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
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
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------- ------- ------ ------
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
------- ------- ------ ------
------- ------- ------ ------
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
