309 ------- ------- ------ ------ Net income per common and common equivalent share $ .03 $ .17 $ .20 $ .33 ------- ------- ------ ------ ------- ------- ------ ------
EX-27 3 EXHIBIT 27 FINANCIAL DATA SCHEDULE
5 0001004989 PIA MERCHANDISING 1,000 3-MOS DEC-31-1995 APR-01-1996 JUN-30-1996 20,463 0 15,417 451 0 37,425 3,958 1,951 39,886 5,886 0 0 0 58 33,642 39,886 0 26,855 0 21,845 4,876 96 (286) 324 118 206 0 0 0 206 0.03 0.03
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