SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended July 23, 1994
Commission File Number 1-10204
CPI CORP.
____________________________________________________________
(Exact Name of Registrant as Specified In Its Charter)
Delaware 43-1256674
- - ---------------------------------- ---------------------
(State of Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1706 Washington Avenue, St. Louis, Missouri 63103-1790
- - -------------------------------------------- -----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (314)231-1575
-------------
Indicate by check mark whether the registrant 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 has been subject to such filing requirements for
the past 90 days.
Yes _____X______ No ____________
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of the latest practicable
date.
Common Stock $.40 par value 13,894,517 shares
- - ---------------------------- --------------------------------
Class Outstanding at September 1, 1994
EXHIBIT INDEX ON PAGE 29
PAGE 1 OF 40
<PAGE>
<TABLE>
CPI CORP.
INDEX
<CAPTION>
PAGE NO.
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements:
Interim Condensed Consolidated Balance 4,5
Sheets - July 23, 1994, July 24, 1993
and February 5, 1994
Interim Condensed Consolidated Statements 6,7
of Earnings - For the 12 and 24 Weeks
Ended July 23, 1994 and July 24, 1993
Interim Condensed Consolidated Statements 8-10
of Changes in Stockholders' Equity - For
the 52 Weeks Ended February 5, 1994 and
for the 24 Weeks Ended July 23, 1994
Interim Condensed Consolidated Statements 11,12
of Cash Flows - For the 24 Weeks Ended
July 23, 1994 and July 24, 1993
Notes to Interim Condensed Consolidated 13-15
Financial Statements
Item 2. Management's Discussion and Analysis of 16-22
Financial Condition and Results of
Operations
Item 6.(a)
Exhibit 11 - Computation of Earnings 23,24
per Common Share
</TABLE>
2
<PAGE>
<TABLE>
CPI CORP.
INDEX
<CAPTION>
PAGE NO.
<S> <C>
Part II. Other Information:
Item 2. Changes in the Rights of Company's 25
Security Holders
Item 4. Results of Votes of Security Holders 25,26
Item 6. Exhibits and Reports on Form 8-K 27
Signature 28
</TABLE>
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CPI CORP.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS - ASSETS (UNAUDITED)
<CAPTION>
July 23, July 24, February 5,
1994 1993 1994
------------ ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash $ 4,435,484 $ 4,358,559 $ 4,304,171
Short-term investments 17,198,827 12,518,582 62,051,741
Receivables 18,774,959 16,866,504 21,057,245
Inventories 28,579,782 24,246,874 28,530,382
Deferred costs applicable
to unsold portraits 4,125,891 3,621,548 2,822,123
Prepaid expenses and other
current assets 7,683,074 8,835,620 9,005,393
------------ ----------- -----------
Total current assets 80,798,017 70,447,687 127,771,055
------------ ----------- -----------
Net property and equipment 139,861,924 108,902,450 114,328,773
Other assets:
Intangible assets 58,576,756 63,629,633 60,944,867
Other long-term assets 3,184,410 2,541,346 2,751,641
------------ ----------- -----------
$282,421,107 $245,521,116 $305,796,336
============ ============ ============
<FN>
See notes to interim condensed consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES
AND STOCKHOLDERS' EQUITY (UNAUDITED)
<CAPTION>
July 23, July 24, February 5,
1994 1993 1994
------------- ------------- ------------
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings $ --- $ 19,700,000 $ ---
Current maturities of
long-term obligations 194,203 431,091 292,468
Accounts payable 37,066,977 28,571,537 32,849,291
Accrued expenses and
other liabilities 19,042,386 16,653,032 21,046,068
Income taxes 1,585,486 2,715,650 8,767,222
Deferred income taxes,
net 1,967,851 1,294,321 2,232,429
------------- ------------- -------------
Total current
liabilities 59,856,903 69,365,631 65,187,478
------------- ------------- -------------
Long-term obligations,
less current maturities 59,727,718 330,169 59,810,789
Other liabilities 3,310,058 4,495,821 4,848,151
Deferred income taxes,
Net 150,983 2,004,280 441,445
Stockholders' equity:
Preferred stock, no par
value. 1,000,000
shares authorized;
no shares outstanding --- --- ---
Preferred stock, Series
A, no par value --- --- ---
Common stock, $.40 par
value, 50,000,000
shares authorized;
17,002,365,
16,978,880 and
16,978,869 shares
outstanding at July
23, 1994, July 24,
1993 and February 5,
1994, respectively 6,800,946 6,791,552 6,791,548
Additional paid-in
capital 29,644,209 29,262,689 29,262,531
Retained earnings 194,625,170 192,058,197 199,547,800
Cumulative foreign
currency translation
adjustment (1,855,595) (680,496) (1,381,524)
Treasury stock, at
cost, 3,040,263,
2,323,308 and
2,363,808 shares at
July 23, 1994, July
24, 1993 and February
5, 1994, respectively (69,720,437) (57,901,877) (58,556,032)
Unamortized deferred
compensation -
restricted stock (118,848) (204,850) (155,850)
------------- ------------- -------------
Total stockholders'
equity 159,375,445 169,325,215 175,508,473
------------- ------------- -------------
$282,421,107 $245,521,116 $305,796,336
============= ============= =============
<FN>
See notes to interim condensed consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
12 Weeks Ended July 23, 1994 and July 24, 1993
<CAPTION>
12 Weeks Ended
---------------------------
July 23, July 24,
1994 1993
------------- -------------
<S> <C> <C>
Net Sales $104,651,813 $ 95,385,928
Cost and expenses:
Cost of sales (exclusive of
depreciation expense shown
below) 32,900,575 28,113,793
Selling, administrative and
general expenses 60,037,082 56,508,547
Depreciation 7,078,576 6,027,345
Amortization of intangibles 1,236,335 1,533,246
------------- -------------
101,252,568 92,182,931
------------- -------------
Income from operations 3,399,245 3,202,997
Net interest expense (786,585) (62,031)
Severance and early
retirement benefit --- 150,000
Other income 107,983 168,373
------------- -------------
Earnings before
income taxes and
cumulative effect of
accounting change 2,720,643 3,459,339
Income tax expense 1,089,300 1,392,387
------------- -------------
Earnings before
cumulative effect
of accounting change 1,631,343 2,066,952
Cumulative effect of
accounting change --- ---
------------- -------------
Net earnings $ 1,631,343 $ 2,066,952
============= =============
Earnings before cumulative
effect of accounting change $ 0.11 $ 0.14
Cumulative effect of
accounting change --- ---
------------- -------------
Net earnings $ 0.11 $ 0.14
============= =============
Weighted average number of
common and common equivalent
shares outstanding 14,342,019 14,679,758
============= =============
<FN>
See notes to interim condensed consolidated financial statements.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
24 Weeks Ended July 23, 1994 and July 24, 1993
<CAPTION>
24 Weeks Ended
---------------------------
July 23, July 24,
1994 1993
------------- -------------
<S> <C> <C>
Net Sales $204,755,488 $184,176,285
Cost and expenses:
Cost of sales (exclusive of
depreciation expense shown
below) 63,803,722 53,811,421
Selling, administrative and
general expenses 125,029,742 115,306,318
Depreciation 13,685,375 11,836,282
Amortization of intangibles 2,551,055 2,952,431
------------- -------------
205,069,894 183,906,452
------------- -------------
Income (loss) from operations (314,406) 269,833
Net interest income (expense) (1,316,059) 52,451
Severance and early
retirement expense --- 1,400,000
Other income 204,198 291,526
------------- -------------
Loss before income taxes
and cumulative effect of
accounting change (1,426,267) (786,190)
Income tax benefit 570,478 315,153
------------- -------------
Loss before cumulative effect
of accounting change (855,789) (471,037)
Cumulative effect of accounting
change --- 2,120,000
------------- -------------
Net earnings (loss) $ (855,789) $ 1,648,963
============= =============
Loss before cumulative
effect of accounting change $ (0.06) $ (0.03)
Cumulative effect of accounting
change --- 0.14
------------- -------------
Net earnings (loss) $ (0.06) $ 0.11
============= =============
Weighted average number of
common and common equivalent
shares outstanding 14,461,486 14,671,399
============= ============
<FN>
See notes to interim condensed consolidated financial statements.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY - COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
(UNAUDITED)
52 Weeks Ended February 5, 1994 and 24 Weeks Ended July 23, 1994
<CAPTION>
Additional
Common Paid-In
Stock Capital
------------ ------------
<S> <C> <C>
Balance at February 6, 1993 $ 6,782,292 $ 28,833,326
Issuance of common stock:
Profit sharing plan and trust 6,190 303,000
Stock bonus plan 1,466 71,805
Employee stock plans 1,600 54,400
Foreign currency translation --- ---
Dividends ($.56 per
common share) --- ---
Net earnings --- ---
Purchase of treasury stock,
at cost --- ---
Amortization of deferred
compensation-restricted stock --- ---
------------ ------------
Balance at February 5, 1994 6,791,548 29,262,531
Issuance of common stock:
Profit sharing plan and trust 7,955 327,182
Stock bonus plan 1,443 54,496
Foreign currency translation --- ---
Dividends ($.28 per common
share) --- ---
Net loss --- ---
Purchase of treasury stock,
at cost --- ---
Amortization of deferred
compensation - restricted
stock --- ---
------------ ------------
Balance at July 23, 1994 $ 6,800,946 $ 29,644,209
============ ============
<FN>
See notes to interim condensed consolidated financial statements.
</FN>
</TABLE>
8
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY - RETAINED EARNINGS AND CUMULATIVE FOREIGN
CURRENCY TRANSACTION ADJUSTMENT (UNAUDITED)
52 Weeks Ended February 5, 1994 and 24 Weeks Ended July 23, 1994
<CAPTION>
Cumulative
Foreign
Currency
Retained Transaction
Earnings Adjustment
------------ -------------
<S> <C> <C>
Balance at February 6, 1993 $194,509,469 $ (89,601)
Issuance of common stock:
Profit sharing plan and trust --- ---
Stock bonus plan --- ---
Employee stock plans --- ---
Foreign currency translation --- (1,291,923)
Dividends ($.56 per
common share) (8,198,125) ---
Net earnings 13,236,456 ---
Purchase of treasury stock,
at cost --- ---
Amortization of deferred
compensation-restricted stock --- ---
------------- -------------
Balance at February 5, 1994 199,547,800 (1,381,524)
Issuance of common stock:
Profit sharing plan and trust --- ---
Stock bonus plan --- ---
Foreign currency translation --- (474,071)
Dividends ($.28 per common
share) (4,066,842) ---
Net loss (855,788) ---
Purchase of treasury stock,
at cost --- ---
Amortization of deferred
compensation - restricted
stock --- ---
------------- -------------
Balance at July 23, 1994 $194,625,170 $ (1,855,595)
============= =============
<FN>
See notes to interim condensed consolidated financial statements.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY - TREASURY STOCK AT COST, UNAMORTIZED
DEFERRED COMPENSATION-RESTRICTED STOCK AND TOTAL (UNAUDITED)
52 Weeks Ended February 5, 1994 and 24 Weeks Ended July 23, 1994
<CAPTION>
Unamortized
Deferred
Treasury Compensation-
Stock, Restricted
At Cost Stock Total
------------- ---------- -------------
<S> <C> <C> <C>
Balance at February 6, 1993 $(57,898,854) $(190,850) $171,945,782
Issuance of common stock:
Profit sharing plan and
trust --- --- 309,190
Stock bonus plan --- --- 73,271
Employee stock plans --- (56,000) ---
Foreign currency
translation --- --- (1,291,923)
Dividends ($.56 per common
share) --- --- (8,198,125)
Net earnings --- --- 13,236,456
Purchase of treasury stock,
at cost (657,178) --- (657,178)
Amortization of deferred
compensation-restricted
stock --- 91,000 91,000
------------- ---------- -------------
Balance at February 5, 1994 (58,556,032) (155,850 175,508,473
Issuance of common stock:
Profit sharing plan and
trust --- --- 335,137
Stock bonus plan --- --- 55,939
Foreign currency
translation --- --- (474,071)
Dividends ($.28 per common
share) --- --- (4,066,842)
Net loss --- --- (855,788)
Purchase of treasury stock,
at cost (11,164,405) --- (11,164,405)
Amortization of deferred
compensation-restricted
stock --- 37,002 37,002
------------- ---------- -------------
Balance at July 23, 1994 $(69,720,437) $(118,848) $159,375,445
============= ========== =============
<FN>
See notes to interim condensed consolidated financial statements.
</FN>
</TABLE>
10
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 24 WEEKS ENDED JULY 23, 1994 AND JULY 24, 1994 (UNAUDITED)
<CAPTION>
24 Weeks Ended
----------------------------
July 23, July 24,
1994 1993
------------- ------------
<S> <C> <C>
Cash flows provided by
operating activities $ 9,352,150 $ 4,265,122
Cash flows provided by (used
in) financing activities:
Proceeds from issuance of
short-term debt --- 19,700,000
Proceeds from issuance of
long-term debt --- 372,660
Repayment of long-term debt (214,312) (131,211)
Issuance of common stock to
employee stock plans 391,076 438,623
Cash dividends (4,066,842) (4,100,235)
Purchase of treasury stock (11,164,405) (3,023)
------------- -------------
Cash flows provided by
(used in) financing
activities (15,054,483) 16,276,814
------------- -------------
Cash flows provided by (used in)
investing activities:
Purchases of short-term
investments (3,991,619) ---
Proceeds from maturing of
short-term investments 28,118,295 ---
Additions to property and
equipment (39,010,344) (9,535,858)
Acquisitions:
Property and equipment (208,182) (13,629,943)
Intangible assets 551,465 (1,169,216)
Long-term investments --- (35,634)
Restricted stock --- (56,000)
------------- -------------
Cash flows used in investing
activities (14,540,385) (24,426,651)
------------- -------------
Effect of exchange rate changes
on cash and equivalents (352,207) (216,222)
------------- -------------
Net decrease in cash and cash
equivalents (20,594,925) (4,100,937)
Cash and cash equivalents at
beginning of year 35,915,114 20,978,078
------------- -------------
Cash and cash equivalents at
end of period $ 15,320,189 $ 16,877,141
============= =============
Supplemental cash flow
information:
Interest paid $ 1,933,529 $ 199,914
============= =============
Income taxes paid $ 6,153,271 $ 6,847,391
============= =============
<FN>
See notes to interim condensed consolidated financial statements.
</FN>
</TABLE>
11
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 24 WEEKS ENDED JULY 23, 1994 AND JULY 24, 1993 (UNAUDITED)
(continued)
<CAPTION>
24 Weeks Ended
----------------------------
July 23, July 24,
1994 1993
------------- -------------
<S> <C> <C>
Reconciliation of net earnings
to cash flows provided by
(used in) operating
activities:
Net earnings (loss) $ (855,789) $ 1,648,963
Adjustments for items not
requiring cash:
Depreciation and amortization 16,236,430 14,734,867
Deferred income taxes (555,040) (3,039,145)
Deferred compensation (1,538,093) (999,518)
Other (1,219,065) (1,174,118)
Decrease (increase) in current
assets:
Receivables and inventories 2,232,888 (1,066,379)
Deferred costs applicable to
unsold portraits (1,303,768) 151,169
Prepaid expenses and other
current assets 1,322,319 (478,928)
Increase (decrease) in current
liabilities:
Accounts payable, accrued
expenses and other
liabilities 2,214,004 554,604
Income taxes (7,181,736) (6,066,393)
------------- -------------
Cash flows used in operating
activities $ 9,352,150 $ 4,265,122
<FN>
See notes to interim condensed consolidated financial statements.
</FN>
</TABLE>
12
<PAGE>
CPI CORP.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments necessary for a fair presentation of the Company's
financial position as of July 23, 1994, July 24, 1993 and
February 5, 1994 and the results of its operations and changes
in its cash flows for the 12 and 24 weeks ended July 23, 1994
and July 24, 1993. These financial statements should be read
in conjunction with the financial statements and the notes
included in the Company's annual report on Form 10-K for its
fiscal year ended February 5, 1994. Certain accounts have been
reclassified within the 1993 financial statements to conform
with the presentation in 1994.
2. Short-term investments are comprised of money market instruments
which aggregated $17,198,827, $12,518,582 and $62,051,741 as of
July 23, 1994, July 24, 1993, and February 5, 1994,
respectively, and are stated at cost which approximates market.
Total interest income for the 12 weeks ended July 23, 1994 and
July 24, 1993 was $246,170 and $129,119, respectively, and for
the 24 weeks ended July 23, 1994 and July 24, 1993 was $617,472
and $300,489, respectively.
.
3. Inventories consist of the following components:
<TABLE>
CPI CORP. INVENTORIES AT JULY 23, 1994, JULY 24, 1994 AND
FEBRUARY 5, 1994
July 23, July 24, February 5,
1994 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Raw materials and supplies $28,025,435 $23,712,788 $27,981,589
Portraits-in-process 554,347 534,086 548,793
----------- ----------- -----------
$28,579,782 $24,246,874 $28,530,382
=========== =========== ===========
</TABLE>
4. On May 30, 1993, CPI Corp. finalized the acquisition of the
Prints Plus wall decor chain from the Melville Corporation,
originally disclosed on May 10, 1993. The 103 store chain,
located in malls throughout the United States, operates a
13
<PAGE>
prints, posters and framing business with annual sales in excess
of $40 million. Prints Plus was acquired for approximately
$14.7 million. In addition, the Company entered into a non-
compete agreement with Melville Corporation for cash
consideration aggregating $1,050,000 which is being amortized
over a three-year period. Stores will continue to be operated
under the trade name "Prints Plus".
The acquisition was recorded using the purchase method of
accounting and the results of operations of Prints Plus have
been included in the Company's consolidated financial statements
since the effective date of the acquisition.
5. Effective February 7, 1993, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". Accordingly, the Company has
changed its method of computing income taxes from the deferred
method used in prior years to the asset and liability method
prescribed by SFAS 109. Adoption of this statement increased
fiscal year 1993 net earnings by $2.12 million and increased
earnings per share by $0.14. Prior years data have not been
restated as management elected to adopt the statement on a
prospective basis.
6. On August 31, 1993, the Company placed privately senior notes
in the amount of $60 million (the "Note Agreement") with two
insurance companies. The notes, issued pursuant to the Note
Agreement, mature over a seven-year period with an average
maturity of 5.42 years and with the first principal payment due
at the end of the third year. Interest on the notes is payable
semi-annually at an average effective fixed rate of 6.44%. The
Note Agreement requires the Company to maintain certain
financial ratios and comply with certain restrictive covenants.
Under one covenant, dividend payments, purchase of treasury
stock and certain restricted investments are not to exceed $25
million plus 50% of net earnings (or less 100% of net losses)
credited at the end of each fiscal year.
On June 14, 1994, the Company amended its $25 million Revolving
Credit Agreement, extending its term until August 31, 1996.
To manage its exposure to fluctuations in interest rates, the
Company has entered into an interest rate swap agreement for a
notional principal amount of $40.0 million, maturing August 28,
1995. Interest rate swap agreements involve the exchange of
interest obligations on fixed and floating interest rate debt
without the exchange of the underlying principal amount. The
differential paid or received on the interest rate swap
agreement is recognized as an adjustment to interest expense.
14
<PAGE>
The Company's interest rate swap agreement states the Company
will receive a fixed rate of 4.54% and will pay a floating rate
equal to the 6-month LIBOR rate as of a specific date which was
5.08% for the first half of 1994. For the 12 and 24 week
periods ended July 24, 1994, interest expense was increased by
$129,000 and $112,000, respectively. While the Company has
credit risk associated with this financial instrument, no loss
is anticipated due to nonperformance by the counterparties to
these agreements. The Company has not entered into any other
derivative instruments or off-balance sheet transactions.
7. In May 1993, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 115 (SFAS
No. 115), "Accounting for Certain Investments in Debt and Equity
Securities." SFAS No. 115 expands the required use of fair
value accounting for investments in debt and equity securities,
and allows debt securities to be classified as "held-to-
maturity" and reported in the financial statements at amortized
cost only if the reporting entity has the positive intent and
ability to hold those securities to maturity. Furthermore, SFAS
No. 115 clarifies that securities which might be sold in
response to changes in market interest rates, changes in the
security's prepayment risk, increases in liquidity needs, or
other similar factors cannot be classified as "held-to-
maturity." SFAS No. 115 is effective for fiscal years beginning
after December 15, 1993. The Company adopted SFAS No. 115 on
February 6, 1994. The adoption of SFAS No. 115 did not have an
effect on the financial position of the Company as securities
in the Company's portfolio are short-term in nature and were
classified as "held-to-maturity".
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
To establish a framework for discussion, selected financial data
summarizing the Company's operating results for the 12 and 24 weeks
ended July 23, 1994 and July 24, 1993, respectively, are presented
in the following table and are discussed in greater detail on
subsequent pages.
16
<PAGE>
<TABLE>
CPI CORP. SELECTED FINANCIAL DATA FOR THE 12 WEEKS ENDED JULY 23,
1994 AND JULY 24, 1993 (IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
12 Weeks Ended
----------------------
July 23, July 24,
1994 1993
---------- ----------
<S> <C> <C>
Net sales:
Portrait studios $ 45,797 $ 39,743
Photofinishing 46,111 45,851
Other products and services 12,743 9,792
---------- ----------
$ 104,651 $ 95,386
========== ==========
Operating earnings:
Portrait studios $ 4,663 $ 3,368
Photofinishing 2,747 4,201
Other products and services (1,158) (928)
---------- ----------
6,252 6,641
General corporate expenses (2,851) (3,438)
Severance and early retirement benefits --- 150
---------- ----------
Income (loss) from operations 3,401 3,353
Net interest income (expense) (788) (62)
Other income 108 168
---------- ----------
Earnings (loss) before income taxes and
cumulative effect of accounting change 2,721 3,459
Income tax expense (benefit) 1,089 1,392
---------- ----------
Earnings (loss) before cumulative effect
of accounting change 1,632 2,067
Cumulative effect of accounting change --- ---
---------- ----------
Net earnings (loss) $ 1,632 $ 2,067
========== ==========
Earnings (loss) per common share:
Earnings (loss) before cumulative
effect of accounting change $ .11 $ .14
Cumulative effect of accounting change --- ---
---------- ----------
Net earnings (loss) $ .11 $ .14
========== ==========
Weighted average number of common and
common equivalent shares outstanding 14,342 14,680
========== ==========
</TABLE>
17
<PAGE>
<TABLE>
CPI CORP. SELECTED FINANCIAL DATA FOR THE 24 WEEKS ENDED JULY 23,
1994 AND JULY 24, 1993 (IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
24 Weeks Ended
----------------------
July 23, July 24,
1994 1993
---------- ----------
<S> <C> <C>
Net sales:
Portrait studios $ 95,565 $ 87,827
Photofinishing 83,900 82,703
Other products and services 25,290 13,646
---------- ----------
$ 204,755 $ 184,176
========== ==========
Operating earnings:
Portrait studios $ 8,210 $ 7,468
Photofinishing 527 1,913
Other products and services (2,031) (1,639)
---------- ----------
6,706 7,742
General corporate expenses (7,019) (7,472)
Severance and early retirement benefits --- (1,400)
---------- ----------
Income (loss) from operations (313) (1,130)
Net interest income (expense) (1,317) 52
Other income 204 292
---------- ----------
Earnings (loss) before income taxes and
cumulative effect of accounting change (1,426) (786)
Income tax expense (benefit) (570) (315)
---------- ----------
Earnings (loss) before cumulative effect
of accounting change (856) (471)
Cumulative effect of accounting change --- 2,120
---------- ----------
Net earnings (loss) $ (856) $ 1,649
========== ==========
Earnings (loss) per common share:
Earnings (loss) before cumulative
effect of accounting change $ (.06) $ (.03)
Cumulative effect of accounting change --- .14
---------- ----------
Net earnings (loss) $ (.06) $ .11
========== ==========
Weighted average number of common and
common equivalent shares outstanding 14,462 14,671
========== ==========
</TABLE>
18
<PAGE>
REVENUES: Sales increased 9.7% to $104.7 million in the second
quarter of 1994, from $95.4 million in the comparable period last
year. For the first half, sales increased 11.2% to $204.8 million
from $184.2 million recorded last year. Major factors contributing
to the sales increase are the inclusion of the Prints Plus
operations for the entire 24 week period in fiscal 1994 and an
improvement in sales performance of the Portrait Studio operation.
The Prints Plus operation was acquired May 30, 1993, operating for
eight weeks of last year's first fiscal half.
Portrait Studio sales increased 15.2% and 8.8% for the 12 and 24
week periods ending July 23, 1994, respectively, over the
comparable period last year. The new freeze-frame digital imaging
system has been installed in 577 of the 1,005 portrait studio
locations, enhancing sales in these locations.
Photofinishing sales rose 0.6% in the second quarter of 1994 to
$46.1 million and 1.4% in the first half of 1994 to $83.9 million.
The average sale per roll increased slightly both for the second
quarter and first half, while roll volume declined slightly.
Other Products and Services includes the electronic publishing
business, the newly acquired wall decor business operating under
the names "Prints Plus" and "Prints and Posters" and the digital
imaging business. The Company purchased the remaining interest of
Color Laser Corp., a digital imaging business the Company
previously held a minority interest in, and is now reflecting sales
of this operation in the consolidated results. Sales of Color
Laser Corp. were not material to either the second quarter or first
half results. Sales in the Other Products and Services segment
increased 30.1% to $12.7 million and 85.3% to $25.3 million for the
12 and 24 week periods ended July 23, 1994, respectively, from the
comparable prior year periods. The sales increase primarily
resulted from the inclusion of the Prints Plus operation for the
entire 24 week period this year compared to only an eight week
period last year.
OPERATING INCOME: Segment operating earnings for prior years have
been restated to conform with the current year's presentation.
Certain employee benefit costs, which in prior years were recorded
as part of corporate expense, have been reclassified to the
operating segments to better reflect the operating contribution of
the segments. Income from operations increased slightly to $3.4
million for the second quarter of 1994 and losses from operations
declined to $300,000 in the first fiscal half of 1994 from $1.1
million recorded in 1993.
Portrait Studio operating earnings increased 38.5% and 9.9% for the
12 and 24 week periods ended July 23, 1994, respectively, from the
comparable periods last year, as higher sales offset the increased
19
<PAGE>
costs in terms of higher depreciation, training expenses, cost of
sales and studio employment costs. Additional depreciation for the
new freeze-frame digital imaging system amounted to $1.4 million
and incremental training costs amounted to $600,000 in the first
fiscal half of 1994. Cost of sales increased due to increased
volume and an increase in the size of the portrait package
produced.
Photofinishing operating earnings were $2.7 million and $0.5
million, declining $1.5 million and $1.4 million from the
comparable prior year periods for the 12 and 24 week periods ended
July 23, 1994, respectively. This decline in operating earnings is
primarily attributable to the $1.3 million cost of testing and
developing new marketing concepts.
The Other Products and Services had increased operating losses both
for the second quarter and first half of 1994 reflecting the
seasonal operating losses of the Prints Plus operation for the
entire 24 week period. The electronic publishing business showed
improved results in the form of reduced operating losses due to
lower operating costs.
NET EARNINGS (LOSSES): Net earnings amounted to $1.6 million in
the current quarter of 1994, a 21.0% decline from the $2.1 million
recorded last year, reflecting the increased borrowing costs
associated with the $60 million Note Agreements entered into by the
Company in August 1993. Interest expense reflects the accrual for
the Company's interest rate swap agreement amounting to $112,000
for the first fiscal half of 1994. The Company will continue to be
impacted by the $40 million interest rate swap agreement until
August 28, 1995 based on fluctuations in short-term interest rates
(see Footnote 6 for details).
Net losses for the first fiscal half amounted to $0.9 million in
1994 compared to net earnings of $1.6 million in 1993's first half.
The first half of 1993 includes a $1.4 million before tax provision
for severance and early retirement benefits and a $2.1 million
benefit to earnings from an accounting change. The Company
finalized its severance and early retirement arrangements during
the second quarter of 1993. The accounting change resulted from
adopting the provisions of Statement of Accounting Standards No.
109, "Accounting for Income Taxes". In accordance with the
Standard, the Company has changed its method of accounting for
income taxes from the deferred method to the asset and liability
method. The Company adopted Statement 109 on a prospective basis.
Earnings per share amounted to $0.11 in the second quarter of 1994
compared to $0.14 per share recorded in the prior year's second
quarter. For the first fiscal half of 1994, the Company incurred
a $0.06 loss per share compared to a loss of $0.03 incurred in last
20
<PAGE>
year's first fiscal half before the cumulative effect of the
accounting change. Net earnings amounted to $0.11 per share in the
first fiscal half of 1993 after consideration of the accounting
change. For the full 1994 fiscal year, management believes
earnings will exceed $1.00 per share and, if positive results in
the portrait studios continue, results could exceed the previously
projected $1.05 maximum earnings per share.
CAPITAL RESOURCES AND LIQUIDITY: Cash and short-term investments
were $21.6 million, $16.9 million and $66.4 million on July 23,
1994, July 24, 1993 and February 5, 1994, respectively.
Capital expenditures amounted to $39.0 million in the first fiscal
half of 1994, of which approximately $26.0 million related to the
new freeze-frame digital imaging system and related point-of-sale
equipment.
The Company has increased from $75 million to $85 million the
estimated planned capital expenditure for installing the new
digital freeze-frame imaging system and studio renovation program.
Included in this estimate are $55 million for the acquisition of
freeze-frame digital imaging systems, $5 million for point-of-sale
registers and $25 million for studio renovations. The digital
imaging system and point-of-sale registers are expected to be fully
installed by the end of September 1994 in the United States, with
the remaining installation in Canada scheduled for completion in
early 1995. The studio renovation program begun in early fiscal
1994 is expected to take about five years to complete. The Company
expects to fund this capital expenditure program through proceeds
of maturing short-term investments balances, borrowing against
lines of credit and utilizing operating cash flow. Portrait Studio
depreciation expense is expected to increase by $3.5 million in the
second half of 1994 over the comparable period last year as a
result of this program and by approximately $8.0 million in fiscal
year 1995 over fiscal year 1993 levels.
During the first half of the fiscal year, the Company purchased
676,455 shares of its common stock for $11.2 million under the
previously announced stock repurchase program bringing the total to
3,040,263 shares for $69.7 million as of July 23, 1994. The
Company's Board of Directors has authorized the purchase of up to
4,500,000 shares of CPI Corp. common stock.
During the second quarter of 1994, the Company has renegotiated one
of its debt covenants with all its major lenders. Under the
revised debt covenant, dividend payments, purchase of treasury
stock and certain restricted investments are not to exceed $25
million plus 50% of net earnings (or less 100% of net losses)
credited at the end of each fiscal year. The entire amended debt
covenant is filed in this Form 10Q, Part II, Item 6, Exhibit 4(b).
21
<PAGE>
The Company is seeking additional financing in the form of a $25
million addition to its existing $25 million line of credit to
insure adequate liquidity during this major capital expenditure
program. The Company does not anticipate problems in obtaining
this additional financing.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENT: In May 1993, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 115 (SFAS No. 115), "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115
expands the required use of fair value accounting for investments
in debt and equity securities, and allows debt securities to be
classified as "held-to-maturity" and reported in the financial
statements at amortized cost only if the reporting entity has the
positive intent and ability to hold those securities to maturity.
Furthermore, SFAS No. 115 clarifies that securities which might be
sold in response to changes in market interest rates, changes in
the security's prepayment risk, increases in liquidity needs, or
other similar factors cannot be classified as "held-to-maturity."
SFAS No. 115 is effective for fiscal years beginning after
December 15, 1993. The Company adopted SFAS No. 115 on February 6,
1994. The adoption of SFAS No. 115 did not have an effect on the
financial position of the Company as securities in the Company's
portfolio are short-term in nature and were classified as
"held-to-maturity".
22
<PAGE>
ITEM 6(a). EXHIBIT 11
<TABLE>
CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE FOR THE 12
WEEKS ENDED JULY 23, 1994 AND JULY 24, 1993 (IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<CAPTION>
12 Weeks Ended
-----------------------
July 23, July 24,
1994 1993
--------- ---------
<S> <C> <C>
Primary:
Net earnings (loss) applicable
to common shares $ 1,632 $ 2,067
========= =========
Shares:
Weighted average number of
common shares outstanding 17,002 16,979
Shares issuable under
employee stock plans -
weighted average 3 24
Less: Treasury stock -
weighted average (2,663) (2,323)
--------- ---------
Weighted average number of
common and common
equivalent shares 14,342 14,680
========= =========
Earnings (loss) per common and
common equivalent shares $ .11 $ .14
========= =========
</TABLE>
23
<PAGE>
ITEM 6(a). EXHIBIT 11
<TABLE>
CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE FOR THE 24
WEEKS ENDED JULY 23, 1994 AND JULY 24, 1993 (IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<CAPTION>
24 Weeks Ended
-----------------------
July 23, July 24,
1994 1993
--------- ---------
<S> <C> <C>
Primary:
Net earnings (loss) applicable
to common shares $ (856) $ 1,649
========= =========
Shares:
Weighted average number of
common shares outstanding 17,002 16,969
Shares issuable under
employee stock plans -
weighted average 10 25
Less: Treasury stock -
weighted average (2,550) (2,323)
--------- ---------
Weighted average number of
common and common
equivalent shares 14,462 14,671
========= =========
Earnings (loss) per common and
common equivalent shares $ (.06) $ .11
========= =========
</TABLE>
24
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
On February 24, 1994, with an effective date of November
26, 1993, the Note Agreement, filed with the Securities
and Exchange Commission on Form 10-Q Part II Item 6
Exhibit 4(a) dated July 24, 1993, dated August 31, 1994
was amended to clarify the definition of "Restricted
Investment" in Paragraph 10B Subclause (viii). This
clarification resulted in an easing of the restriction
governing the amount of cash the Company is allowed to
hold with certain financial institutions. A copy of this
amendment is attached to this report on Form 10-Q as Part
II Item 6 Exhibit 4(a).
On June 14, 1994 the Note Agreement was further amended
to modify the Negative Covenants as defined in Paragraph
6B, increasing the limit of "Restricted Payments and
Restricted Investments" which can be made by the Company.
A copy of this amendment is attached to this report on
Form 10-Q as Part II Item 6 exhibit 4(b).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held in
St. Louis, Missouri on Tuesday June 7, 1994. The
following items were voted on and the results are listed
below:
a) The following individuals were elected to the Company's
Board of Directors:
<TABLE>
RESULTS OF VOTES FOR DIRECTORS
<CAPTION>
In Favor Withheld
---------- ----------
<S> <C> <C>
Milford Bohm 11,804,285 362,606
Alyn V. Essman 11,918,541 248,350
Russell Isaak 11,919,177 247,714
Mary Ann Krey 11,919,260 247,631
Lee Liberman 11,805,170 361,721
Nicholas Reding 11,918,890 248,001
Martin Sneider 11,919,205 247,686
Robert L. Virgil 11,918,470 248,421
</TABLE>
25
<PAGE>
b) The Board of Directors appointment of KPMG Peat Marwick
to audit the Company's accounts for the 1994 fiscal year
was approved by a vote of 12,164,112 shares in favor,
1,328 shares opposed and 1,451 shares abstained.
26
<PAGE>
ITEM 6(A) EXHIBITS
<TABLE>
EXHIBIT INDEX
<CAPTION>
PAGE NO.
<S> <C>
Exhibit 4 - Instruments Defining the Rights of
Security Holders, Including Debentures
a. Amendment dated February 24, 1994 30-34
b. Amendment dated June 14, 1994 35-40
</TABLE>
ITEM 6(B) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed for the quarter ended
July 23, 1994.
27
<PAGE>
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.
CPI CORP.
DATE: September 1, 1994 BY: /s/ BARRY ARTHUR
----------------- -------------------------
Barry Arthur
Executive Vice President -
Finance
Principal Financial Officer
28
<PAGE>
PART II - ITEM 6(A) EXHIBITS
EXHIBIT 4
CPI CORP.
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING DEBENTURES
INDEX TO EXHIBIT 4
<TABLE>
<S> <C>
a) Amendment dated February 24, 1994 30-34
b) Amendment dated June 14, 1994 35-40
</TABLE>
29
<PAGE>
EXHIBIT 4(A)
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
DEBENTURE
The following document is the Amendment to the Note Agreement dated
August 31, 1993, effective November 26, 1993, dated February 24,
1994.
30
<PAGE>
LETTERHEAD
the Principal Financial Group
Principal Mutual Life Insurance Company
Mailing Address: Des Moines, Iowa 50392-0001
(515) 247-5111 FAX (515) 247-5930
February 24, 1994
Telecopy and Airborne
Ms. Jane E. Nelson
CPI Corp.
1706 Washington Avenue
St. Louis, Missouri 63103
Telecopy No. 314-231-4233
Dear Ms. Nelson:
Reference is made to the Note Agreement, dated as of August 31,
1993 (the "Note Agreement"), by and between CPI Corp. (the
"Company") and each of the purchasers listed on the Purchaser
Schedule attached thereto (collectively, the "Purchasers").
Pursuant to the Note Agreement, the Company issued, and Purchasers
purchased, Series A Senior Notes of the Company (collectively, the
"Series A Notes") in the aggregate principal amount of
$33,000,000.00 and Series B Senior Notes of the Company
(collectively, the "Series B Notes") in the aggregate principal
amount of $27,000,000, in each case due August 31, 2000. The
Series A Notes and the Series B Notes are collectively referred to
herein as the "Notes." Capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Note
Agreement.
By there execution hereof as provided below, the Company and the
Required Holders agree and consent to the following amendment to
the Note Agreement (the "Amendment"), but only as to the extent
expressly provided herein, and subject to the terms and conditions
set forth below.
1. Definitions. Subclause (viii) of the definition of
"Restricted Investment" located in Paragraph 10B of the Note
Agreement is deleted and replaced in its entirety by the following:
(viii) (A) short-term deposit accounts not in excess of
$2,500,000.00 in the aggregate of any time in Mercantile Bank
of St. Louis National Association (such amounts determined
based on the collected funds available to the Company or a
Subsidiary in accordance with the normal banking practices of
Mercantile Bank of St. Louis National Association and not on
the ledger balances of such accounts), and (B) short-term
31
<PAGE>
deposit accounts not in excess of $2,500,000.00 in the
aggregate at any time in The Boatmen's National Bank of St.
Louis, N.A. (such amounts determined based on the collected
funds available to the Company or a Subsidiary in accordance
with the normal banking practice of The Boatmen's National
Bank of St. Louis and not on the ledger balance of such
accounts);
2. Conditions Precedent. This Amendment is expressly subject
to and shall be effective only upon the satisfaction of the
following conditions.
2.1 The Company and the Required Holders shall have
executed this Amendment.
2.2 As of the Effective Date, no Default or Event of
Default under the Note Agreement shall exist and be continuing,
after giving effect to this Amendment.
2.3 The representations and warranties of the Company
referred to in Section 8 of the Note Agreement shall be true and
complete in all material respects, as if made on and as of the date
hereof (except as to those representations and warranties which are
made as of a specific date, which shall be true and complete in all
material respects as of such specific date).
2.4 The representations of the Company referred to in
Section 3 hereof shall be true and complete in all material
respects.
3. Representations of the Company. The Company, by its
execution and delivery of this Amendment, hereby represents and
warrants to each Purchaser as follows:
3.1 As of the Effective Date, no Default or Event of
Default under the Note Agreement, or under any other agreement to
which the Company is subject, exists and is continuing, after
giving effect to this Amendment.
3.2 The representations and warranties of the Company
referred to in Section 8 of the Note Agreement are true and correct
and complete in all material respects as if made on the date
hereof, except as to those representations and warranties made as
of a specific date, which are true and correct and materially
complete as of such date.
3.3 No dissolution proceedings with respect to the
Company have been commenced or are contemplated, and there has been
no condition, event or development that could reasonably be
expected to result in a Material Effect since August 31, 1993.
32
<PAGE>
3.4 This Amendment has been duly authorized, executed and
delivered by the Company and the Note Agreement, as amended by this
Amendment, constitutes the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its
terms.
4. Miscellaneous.
4.1 It is expressly understood and agreed that this
Amendment shall not constitute either (a) a modification,
alteration or amendment of the terms, conditions, and covenants of
the Note Agreement or the Notes both of which shall remain
unchanged and in full force and effect, except as otherwise
specifically set forth herein or, or (b) a waiver or release of or
limitation upon the exercise by the Purchasers or any of them of
any of their rights, legal or equitable, under the Note Agreement
except as to matters as to which the Holders herein expressly
consent or waive compliance and only for the relevant time period
set forth herein. Nothing herein is intended or shall be construed
to release or relieve the Company in any way or to any extent from
any of the obligations, covenants or agreements imposed upon the
Company by the Note Agreement or the Notes or otherwise, or from
the consequences of any default thereunder, except as to matters as
to which the undersigned expressly agree herein.
4.2 The Note Agreement and the Notes are in all respects
ratified and confirmed, and all the terms, conditions and
provisions thereof shall be and remain in full force and effect.
4.3 he execution and delivery of this Amendment by the
Required Holders shall not in any way constitute, or be construed
as, a waiver of any provision of, or of any Default or Event of
Default under, the Note Agreement except as expressly provided
herein, nor shall it constitute an agreement or obligation of any
Purchaser to give its consent to any future waiver, consent or
amendment of the Note Agreement or to any future transaction, event
or condition which would, absent consent of the Required Holders,
constitute a Default of Event of Default.
4.4 This Amendment may be executed in as many
counterparts as may be deemed necessary or convenient and by the
different parties hereto on separate counterparts (provided that
the Company will execute each counterpart), and each of which, when
so executed, shall be deemed to be an original, but all such
counterparts shall constitute but one and the same agreement.
4.5 This Amendment shall be deemed effective as of
November 26, 1993 (the "Effective Date"), provided that the
conditions precedent set forth in Section 2 hereof have been
completely satisfied.
33
<PAGE>
4.6 From and after the Effective Date, each reference
in the Note Agreement to "this Agreement", "hereof", or "hereunder"
or words of like import, and all references to the Note Agreement
in any and all agreements, instruments, documents, notes,
certificates and other writings of every kind and nature shall be
deemed to mean the Note Agreement, as modified and amended by this
Amendment.
4.7 This Amendment (a) shall be binding on the parties
hereto and their respective successors and assigns and shall inure
to the benefit of the parties hereto and their respective
successors and assigns, (b) constitutes the entire agreement among
the parties hereto with respect to the matters addressed herein,
and (c) shall be governed by and construed and enforced in
accordance with the laws of the State of New York.
CPI Corp.
By: /s/ Russell Isaak
------------------------------------
The Prudential Insurance Company of America
By: /s/ Paul L. Meiring
------------------------------------
Principal Mutual Life Insurance Company
By: /s/ Dennis D. Ballard, Counsel
------------------------------------
By: /s/ Clint Woods, Counsel
-------------------------------------
clw-cpiamen3Exhibit 4(b)
34
<PAGE>
EXHIBIT 4(B)
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
DEBENTURE
The following document is the Amendment to the Note Agreement dated
August 31, 1993, effective June 14, 1994, dated June 14, 1994.
35
<PAGE>
LETTERHEAD
CPI Corp. Products and Services for Consumers
1706 Washington Avenue
St. Louis, Missouri 63103
Telephone (314) 231-1575
June 14, 1994
Via Overnight
Mr. Paul Meiring
Senior Associate
Prudential Capital
4900 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Mr. Bradley E. Dyslin
Securities Analyst
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0800
Gentlemen:
Reference is made to the Note Agreement, dated as of August 31,
1993 (the "Note Agreement"), by and between CPI Corp. (the
"Company") and each of the purchasers listed on the Purchaser
Schedule attached thereto (collectively, the "Purchasers").
Pursuant to the Note Agreement, the Company issued, and Purchasers
purchased, Series A Senior Notes of the Company (collectively, the
"Series A Notes") in the aggregate principal amount of
$33,000,000.00 and Series B Senior Notes of the Company
(collectively, the "Series B Notes") in the aggregate principal
amount of $27,000,000.00, in each case due August 31, 2000. The
Series A Notes and the Series B Notes are collectively referred to
herein as the "Notes." Capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Note
Agreement.
By their execution hereof as provided below, the Company and the
Required Holders agree and consent to the following amendment to
the Note Agreement (the "Amendment"), but only as to the extent
expressly provided herein, and subject to the terms and conditions
set forth below.
1. Definitions. Paragraph 6B of the Note Agreement is deleted
and replaced in its entirety by the following:
"6B. Limitation on Restricted Payments and
36
<PAGE>
Restricted Investments. The Company will not make, pay or
declare, or commit to make, pay or declare any Restricted
Payment and the Company will not and will not permit any
Subsidiary to make, pay or declare, or commit to make, pay or
declare any Restricted Investment if immediately after giving
effect to such proposed Restricted Payment or Restricted
Investment (i) a Default or Event of Default shall exist, or
(ii) the Company would not be able to incur $1 of additional
Funded Debt pursuant to the provision of paragraph 6C(2)(iii),
or (iii) of the aggregate of all Restricted Payments and
Restricted Investments made or committed to after the date of
this Agreement, including the Restricted Payment or Restricted
Investment in question, would exceed the sum of: (A)
$25,032,227 plus (B) 50% of Consolidated Net Income for each
completed fiscal year ended after February 5, 1994 plus (C)
Net Proceeds from the sale or issuance after February 5, 1994
of Qualified Stock minus (D) 100% of any Consolidated Net Loss
for any completed fiscal year ended after February 5, 1994;
provided, however, that so long as no Default or Event of
Default has occurred and is continuing on the date of payment
of such dividend, the provisions of this paragraph 6B shall
not prevent or restrict the payment of any dividend that did
not violate the provisions of this paragraph 6B at the date of
declaration if such dividend is paid not more than 90 days
after the date of declaration thereof."
2. Conditions Precedent. This Amendment is expressly subject
to and shall be effective only upon the satisfaction of the
following conditions.
2.1 The Company and the Required Holders shall have
executed this Amendment.
2.2 As of the Effective Date, no Default or Event of
Default under the Note Agreement shall exist and be continuing,
after giving effect to this Amendment.
2.3 The representations of the Company in Section 3
hereof shall be true and complete in all material respects.
2.4 The Company shall have received copies of an
amendment to the Revolving Credit Agreement, duly executed by the
Revolving Credit Lender, containing substantially the same
provisions as the amendment set forth in Section 1 hereof, and the
Company shall have provided photocopies of such amendment to each
of the Required Holders.
37
<PAGE>
3. Representations of the Company. The Company, by its
execution and delivery of this Amendment, hereby represents and
warrants to each Purchaser as follows:
3.1 Its representations and warranties in Section 8 of
the Note Agreement shall be true and complete in all material
respects, as if made on and as of the date hereof (except the
representation and warranty (i) with respect to the annual audited
financial statements in paragraph 8B shall be deemed to refer to
the fiscal years ended February 1, 1992, February 6, 1993 and
February 5, 1994; (ii) in the last sentence of paragraph 8B and in
paragraph 8E shall be deemed to refer to February 5, 1994 and (iii)
in any other part of paragraph 8 that is made as of a specific date
shall be deemed made as of such specific date).
3.2 As of the Effective Date, no Default or Event of
Default under the Note Agreement, or similar condition under any
other agreement to which the Company is subject, exists and is
continuing, after giving effect to this Amendment.
3.3 No dissolution proceedings with respect to the
Company have been commenced or are contemplated, and there has been
no condition, event or development that could reasonably be
expected to result in a Material Adverse Effect since February 5,
1994.
3.4 This Amendment has been duly authorized, executed and
delivered by the Company and the Note Agreement, as amended to
date, including by this Amendment, constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company
in accordance with its terms.
4. Miscellaneous.
4.1 It is expressly understood and agreed that this
Amendment shall not constitute either (a) a modification,
alteration or amendment of the terms, conditions, and covenants of
the Note Agreement or the Notes both of which shall remain
unchanged and in full force and effect, except as otherwise
specifically set forth herein or in the amendment dated February
24, 1994, or (b) a waiver or release of or limitation upon the
exercise by the Purchasers or any of them or any of their rights,
legal or equitable, under the Note Agreement except as to matters
as to which the Holders herein expressly consent or waive
compliance and only for the relevant time period set forth herein.
Nothing herein is intended or shall be construed to release or
relieve the Company in any way or to any extent from any of the
obligations, covenants or agreements imposed upon the Company by
the Note Agreement of the Notes or otherwise, or from the
consequences of any default thereunder, except as to matters as to
which the undersigned expressly agree herein.
38
<PAGE>
4.2 The Note Agreement and the Notes are in all respects
ratified and confirmed, and all the terms, conditions and
provisions thereof shall be and remain in full force and effect.
4.3 The execution and delivery of this Amendment by the
Required Holders shall not in any way constitute, or be construed
as, a waiver of any provision of, or of any Default or Event of
Default under, the Note Agreement except as expressly provided
herein, not shall it constitute an agreement or obligation of any
Purchaser to give its consent to any future waiver, consent or
amendment of the Note Agreement or to any future transaction, event
or condition which would, absent consent of the Required Holders,
constitute a Default of Event of Default.
4.4 This Amendment may be executed in as many
counterparts as may be deemed necessary or convenient and by the
different parties hereto on separate counterparts (provided that
the Company will execute each counterpart), and each of which, when
so executed, shall be deemed to be an original, but all such
counterparts shall constitute but one and the same agreement.
4.5 This Amendment shall be deemed effective as of June
14, 1994 (the "Effective Date"), provided that the conditions
precedent set forth in Section 2 hereof have been completely
satisfied.
4.6 From and after the Effective Date, each reference in
the Note Agreement to "this Agreement", "hereof", or "hereunder" or
words of like import, and all references to the Note Agreement in
any and all agreements, instruments, documents, notes, certificates
and other writings of every kind and nature shall be deemed to mean
the Note Agreement, as modified and amended by this Amendment and
the amendment dated February 24, 1994.
4.7 This Amendment (a) shall be binding on the parties
hereto and their respective successors and assigns and shall inure
to the benefit of the parties hereto and their respective
successors and assigns, (b) constitutes the entire agreement among
the parties hereto with respect to the matters addressed herein,
and (c) shall be governed by and construed and enforced in
accordance with the laws of the State of New York.
39
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CPI Corp.
By: /s/ Russell Isaak
------------------------------------
The Prudential Insurance Company of America
By: /s/ Paul L. Meiring
------------------------------------
Principal Mutual Life Insurance Company
By: /s/ Stephen G. Skrivanek, Counsel
------------------------------------
By: /s/ Clint Woods, Counsel
-------------------------------------
40
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