-----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, WcYRNvNz9JCNBSLhP0xx3nB6FRkMpGSRa5zYaN6wd9t/TCwOZ9V1y756EECdW+yr J06xh/4QuPqvPd8EFMtDHg== 0000950109-96-004106.txt : 19960701 0000950109-96-004106.hdr.sgml : 19960701 ACCESSION NUMBER: 0000950109-96-004106 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19960628 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEATTLE FILMWORKS INC CENTRAL INDEX KEY: 0000791050 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PHOTOFINISHING LABORATORIES [7384] IRS NUMBER: 910964899 STATE OF INCORPORATION: WA FISCAL YEAR END: 0928 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-15338 FILM NUMBER: 96587585 BUSINESS ADDRESS: STREET 1: 1260 16TH AVE WEST CITY: SEATTLE STATE: WA ZIP: 98119 BUSINESS PHONE: 2062811390 MAIL ADDRESS: STREET 1: 1260 16TH AVENUE WEST CITY: SEATTLE STATE: WA ZIP: 98119 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN PASSAGE MARKETING CORP DATE OF NAME CHANGE: 19890320 10-K/A 1 FORM 10-K/A (AMENDMENT NO. 2) SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K/A (Amendment No. 2) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1995 or [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-15338 SEATTLE FILMWORKS, INC. (Exact name of registrant as specified in its charter) Washington 91-0964899 (State or other jurisdiction of (I.R.S.) Employer incorporation or organization Identification No.) 1260 16th Avenue West Seattle, Washington 98119 (206) 281-1390 (Address, including zip code, and telephone number, including area code of principal executive offices) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No - - Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of November 30, 1995, there were issued and outstanding 7,153,978 shares of Common Stock, par value $.01 per share. As of November 30, 1995, the aggregate market value of the Registrant's Common Stock held by nonaffiliates of the Registrant was $101,024,175 based on the last sale price of the Registrant's Common Stock as reported on the Nasdaq National Market. ITEM 6 - SELECTED FINANCIAL DATA The selected financial data set forth below with respect to the Company's statements of income for the years ended September 30, 1995, September 24, 1994 and September 25, 1993 and the Company's balance sheets at September 30, 1995 and September 24, 1994 are derived from the audited financial statements included elsewhere in this report and should be read in conjunction with those financial statements and their related footnotes. The selected income statement data for the years ended September 26, 1992 and September 28, 1991 and selected balance sheet data at September 25, 1993, September 26, 1992 and September 28, 1991 are derived from audited financial statements which are not included in this report. 10 SEATTLE FILMWORKS, INC. SELECTED FINANCIAL DATA (In thousands, except share information)
Fiscal Years 1995 1994 1993 1992 1991 ==================================================================================================================================== Income Statement Data: - ---------------------- Net revenues $62,185 $49,753 $42,728 $38,442 $36,645 Gross profit 24,057 18,907 17,269 15,694 15,083 Operating expenses 15,729 12,709 12,284 11,660 11,666 Net income $ 5,682 $ 4,438 $ 3,570 $ 2,905 $ 2,373 ======= ======= ======= ======= ======= Income as a percent of revenues 9.1% 8.9% 8.4% 7.6% 6.5% Earnings per share* $ .73 $ .54 $ .43 $ .35 $ .29 ======= ======= ======= ======= ======= Weighted average shares* outstanding 7,821,174 8,263,118 8,238,771 8,177,364 8,120,529 ========= ========= ========= ========= ========= Balance Sheet Data: - ------------------- Capitalized customer acquisition expenditures 7,356 4,458 3,832 3,349 3,283 Total assets 28,244 18,835 ** 19,632 15,538 11,474 Long-term obligations 0 0 0 0 0 Shareholders' equity $17,932 $11,347 ** $13,376 $ 9,553 $ 6,541 ======= ======= ======= ======= =======
See notes to financial statements. * All earnings per share data reflects a three for two stock split distributed February 26, 1993, a two for one stock split distributed March 16, 1994, and a three for two stock split distributed March 15, 1995. ** Reflects the impact of repurchasing 500,000 shares of common stock for $6,643,000 during the fourth quarter of fiscal 1994. 11 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See pages 16 through 27. 15 REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS Shareholders and Board of Directors SEATTLE FILMWORKS, INC. We have audited the accompanying balance sheets of SEATTLE FILMWORKS, INC. as of September 30, 1995 and September 24, 1994, and the related statements of income, shareholders' equity, and cash flows for each of the three years in the period ended September 30, 1995. We have also audited the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SEATTLE FILMWORKS, INC. at September 30, 1995 and September 24, 1994, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement 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. //s// Ernst & Young LLP Seattle, Washington November 8, 1995 16 SEATTLE FILMWORKS, INC. BALANCE SHEETS (in thousands)
September 30, September 24, ASSETS 1995 1994 ================================================================================ CURRENT ASSETS Cash and cash equivalents $ 8,560 $ 2,711 Securities available for sale 1,345 1,330 Accounts receivable, net of allowance for doubtful accounts of $546 and $461 in 1995 and 1994, respectively 1,242 1,369 Inventories 4,626 3,659 Capitalized promotional expenditures 158 388 Prepaid expenses and other 164 191 Deferred income taxes 398 316 ------- ------- TOTAL CURRENT ASSETS 16,493 9,964 FURNITURE, FIXTURES, AND EQUIPMENT, at cost, less accumulated depreciation (Note C) 3,200 2,986 CAPITALIZED CUSTOMER ACQUISITION EXPENDITURES 7,356 4,458 DEPOSITS AND OTHER ASSETS 68 95 NONCOMPETE AGREEMENTS (Note B) 1,127 1,332 ------- ------- TOTAL ASSETS $28,244 $18,835 ======= =======
17 SEATTLE FILMWORKS, INC. BALANCE SHEETS (continued) (in thousands, except share information)
September 30, September 24, LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994 ================================================================================ CURRENT LIABILITIES Accounts payable $ 4,782 $ 2,958 Accrued expenses 2,364 1,991 Income taxes payable 856 1,141 ------- ------- TOTAL CURRENT LIABILITIES 8,002 6,090 DEFERRED INCOME TAXES 2,310 1,398 ------- ------- TOTAL LIABILITIES 10,312 7,488 SHAREHOLDERS' EQUITY (Notes G and H) Preferred Stock, $.01 par value, authorized 2,000,000 shares, non issued Common Stock, $.01 par value, authorized 45,000,000 shares, issued and outstanding 7,143,714 and 7,007,039 in 1995 and 1994, respectively 71 70 Additional paid-in capital 955 53 Retained earnings 16,906 11,224 ------- ------- TOTAL SHAREHOLDERS'S EQUITY 17,932 11,347 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,244 $18,835 ======= =======
See notes to financial statements. 18 SEATTLE FILMWORKS, INC. STATEMENTS OF INCOME (in thousands, except share information)
Fiscal Years Ended September 30, September 24, September 25, 1995 1994 1993 ================================================================================ Net revenues $62,185 $49,753 $42,728 Cost of goods and services 38,128 30,846 25,459 ------- ------- ------- GROSS PROFIT 24,057 18,907 17,269 Operating expenses: Customer acquisition costs 8,579 6,516 7,115 Other selling expenses 4,035 3,458 2,868 Research and development 458 459 285 General and administrative 2,657 2,276 2,016 ------- ------- ------- Total operating expenses 15,729 12,709 12,284 ------- ------- ------- INCOME FROM OPERATIONS 8,328 6,198 4,985 Other income (expense): Interest expense (4) (25) (10) Interest income 276 222 201 Nonoperating income (expense), net (20) (10) 99 ------- ------- ------- Total other income 252 187 290 ------- ------- ------- INCOME BEFORE INCOME TAXES 8,580 6,385 5,275 Provision for income taxes (Note F) 2,898 1,947 1,705 ------- ------- ------- NET INCOME $ 5,682 $ 4,438 $ 3,570 ======= ======= ======= EARNINGS PER SHARE $ .73 $ .54 $ .43 ======= ======= ======= WEIGHTED AVERAGE SHARES AND EQUIVALENTS OUTSTANDING 7,821,174 8,263,118 8,238,771 ========= ========= =========
See notes to financial statements. 19 SEATTLE FILMWORKS, INC. STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except share information)
Common Stock Shares Par Paid-In Retained Outstanding Value Capital Earnings Total ============================================================================================================== BALANCE AS OF SEPTEMBER 26, 1992 7,424,028 $74 $154 $9,325 $9,553 Stock options exercised 344,889 3 11 14 Income tax benefit of stock options 571 571 Purchase and retirement of Common Stock (67,854) (164) (168) (332) Net income 3,570 3,570 --------- --- ---- ------ ------- BALANCE AS OF SEPTEMBER 25, 1993 7,701,063 77 572 12,727 13,376 Stock options exercised 38,252 1 32 33 Income tax benefit of stock options 50 50 Employee stock purchase plan 17,724 93 93 Purchase and retirement of Common Stock (750,000) (8) (694) (5,941) (6,643) Net income 4,438 4,438 --------- --- ---- ------ ------ BALANCE AS OF SEPTEMBER 24, 1994 7,007,039 70 53 11,224 11,347 Stock options exercised 77,300 1 274 275 Income tax benefit of stock options 333 333 Employee stock purchase plan 63,075 349 349 Purchase and retirement of Common Stock (3,700) (54) (54) Net income 5,682 5,682 --------- --- ---- ------- ------- BALANCE AS OF SEPTEMBER 30, 1995 7,143,714 $ 71 $955 $16,906 $17,932 ========= === ==== ======= =======
See notes to financial statements. 20 SEATTLE FILMWORKS, INC. STATEMENTS OF CASH FLOWS (in thousands)
Fiscal Years Ended September 30, September 24, September 25, 1995 1994 1993 ===================================================================================================== OPERATING ACTIVITIES: - --------------------- Net income $ 5,682 $ 4,438 $ 3,570 Charges to income not affecting cash: Depreciation and amortization 1,608 1,320 887 Amortization of capitalized customer acquisition expenditures 6,289 4,684 3,542 Deferred income taxes 830 (89) (20) Loss on disposal of equipment 24 5 16 Net change in receivables, inventories, payables, and other 1,432 (672) 209 Capitalized promotional expenditures, net 230 (46) 150 Additions to capitalized customer acquisition expenditures (9,187) (5,310) (4,025) ------- ------- ------- NET CASH FROM OPERATING ACTIVITIES 6,908 4,330 4,329 INVESTING ACTIVITIES: - --------------------- Purchase of furniture, fixtures, and equipment (1,633) (1,414) (1,091) Purchases of securities available for sale (1,356) (3,060) (4,450) Sales of securities available for sale 1,341 5,280 900 Proceeds from sale of equipment 19 22 Purchase of assets from Private Label Film, Inc. (1,637) ------- ------- ------- NET CASH USED IN INVESTING ACTIVITIES (1,629) (809) (4,641) FINANCING ACTIVITIES: - --------------------- Proceeds from issuance of Common Stock 624 126 12 Payment on purchase of Common Stock (54) (6,643) (330) ------- ------- ------- NET CASH FROM (USED IN) FINANCING ACTIVITIES 570 (6,517) (318) ------- ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,849 (2,996) (630) Cash and cash equivalents at beginning of year 2,711 5,707 6,337 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,560 $ 2,711 $ 5,707 ======= ======= =======
See notes to financial statements. 21 SEATTLE FILMWORKS, INC. NOTES TO FINANCIAL STATEMENTS NOTE A -- OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SEATTLE FILMWORKS, INC. (the "Company") principally markets 35mm photographic film, photofinishing services, and related photographic products on a direct-to-consumer mail order basis under the brand name of Seattle FilmWorks(R). The Company also markets 35mm photographic film on a wholesale basis to mini photofinishing labs under the brand name of OptiColor Film & Photo(TM). CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand and highly liquid short-term investments with an original maturity of less than three months. SECURITIES AVAILABLE FOR SALE: Securities available for sale consist primarily of bankers' acceptances, commercial paper, and government securities issued by financial institutions with high credit ratings. Company policy limits the amount of credit exposure with any one financial institution. The fiscal year 1995 balance of $1,345,000 consisted of bankers' acceptances with maturity dates within six months of the fiscal year-end. The fiscal year 1994 balance of $1,330,000 consisted of $550,000 in bankers' acceptances and $780,000 in government securities. ACCOUNTS RECEIVABLE: Accounts receivable primarily include amounts due from mail order customers from the sale of related photographic products and amounts due from wholesale customers from the sale of film. An allowance for doubtful accounts is established for an estimate of bad debts. The provision for bad debts was $639,000, $481,000, and $333,000 for the years ended 1995, 1994, and 1993, respectively. INVENTORIES: Inventories are stated at the lower of cost (determined using the first-in, first-out method) or market. Inventories consist primarily of film and photofinishing supplies. CAPITALIZED PROMOTIONAL EXPENDITURES: The Company's promotional programs run for periods of one to six months. Promotional expenditures primarily consist of advertising and media costs related to generating consumer interest in the Company's photofinishing services. The Company expenses these costs as promotional and advertising expenditures and expenses them the first time the promotion is run. Advertising expense was $1,882,000, $1,944,000, and $1,652,000 in fiscal 1995, 1994, and 1993 respectively. DEPRECIATION AND AMORTIZATION: Depreciation is provided using the straight- line and accelerated methods based on estimated useful asset lives ranging from three to seven years. Expenditures for major remodeling and improvements are capitalized as leasehold improvements. Leasehold improvements are amortized over the shorter of the life of the lease or the life of the asset. Noncompete agreements are amortized as other selling expenses on an accelerated basis over the ten-year life of the agreements. CAPITALIZED CUSTOMER ACQUISITION EXPENDITURES: The Company's method of obtaining film processing customers is to provide rolls of film at a low cost or for free. These capitalized customer acquisition expenditures are capitalized (exclusive of promotional expenditures) and are amortized over succeeding periods, pro rata, based on estimated future rolls to be received from customers. Recent customer processing statistics are the principal factors used in estimating future processing. Based on the historical pattern of customer orders processed and the estimate of orders to be processed in the future, future amortization of capitalized customer acquisition expenditures as of September 30, 1995 will be $4,914,802, $1,879,138, and $562,080 in 1996, 1997, and 1998, respectively. 22 NOTE A -- OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) INCOME TAXES: The provision for federal income taxes is computed based on pretax income reported in the financial statements. Research and Development tax credits are recorded as a reduction of the provision for federal income taxes in the year realized. The provision for income taxes differs from income taxes currently payable because certain items of income and expense are recognized in different periods for financial reporting purposes than they are for federal income tax purposes. Deferred income taxes have been recorded in recognition of these temporary differences. The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," in the first quarter of fiscal year 1994. The adoption of this new Standard did not have a significant impact on operating results because the Company had previously adopted Statement of Financial Accounting Standards No. 96 in the first quarter of fiscal 1988. EARNINGS PER SHARE: Earnings per share is based on the weighted average number of shares and dilutive common stock equivalents outstanding during the fiscal year. Common stock equivalents consist of stock options. NEW ACCOUNTING PRONOUNCEMENTS: In May 1993, the FASB issued SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company adopted this new Standard in the first quarter of fiscal year 1995. This Statement implements more restrictive criteria for recording debt securities at cost. Upon adoption, the Company's investments were classified as available for sale and stated at fair value. This adoption does not significantly impact the September 30, 1995 financial statements, as the amortized cost of the Company's investments approximate their fair values due to their high credit ratings and short-term maturities within six months of the Company's fiscal year-end. In December 1993, the American Institute of Certified Public Accountants issued Statement of Position 93-7, "Reporting on Advertising Costs." The Company adopted this Standard in the first quarter of fiscal 1995. The adoption of the new Standard does not impact the Company's accounting practices except that all capitalized customer acquisition expenditures have been classified as noncurrent. Previously, capitalized customer acquisition expenditures amortizable within one year were recorded as current assets. This change has the effect of reducing the Company's current ratio and working capital. RECLASSIFICATIONS: Certain prior year amounts have been reclassified to conform with the 1995 financial statements, primarily related to the reclassification of all capitalized customer acquisition expenditures and deferred tax liabilities to long term. NOTE B -- ACQUISITION OF PRIVATE LABEL FILM BUSINESS On December 30, 1993, the Company acquired certain assets of Private Label Film, Inc. for approximately $1,637,000. The assets relate to the manufacture and sale of private-label film and related products to retailers and commercial users. This acquisition has been accounted for using the purchase method. The purchase price was recorded as follows: equipment $100,000; and other assets of $1,536,830 related to noncompete agreements which includes capitalized legal and accounting expenses. 23 NOTE C -- FURNITURE, FIXTURES, AND EQUIPMENT Furniture, fixtures, and equipment consist of the following:
(in thousands) September 30, September 24, 1995 1994 ================================================================================ Furniture, fixtures, and equipment $ 9,673 $ 9,168 Leasehold improvements 1,610 1,610 -------- -------- 11,283 10,778 Less accumulated depreciation and amortization (8,083) (7,792) -------- -------- $ 3,200 $ 2,986 ======== ========
NOTE D -- CREDIT AGREEMENTS AND ACCRUED EXPENSES At September 30, 1995, the Company has a $5,000,000 available line of credit, with interest at the lending bank's prime rate. Amounts borrowed on the line of credit would be secured by receivables and inventories of the Company. There were no borrowings outstanding at the end of 1995 or 1994 under the line of credit. The Company is restricted under the covenants of a bank loan agreement from declaring any dividends on shares of its capital stock without the bank's prior consent. Accrued expenses at the end of 1995 and 1994 include accrued compensation of $1,537,000 and $1,197,000, respectively. NOTE E -- PROPERTY AND LEASES The Company's primary lease relates to its main operating facility. This lease expires in September 2000. During fiscal year 1995, the Company entered into a lease agreement for additional warehouse and limited production space. This lease begins in February 1996 and expires in January 1999. The Company has an option to extend this lease for two one-year periods. At September 30, 1995, future minimum payments under noncancelable operating leases for the years 1996 through 2000 are $443,000, $460,000, $460,000, $314,000, and $242,000, respectively. Rental expense relating to operating leases for 1995, 1994, and 1993 was $353,000, $335,000, and $314,000, respectively. 24 NOTE F -- INCOME TAXES The provision for income taxes is as follows:
(in thousands) 1995 1994 1993 ======================================================================================================================== Provisions (benefits) for income taxes Current $2,068 $2,036 $1,725 Deferred 830 (89) (20) ------ ------ ------ $2,898 $1,947 $1,705 ====== ====== ======
A reconciliation of the federal statutory tax rates to the effective tax rates is as follows:
1995 1994 1993 ======================================================================================================================== Statutory tax rate 34.0% 34.0% 34.0% Research and development tax credits (.4) (.5) (.9) Other, net .2 (3.0) (.8) ---- ---- ---- 33.8% 30.5% 32.3% ==== ==== ====
Principal items comprising the cumulative deferred income taxes are as follows:
1995 1994 ======================================================================================================================== Deferred tax liabilities: Customer acquisition expenditures $ 2,501 $ 1,517 Other liabilities 175 196 ------- ------- Total deferred tax liabilities 2,676 1,713 Deferred tax assets: Accrued expenses 573 512 Depreciation and amortization 191 119 ------- ------- Total deferred tax assets 764 631 ------- ------- Net deferred tax liability $ 1,912 $ 1,082 ======= =======
Taxes paid in 1995, 1994, and 1993 were $2,020,000, $1,520,000, and $1,070,000, respectively. NOTE G -- SHAREHOLDERS' EQUITY Stock Options Pursuant to the Company's Stock Option Plans adopted in 1982 and 1987, options may be granted to purchase up to 2,868,750 shares of Common Stock at prices equal to the fair market value of the shares at the time the options are granted. Options generally vest over four years and become exercisable commencing one year after the date of grant and expiring ten years after the date of grant. Shares of Common Stock reserved for issuance under these stock option plans totaled 1,071,095 at September 30, 1995, of which 128,051 were available for options to be granted in the future. 25 NOTE G -- SHAREHOLDERS' EQUITY (continued) The following schedule summarizes stock option activity for fiscal years 1993, 1994, and 1995.
Option Price Number of Shares Per Share ================================================================================ Outstanding at September 26, 1992 (675,174 shares exercisable) 935,388 $.08 - $3.95 Granted during 1993 281,400 $4.67 - $5.67 Canceled during 1993 (2,250) $1.23 - $4.67 Exercised during 1993 (380,880) $.08 - $1.50 Outstanding at September 25, 1993 (574,647 shares exercisable) 833,658 $.18 - $5.25 Granted during 1994 72,600 $6.00 - $12.17 Canceled during 1994 (12,450) $1.95 - $7.00 Exercised during 1994 (38,252) $.18 - $4.67 Outstanding at September 24, 1994 (639,819 shares exercisable) 855,556 $.39 - $9.67 Granted during 1995 101,550 $10.75 - $21.25 Canceled during 1995 (14,063) $4.67 - $11.17 Exercised during 1995 (77,300) $.39 - $9.83 Outstanding at September 25, 1995 (669,880 shares exercisable) 865,743 $.42 - $13.67 =======
Employee Stock Purchase Plan Effective September 22, 1993, the Company adopted an Employee Stock Purchase Plan under which options may be granted to purchase up to 225,000 shares of Common Stock. Under the Plan, eligible employees may purchase shares of the Company's Common Stock at six-month intervals at 85% of the lower of the fair market value on the first day of the two-year offering period or the last day of each six-month purchase period. Employees may purchase shares having a value not exceeding 10% of their gross compensation during the purchase period. During 1995, shares totaling 63,075 were issued under the Plan at prices ranging from $5.2417 to $12.325 per share. At September 30, 1995, 144,201 shares were reserved for future issuance. In May 1995, the Employee Stock Purchase Plan was amended to change the purchase price under which shares may be purchased to 85% of the lower of the fair market value on the first day of the six-month purchase period or the last day of the six-month purchase period. This change is effective for purchases after October 1, 1995. Stock Splits A three-for-two stock split was distributed February 26, 1993, a two-for- one stock split was distributed March 16, 1994, and a three-for-two stock split was distributed March 15, 1995. All share data, per share data, and related accounts in the accompanying financial statements and footnotes have been restated to retroactively reflect the stock splits. 26 NOTE G -- SHAREHOLDERS' EQUITY (continued) Purchase and Retirement of Common Stock On July 20, 1994, the Company repurchased 750,000 shares, or approximately 10% of its outstanding Common Stock, from Mr. Sam Rubinstein, a Director and the largest shareholder of the Company, in a private transaction for $8.67 per share plus legal and brokerage fees. NOTE H -- RETIREMENT AND PROFIT SHARING PLAN The Company maintains a 401(k) Plan for substantially all employees. The Company's contributions are based on matching a percentage of voluntary employee contributions and discretionary profit sharing contributions determined by the Board of Directors. The Company's contributions were $366,000, $285,000, and $237,000 for 1995, 1994, and 1993, respectively. NOTE I -- SELECTED QUARTERLY FINANCIAL DATA (Unaudited) The following table sets forth summary financial data for the Company by quarter for the fiscal years 1995 and 1994 (in thousands, except per share data).
Quarters First Second Third Fourth - -------------------------------------------------------------------- Fiscal 1995 ----------- Net Revenue $12,270 $12,293 $15,791 $21,831 Gross Profit 4,590 4,152 6,136 9,179 Net Income 655 339 1,513 3,175 Earnings Per Share .09 .04 .19 .40 Fiscal 1994 ----------- Net Revenue $10,600 $10,672 $12,872 $15,609 Gross Profit 3,968 3,803 4,776 6,360 Net Income 543 279 1,176 2,440 Earnings Per Share .06 .03 .14 .31
The sum of quarterly earnings per share will not necessarily equal the earnings per share reported for the year since the weighted average shares outstanding used in the earnings per share computation changes throughout the year. All earnings per share data presented above has been adjusted to reflect the three-for-two stock split distributed March 15, 1995. See Note G. 27
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K a. Index to Financial Statements and Financial Statement Schedules --------------------------------------------------------------- (1) Financial Statements Page -------------------- ---- Report of Ernst & Young, Independent Auditors 16 Balance Sheets as of September 30, 1995 and September 24, 1994 17-18 Statements of Income for the years ended September 30, 1995, September 24, 1994, and September 25, 1993 19 Statements of Shareholders' Equity for the years ended September 30, 1995, September 24, 1994, and September 25, 1993 20 Statements of Cash Flows for the years ended September 30, 1995, September 24 1994, and September 25, 1993 21 Notes to Financial Statements 22-27
Supplemental Financial Statement Schedule. The following additional information should be read in conjunction with the Financial Statements of the Company included in Part II, Item 8. 28
(2) Schedule Page -------- ---- II - Valuation and Qualifying Accounts 32
All other schedules have been omitted because the required information is included in the financial statements or the notes thereto, or is not applicable or required. b. Reports on Form 8-K ------------------- None. c. Exhibits -------- The following list is a subset of the exhibits set forth below and contains all compensatory plans, contracts, or arrangements in which any director or executive officer of the Company is a participant, unless the method of allocation of benefits thereunder is the same for management and non- management participants: (1) The Company's Incentive Stock Option Plan, as amended and restated as of November 23, 1992. See Exhibit 10.36 (2) The Company's 1987 Stock Option Plan, as amended and restated as of November 23, 1992. See Exhibit 10.38 Exhibit Number Exhibit Description - ------- ------------------- 3.1 Articles of Incorporation of the Company, as amended through February 23, 1989. (Incorporated by reference to Exhibit 3.1 filed with the Company's Annual Report on Form 10-K for the year ended September 30, 1989.) 3.2 Bylaws of the Company, as amended and restated on September 15, 1988. (Incorporated by reference to Exhibit 3.2 filed with the Company's Annual Report on Form 10-K for the year ended September 24, 1988.) 3.3 Articles of Amendment to Articles of Incorporation dated July 1, 1993. (Incorporated by reference to Exhibit 3.3 filed with the Company's Annual Report on Form 10-K for the year ended September 25, 1993.) 3.4 Articles of Amendment to Articles of Incorporation dated March 2, 1994. (Incorporated by reference to Exhibit 3.4 filed with the Company's Annual Report on Form 10-K for the year ended September 24, 1994.) 3.5 Articles of Amendment to Articles of Incorporation dated February 16, 1995. (Incorporated by reference to Exhibit 3 filed with the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1995.) 29 10.2 Lease Agreement dated September 10, 1985 between Gilbert Scherer and Marlyn Friedlander, Lessors, and the Company with respect to certain office and plant facilities in Seattle, Washington. (Incorporated by reference to the exhibit with a corresponding number filed with the Company's registration statement on Form S-1 (file no. 33-4388.) 10.36 Incentive Stock Option Plan, as amended and restated as of November 23, 1992. (Incorporated by reference to Exhibit 10.36 filed with the Company's Annual Report on Form 10-K for the year ended September 25, 1993.) 10.37 Form of Incentive Stock Option Agreement. (Incorporated by reference to Exhibit 10.2 filed with the Company's Registration Statement on Form S-8, file no. 33-24107.) 10.38 1987 Stock Option Plan, as amended and restated as of November 23, 1992. (Incorporated by reference to Exhibit 10.38 filed with the Company's Annual Report on Form 10-K for the year ended September 25, 1993.) 10.39 Form of Stock Option Agreement. (Incorporated by reference to Exhibit 10.4 filed with the Company's Registration Statement on Form S-8, file no. 33-24107.) 10.48 First Amendment to Facility Lease Agreement dated April 29, 1989, with Gilbert Scherer and Marlyn Friedlander, Lessors. (Incorporated by reference to Exhibit 10.48 filed with the Company's Annual Report on Form 10-K for the year ended September 30, 1989.) 10.56 Sales Contract dated September 9, 1992 between the Company and Agfa Division of Miles Inc. with respect to the purchase of certain products. (Incorporated by reference to Exhibit 10.56 filed with the Company's Annual Report on Form 10-K for the year ended September 26, 1992.) 10.58+ 1993 Employee Stock Purchase Plan as amended and restated as of May 31, 1995. 10.59 Purchase and Sale Agreement dated as of December 16, 1993 and related Amendment to Purchase and Sale Agreement dated December 30, 1993 among Seattle FilmWorks, Inc., Private Label Film, Inc. and certain shareholders of Private Label Film, Inc. (Incorporated by reference to Exhibits 2.1 and 2.2 filed with the Company's Report on Form 10-Q dated February 7, 1994.) 10.60 Business Loan Agreement with First Interstate Bank of Washington N.A. as amended and restated on March 31, 1994. (Incorporated by reference to Exhibit 10.60 filed with the Company's Annual Report on Form 10-K for the year ended September 24, 1994.) 10.61 Stock Redemption Agreement dated July 20,1994 between the Company and Sam Rubinstein and related promissory note. (Incorporated by reference to Exhibits 5.1 and 5.2 filed with the Company's Report on Form 8-K dated July 22, 1994.) 10.62 Business Loan Agreement with First Interstate Bank of Washington N.A.as amended and restated on February 28, 1995. (Incorporated by reference to Exhibit 10 filed with the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1995.) 10.63+ Lease Agreement dated September 22, 1995 between the United States of America, Lessors, and the Company with respect to certain plant and warehouse facilities in Seattle, Washington. 30 10.64+ Sales contract dated August 18, 1995 between the Company and Agfa Division of Miles, Inc. with respect to the purchase of certain products. 11+ Computation of Per Share Earnings. 23** Consent of Independent Auditors * Exhibit for which confidential treatment has been requested. + Incorporated by reference to Exhibits 10.58, 10.63, 10.64 and 11 filed with the Company's Annual Report on Form 10-K for the year ended September 30, 1995. ** Replaces previously filed exhibit. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized. SEATTLE FILMWORKS, INC. (REGISTRANT) DATED: June 27, 1996 By: /s/ Case H. Kuehn ---------------------------- Case H. Kuehn Vice President-Finance Chief Financial Officer (Principal Financial and Accounting Officer) 2 EXHIBIT INDEX ------------- Annual Report on Form 10-K/A (Amendment No.2) For The Year Ended September 30, 1995
Exhibit Page Number Exhibit Description Number - ------- ------------------- ------ 3.1 Articles of Incorporation of the Company, as amended through February 23, 1989. (Incorporated by reference to Exhibit 3.1 filed with the Company's Annual Report on Form 10-K for the year ended September 30, 1989.) 3.2 Bylaws of the Company, as amended and restated on September 15, 1988. (Incorporated by reference to Exhibit 3.2 filed with the Company's Annual Report on Form 10-K for the year ended September 24, 1988.) 3.3 Articles of Amendment to Articles of Incorporation dated July 1, 1993. (Incorporated by reference to Exhibit 3.3 filed with the Company's Annual Report on Form 10-K for the year ended September 25, 1993.) 3.4 Articles of Amendment to Articles of Incorporation dated March 2, 1994. (Incorporated by reference to Exhibit 3.4 filed with the Company's Annual Report on Form 10-K for the year ended September 24, 1994.) 3.5 Articles of Amendment to Articles of Incorporation dated February 16, 1995. (Incorporated by reference to Exhibit 3 filed with the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1995.) 10.2 Lease Agreement dated September 10, 1985 between Gilbert Scherer and Marlyn Friedlander, Lessors, and the Company with respect to certain office and plant facilities in Seattle, Washington. (Incorporated by reference to the exhibit with a corresponding number filed with the Company's registration statement on Form S-1 (file no. 33-4388.) 10.36 Incentive Stock Option Plan, as amended and restated as of November 23, 1992. (Incorporated by reference to Exhibit 10.36 filed with the Company's Annual Report on Form 10-K for the year ended September 25, 1993.) 10.37 Form of Incentive Stock Option Agreement. (Incorporated by reference to Exhibit 10.2 filed with the Company's Registration Statement on Form S-8, file no. 33-24107.) 10.38 1987 Stock Option Plan, as amended and restated as of November 23, 1992. (Incorporated by reference to Exhibit 10.38 filed with the Company's Annual Report on Form 10-K for the year ended September 25, 1993.) 10.39 Form of Stock Option Agreement. (Incorporated by reference to Exhibit 10.4 filed with the Company's Registration Statement on Form S-8, file no. 33-24107.) 10.48 First Amendment to Facility Lease Agreement dated April 29, 1989, with Gilbert Scherer and Marlyn Friedlander, Lessors. (Incorporated by reference to Exhibit 10.48 filed with the Company's Annual Report on Form 10-K for the year ended September 30, 1989.)
34 c. Exhibits (continued) 10.56 Sales Contract dated September 9, 1992 between the Company and Agfa Division of Miles Inc. with respect to the purchase of certain products. (Incorporated by reference to Exhibit 10.56 filed with the Company's Annual Report on Form 10-K for the year ended September 26, 1992.) 10.58 x 1993 Employee Stock Purchase Plan as amended and restated as of May 31, 1995. 36 10.59 Purchase and Sale Agreement dated as of December 16, 1993 and related Amendment to Purchase and Sale Agreement dated December 30, 1993 among Seattle FilmWorks, Inc., Private Label Film, Inc. and certain shareholders of Private Label Film, Inc. (Incorporated by reference to Exhibits 2.1 and 2.2 filed with the Company's Report on Form 10-Q dated February 7, 1994.) 10.60 Business Loan Agreement with First Interstate Bank of Washington N.A. as amended and restated on March 31, 1994. (Incorporated by reference to Exhibit 10.60 filed with the Company's Annual Report on Form 10-K for the year ended September 24, 1994.) 10.61 Stock Redemption Agreement dated July 20,1994 between the Company and Sam Rubinstein and related promissory note. (Incorporated by reference to Exhibits 5.1 and 5.2 filed with the Company's Report on Form 8-K dated July 22, 1994.) 10.62 Business Loan Agreement with First Interstate Bank of Washington N.A. as amended and restated on February 28, 1995. (Incorporated by reference to Exhibit 10 filed with the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1995.) 10.63 x Lease Agreement dated September 22, 1995 between the United States of America, Lessors, and the Company with respect to certain plant and warehouse facilities in Seattle, Washington. 52 10.64*x Sales contract dated August 18, 1995 between 60 the Company and Agfa Divison of Miles, Inc. with respect to the purchase of certain products. 11 x Computation of Per Share Earnings. 79 23 ** Consent of Independent Auditors 80
* Exhibit for which confidential treatment has been requested. 35 x Incorporated by reference to Exhibits 10.58, 10.63, 10.64 and 11 filed with the Company's Report on Form 10-K for the year ended September 30, 1995. **Replaces previously filed exhibit. EX-23 2 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 Number 33-24107) pertaining to the Seattle FilmWorks, Inc. Incentive Stock Option Plan, the Registration Statement (Form S-8 Number 33- 36020) pertaining to the Seattle FilmWorks, Inc. 1987 Stock Option Plan, the Registration Statement (Form S-8 Number 33-69530) pertaining to the Seattle FilmWorks, Inc. 1993 Employee Stock Purchase Plan, the Registration Statement (Form S-8 Numbers 33-81332 and 333-02431) pertaining to the Seattle FilmWorks, Inc. Amended and RestatedIncentive Stock Option Plan and the Amended and Restated 1987 Stock Option Plan and the Registration Statement (Form S-3 Number 333-04957) and related Prospectus of Seattle FilmWorks, Inc. for the registration of 1,610,000 shares of its common stock of our report dated November 8, 1995, with respect to the financial statements and schedules of Seattle FilmWorks, Inc. included in the Annual Report (Form 10-KA (Amendment No. 2)) for the year ended September 30, 1995. //s// Ernst & Young LLP Seattle, Washington June 27, 1996 -----END PRIVACY-ENHANCED MESSAGE-----