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 November 9, 1996
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 11,684,297 shares
- --------------------------- --------------------------------
Class Outstanding at December 17, 1996
1
<PAGE>
CPI CORP.
INDEX
Part I. Financial Information:
Item 1. Financial Statements:
Management's Discussion and Analysis - Overview 3-4
Interim Condensed Consolidated Statements
of Earnings - For the 16 Weeks Ended
November 9, 1996 and November 11, 1995 5
Management's Discussion and Analysis - Results
of Operations - For the 16 Weeks Ended
November 9, 1996 and November 11, 1995 6-9
Interim Condensed Consolidated Statements
of Earnings - For the 40 Weeks Ended
November 9, 1996 and November 11, 1995 10
Management's Discussion and Analysis - Results
of Operations - For the 40 Weeks Ended
November 9, 1996 and November 11, 1995 11-14
Interim Condensed Consolidated Balance
Sheets - November 9, 1996,
November 11, 1995 and February 3, 1996 15-17
Management's Discussion and Analysis -
Financial Condition 18
Interim Condensed Consolidated Statements
of Cash Flows - For the 40 Weeks Ended
November 9, 1996 and November 11, 1995 19-20
Management's Discussion and Analysis -
Cash Flows 21
Interim Condensed Consolidated Statements
of Changes in Stockholders' Equity - For
the 52 Weeks Ended February 3, 1996 and
for the 40 Weeks Ended November 9, 1996 22-24
Notes to Interim Condensed Consolidated
Financial Statements 25-27
Item 6.(a) Exhibits 28
Exhibit 11 - Computation of Earnings
per Common Share 32-33
Exhibit 27 - Financial Data Schedule
Part II. Other Information:
Item 6.(b) Reports on Form 8-K 29
Signature 30
Exhibit Index 31
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS--OVERVIEW
- ----------------------------------------------
To enhance understanding of the Company's financial results, the
various components of the Management's Discussion and Analysis
are presented following the pertinent financial data.
Accordingly, in addition to this overview, separate analyses of
the results of operations, financial condition and cash flows are
provided. Also, the analysis of each business segment's net
sales and operating earnings is provided in the results of
operations analysis.
FISCAL YEARS
The Company's fiscal year ends the first Saturday of February.
Accordingly, fiscal year 1995 ended February 3, 1996 and
consisted of 52 weeks. The third fiscal quarters of 1996 and
1995 consisted of sixteen weeks and ended November 9, 1996 and
November 11, 1995, respectively. Throughout the Management's
Discussion and Analysis and Notes to Interim Condensed
Consolidated Financial Statements, reference to 1995 will mean
the fiscal year end 1995 and reference to third quarter 1996 and
third quarter 1995 will mean the third fiscal quarter of 1996 and
1995, respectively.
DISCONTINUED OPERATIONS
On April 4, 1996, the Company announced its intention to sell
certain assets of its Electronic Publishing operations. On May
3, 1996, the Company completed the transaction for $4.8 million.
Additionally, the purchaser assumed certain liabilities of the
Electronic Publishing operation which aggregate approximately
$900,000. A provision of $3.8 million was made in 1995 to
reflect the discontinued business at its estimated realizable
value. The Company has classified the Electronic Publishing
operation as a discontinued operation and reclassified the prior
years' financial statements to reflect this transaction.
PHOTOFINISHING STORE SALE
On June 3, 1996, the Company announced the sale to Wolf Camera,
Inc. of 50 one-hour photofinishing stores located in Florida,
Georgia, Illinois and Tennessee for $1.9 million. The Company
did not recognize a material gain or loss on the sale of these
assets.
JOINT VENTURE WITH KODAK
On October 4, 1996, the Company entered into a joint venture with
Eastman Kodak Company ("Kodak"). The new joint venture, plans
for which were announced by the Company on August 8, 1996, will
own and operate the Company's retail photofinishing business
previously conducted by the Company's Fox Photo, Inc. ("Fox") and
Proex Photo Systems, Inc. ("Proex") subsidiaries and operate
under the trade names of Fox Photo, CPI Photo Finish and Proex.
Proex is a wholly owned subsidiary of Fox.
3
<PAGE>
In executing the Subscription Agreement, dated August 8, 1996, by
and among Kodak, the Company, Consumer Programs Holding, Inc. (a
wholly owned subsidiary of the Company) ("Holding") and Fox (the
"Subscription Agreement"), Kodak agreed to purchase at Closing
new shares of Fox constituting 51% of the then outstanding common
stock of Fox for a cash purchase price of $56.1 million, subject
to adjustment changes in Fox's net worth between April 27, 1996
and the October 4, 1996 consummation date. The Company
recognized a gain, net of taxes, of $3.9 million or $0.28 per
share. On a prospective basis, the new joint venture will be
reflected as a minority interest investment within the financial
statements. (See Notes to Interim Condensed Consolidated
Financial Statements for further discussion and proforma
information.)
Pursuant to the terms of a Stockholders' Agreement (the
"Stockholders' Agreement") executed October 4, 1996 by Kodak,
the Company, Holding and Fox, at any time from and after
January 1, 1999, Kodak can require the Company to sell its
interest in Fox and the Company can require Kodak to purchase the
Company's interest in Fox for a price equal to 49% of (A) Fox's
"fair market value" (as determined pursuant to the Stockholders'
Agreement at the time such "put" or "call" right is exercised)
less (B) $30 million. In no event, however, will such purchase
price for the Company's remaining interest in Fox be less than
$53.9 million. Additionally, prior to January 1, 1999, the
Stockholders' Agreement will entitle Kodak to require that the
Company sell its remaining interest in Fox to Kodak upon a
"change in control" (as defined in the Stockholders' Agreement)
of the Company for a purchase price of $53.9 million.
The Stockholders' Agreement also provided that Kodak designate
four members and the Company designate three members of Fox's
seven-member Board of Directors. Alyn V. Essman, the Company's
Chairman and Chief Executive Officer, is the initial Chairman of
Fox's Board of Directors. Certain specified significant actions
will require the consent of both Kodak and the Company.
SUBSEQUENT EVENT
On November 12, 1996, the Company, as authorized by the Board of
Directors, completed the previously announced "Dutch Auction"
tender offer by purchasing 2,250,000 shares of the Company's
common stock at $19.00 per share for $42.8 million. The Company
used the proceeds from the sale of Fox's common stock to finance
the tender offer.
4
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENT OF
EARNINGS (UNAUDITED)
(in thousands of dollars except per share amounts)
Sixteen weeks ended November 9, 1996 and November 11, 1995
<CAPTION>
Sixteen Weeks Ended
----------------------
Nov. 9, Nov. 11,
1996 1995
--------- ---------
<S> <C> <C>
Net sales $145,435 $166,156
Costs and expenses:
Cost of sales (exclusive of
depreciation expense shown below) 35,446 41,923
Selling, administrative and
general expenses 94,736 104,566
Depreciation 10,917 11,185
Amortization of intangibles 1,084 1,745
--------- ---------
142,183 159,419
--------- ---------
Income from operations 3,252 6,737
Net interest expense 1,145 1,691
Minority interest in venture (430) --
Gain on sale of interest in
photofinishing segment 6,180 --
Other income 150 147
--------- ---------
Earnings before income taxes 8,007 5,193
Income tax expense 2,963 1,923
--------- ---------
Net earnings from continuing operations 5,044 3,270
--------- ---------
Loss from discontinued operations,
net of tax benefit -- (94)
--------- ---------
Net earnings $ 5,044 $ 3,176
========= =========
Net earnings per share from
continuing operations $ 0.36 $ 0.24
Net loss per share from
discontinued operations -- (0.01)
--------- ---------
Net earnings per share $ 0.36 $ 0.23
========= =========
Weighted average number of common and
common equivalent shares outstanding 14,066 14,090
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS--RESULTS OF OPERATIONS
- -----------------------------------------------------------
<TABLE>
NET SALES (in thousands of dollars)
Sixteen Weeks Ended November 9, 1996 and November 11, 1995
<CAPTION>
Sixteen Weeks Ended
---------------------------------------
Nov. 9, Nov. 11, Amount
1996 1995 Change
--------- --------- ---------
<S> <C> <C> <C>
Portrait Studios $ 91,300 $ 91,156 $ 144
Photofinishing 36,437 58,028 (21,591)
Wall Decor 17,698 16,972 726
--------- --------- ---------
Total net sales $145,435 $166,156 $(20,721)
========= ========= =========
</TABLE>
NET SALES
Sales from continuing operations decreased 12.5% to $145.4 million
in the third quarter 1996 from $166.2 million in the third quarter
1995 due primarily to decreased sales in the Photofinishing
segment as further discussed below.
Portrait Studios sales were $91.3 million in the third quarter
1996, relatively unchanged from the $91.2 million recorded in the
comparable period last year. Although Portrait Studios' customer
volume increased in third quarter 1996, sales were level with the
comparable period last year as customers reduced their purchases
of portraits and related items.
Due to the formation of the joint venture on October 4, 1996,
sales for the Photofinishing segment were not reflected for the
last five weeks of the quarter and, on a prospective basis, will
not be reflected for the Company. As a result, sales decreased to
$36.4 million in the third quarter 1996 compared to $58.0 million
recorded in the corresponding period last year. For the
comparable weeks, sales were down, reflecting the sale of 50
locations in addition to the net closure of 37 locations from
third quarter 1995 until the joint venture formation. Sales were
also down due to decreases in the number of rolls of film
developed offset slightly by higher average sales per roll in
comparable stores.
6
<PAGE>
Sales in the Wall Decor segment were $17.7 million in the third
quarter 1996, increasing 4.3% from $17.0 million recorded in the
comparable period last year, due largely to the net opening of
13 new locations since the end of the third quarter of 1995.
Sales in same store Wall Decor locations were down 3.0% in the
third quarter 1996 from the comparable period last year.
INCOME FROM OPERATIONS
Income from operations was $3.3 million in the third quarter 1996,
down from $6.7 million recorded in third quarter 1995. This
decrease is attributable to lower operating earnings in the
Photography and Wall Decor segments as further discussed below.
<TABLE>
OPERATING EARNINGS (in thousands of dollars)
Sixteen Weeks Ended November 9, 1996 and November 11, 1995
<CAPTION>
Sixteen Weeks Ended
---------------------------------------
Nov. 9, Nov. 11, Amount
1996 1995 Change
--------- --------- ---------
<S> <C> <C> <C>
Portrait Studios $ 8,222 $ 12,399 $ (4,177)
Photofinishing 439 (125) 564
Wall Decor (220) 972 (1,192)
--------- --------- ---------
Total operating earnings $ 8,441 $ 13,246 $ (4,805)
========= ========= =========
</TABLE>
OPERATING EARNINGS
Portrait Studio operating earnings decreased 33.7% to $8.2 million
in the third quarter 1996 from $12.4 million in the third quarter
1995 due primarily to increased fixed charges and increased cost
of sales resulting from the higher costs associated with
maintaining the newer, more sophisticated technologies. For the
third quarter 1996, depreciation and employment costs increased
$826,000 and $1.0 million, respectively, over the comparable
period last year. However, advertising costs have decreased $1.0
million for the third quarter 1996 compared to prior year.
In the Photofinishing segment, third quarter 1996 represents
eleven weeks of operating earnings compared to the sixteen weeks
of operating losses shown in third quarter 1995 as a result of the
formation of the new joint venture October 4, 1996. The increase
to $439,000 in third quarter 1996 operating earnings from the
$125,000 operating loss recorded in the comparable period last
year is due to the closure of several unprofitable locations and
the exclusion of five weeks of the seasonally unprofitable, post
vacation portion of the quarter.
7
<PAGE>
The third quarter for the Wall Decor segment resulted in operating
losses of $220,000, a decrease from the $972,000 operating
earnings recorded in the third quarter of 1995, due primarily to
reduced sales in same store locations.
<TABLE>
SELECTED FINANCIAL DATA (in thousands of dollars)
Sixteen Weeks Ended November 9, 1996 and November 11, 1995
<CAPTION>
Sixteen Weeks Ended
---------------------------------------
Nov. 9, Nov. 11, Amount
1996 1995 Change
--------- --------- --------
<S> <C> <C> <C>
Total operating earnings $ 8,441 $ 13,246 $(4,805)
General corporate
expenses 5,189 6,509 1,320
Interest expense 1,341 1,753 412
Interest income 196 62 134
Minority interest in
venture (430) -- (430)
Gain on sale of interest
in photofinishing segment 6,180 -- 6,180
Other income 150 147 3
--------- --------- --------
Earnings before income
tax and discontinued
operations 8,007 5,193 2,814
Income tax expense 2,963 1,923 (1,040)
--------- --------- --------
Net earnings from
continuing operations $ 5,044 $ 3,270 $ 1,774
========= ========= ========
</TABLE>
NET EARNINGS
Net earnings from continuing operations were $5.0 million in third
quarter 1996, an increase of 54.3% from the $3.3 million in net
earnings from continuing operations recorded in third quarter
1995. Before the consideration of the $3.9 million (net of taxes)
gain attributable to the sale of 51% of the Company's interest in
its Photofinishing segment and the resulting joint venture
formation, net earnings from continuing operations would have
declined 64.8% to $1.2 million for the third quarter of 1996
compared to the same period last year. This decrease is due to
decreased operating earnings offset by lower corporate expense,
resulting from decreases in administrative salaries and overhead,
and lower net interest expense, due to the proceeds of the sale of
Fox common stock being used to pay down existing lines of credit.
8
<PAGE>
Net earnings per share from continuing operations were $0.36 per
share in the third quarter 1996, including a $0.28 per share gain
attributable to the joint venture formation, as compared to the
$0.24 per share recorded in the third quarter 1995. Net earnings
per share, including net losses from discontinued operations of
$0.01 for third quarter 1995, were $0.23 per share. Weighted
average number of common and common equivalent shares outstanding
were 14,065,980 and 14,090,218 for third quarters 1996 and 1995,
respectively.
9
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENT OF
EARNINGS (UNAUDITED)
(in thousands of dollars except per share amounts)
Forty weeks ended November 9, 1996 and November 11, 1995
<CAPTION>
Forty Weeks Ended
--------------------------
November 9, November 11,
1996 1995
----------- ------------
<S> <C> <C>
Net sales $ 355,543 $ 376,605
Costs and expenses:
Cost of sales (exclusive of
depreciation expense shown below) 93,898 98,067
Selling, administrative and
general expenses 230,178 235,035
Depreciation 28,151 27,075
Amortization 3,043 4,502
----------- ------------
355,270 364,679
----------- ------------
Income from operations 273 11,926
Net interest expense 3,153 3,658
Minority interest in venture (430) --
Gain on sale of interest in
photofinishing segment 6,180 --
Other income 480 304
----------- ------------
Earnings before income taxes 3,350 8,572
Income tax expense 1,239 3,174
----------- ------------
Net earnings from continuing
operations 2,111 5,398
----------- ------------
Loss from discontinued operations,
net of tax benefit -- (644)
----------- ------------
Net earnings $ 2,111 $ 4,754
=========== ============
Net earnings per share from
continuing operations $ 0.15 $ 0.39
Net loss per share from
discontinued operations -- (0.05)
----------- -------------
Net earnings per share $ 0.15 $ 0.34
=========== =============
Weighted average number of common
and common equivalent shares
outstanding (in thousands
of shares) 14,016 13,984
=========== ============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS--RESULTS OF OPERATIONS
- -----------------------------------------------------------
<TABLE>
NET SALES (in thousands of dollars)
Forty Weeks Ended November 9, 1996 and November 11, 1995
<CAPTION>
Forty Weeks Ended
---------------------------------------
Nov. 9, Nov. 11, Amount
1996 1995 Change
--------- --------- --------
<S> <C> <C> <C>
Portrait Studios $199,654 $196,208 $ 3,446
Photofinishing 114,518 141,937 (27,419)
Wall Decor 41,371 38,460 2,911
--------- --------- ---------
Total net sales $355,543 $376,605 $(21,062)
========= ========= =========
</TABLE>
NET SALES
Sales from continuing operations decreased 5.6% to $355.5 million
for the first three quarters of 1996 when compared to $376.6
million recorded for the comparable period of 1995 due to
increased sales in the Portrait Studios and Wall Decor segments
offsetting the decreased sales in the Photofinishing segment as
further discussed below.
Portrait Studios sales were $199.7 million for the first three
quarters of 1996, increasing 1.8% from $196.2 million recorded in
the comparable period last year. Management believes the
implementation of the Studio Enhancement Program, and the
resulting Portrait Preview System(SM) and Custom Portraits by
Sears programs, and the introduction of Portrait Creations(TM) in
mid-1995 have contributed to higher sales as customers responded
favorably to this new technology. For the first three quarters of
1996, Portrait Studios customer volume increased compared to the
prior year's corresponding operating periods.
As previously discussed, due to the formation of the joint venture
on October 4, 1996, sales for the Photofinishing segment were not
reflected for the last five weeks of the third quarter and, on a
prospective basis, will not be reflected for the Company. As a
result, sales decreased to $114.5 million in the first three
quarters of 1996 compared to $141.9 million recorded in the
corresponding period last year. For comparable weeks, sales were
down, reflecting the sale of 50 locations, the net closure of 37
locations from third quarter 1995 until the joint venture
formation and a decrease in the number of rolls of film developed
in comparable stores partially offset by higher average sales per
roll in comparable stores.
11
<PAGE>
Sales in the Wall Decor segment were $41.4 million for the first
three quarters of 1996, increasing 7.6% from $38.5 million
recorded in the comparable period last year due largely to the net
opening of 13 new locations since the end of the third quarter of
1995. Sales in same store Wall Decor locations were down 3.0% for
the first three quarters of 1996 from the comparable period last
year.
INCOME FROM OPERATIONS
Income from operations was $273,000 for the first three quarters
of 1996, down from $11.9 million recorded in the comparable period
last year. This decrease is attributable to lower operating
earnings in all three business segments as further discussed
below.
<TABLE>
OPERATING EARNINGS (in thousands of dollars)
Forty Weeks Ended November 9, 1996 and November 11, 1995
<CAPTION>
Forty Weeks Ended
---------------------------------------
Nov. 9, Nov. 11, Amount
1996 1995 Change
--------- --------- --------
<S> <C> <C> <C>
Portrait Studios $ 16,109 $ 23,819 $ (7,710)
Photofinishing 82 1,055 (973)
Wall Decor (1,498) 426 (1,924)
--------- --------- ---------
Total operating earnings $ 14,693 $ 25,300 $(10,607)
========= ========= =========
</TABLE>
OPERATING EARNINGS
Portrait Studio operating earnings decreased 32.4% to $16.1
million for the first three quarters of 1996 from $23.8 million
for the first three quarters of 1995 due primarily to increased
fixed charges and increased cost of sales resulting from the
higher costs associated with maintaining newer, more sophisticated
technologies. For the first three quarters of 1996, depreciation
and employment were increased $2.4 million and $2.0 million,
respectively, over the comparable period last year.
In the Photofinishing segment, the first three quarters of 1996
represent thirty-five weeks of operating earnings compared to the
forty weeks of operating earnings shown in third quarter 1995 as
a result of the formation of the new joint venture October 4,
1996. The decrease in operating earnings to $82,000 in the first
three quarters of 1996 from the $1.1 million recorded in the
comparable period last year is also due to an unfavorable sales
mix and a decrease in roll volume, which were partially offset by
higher average sales per roll in comparable stores.
12
<PAGE>
In the Wall Decor segment, which has a seasonally slow first three
quarters, operating losses were $1.5 million, a decrease from the
$426,000 operating income recorded for the first three quarters of
1995 due primarily to the seasonal losses from the net addition of
13 locations opened since the end of the third quarter of 1995.
<TABLE>
SELECTED FINANCIAL DATA (in thousands of dollars)
Forty Weeks Ended November 9, 1996 and November 11, 1995
<CAPTION>
Forty Weeks Ended
---------------------------------------
Nov. 9, Nov. 11, Amount
1996 1995 Change
--------- --------- --------
<S> <C> <C> <C>
Total operating earnings $ 14,693 $ 25,300 $(10,607)
General corporate
expenses 14,420 13,374 (1,046)
Interest expense 3,428 4,068 640
Interest income 275 410 (135)
Minority interest in
venture (430) -- (430)
Gain on sale of interest
in photofinishing segment 6,180 -- 6,180
Other income 480 304 176
--------- --------- ---------
Earnings before income
tax and discontinued
operations 3,350 8,572 (5,222)
Income tax expense 1,239 3,174 1,935
--------- --------- ---------
Net earnings from
continuing operations $ 2,111 $ 5,398 $ (3,287)
========= ========= =========
</TABLE>
NET EARNINGS
Net earnings from continuing operations were $2.1 million in the
first three quarters of 1996, a decrease from $5.4 million in net
income recorded in the first three quarters of 1995. Before the
consideration of the $3.9 million (net of taxes) gain attributable
to the sale of 51% of the Company's interest in its Photofinishing
segment and the resulting joint venture formation, net earnings
from continuing operations would have declined to $1.8 million in
net losses from continuing operations for the first three quarters
of 1996 compared to the same period last year. This decrease is
due to decreased operating earnings and increased corporate
expenses due to severance and early retirement costs. In the
13
<PAGE>
future, due to the formation of the joint venture, it is expected
general corporate expenses will decline.
Net earnings per share from continuing operations were $0.15 per
share in the first three quarters of 1996, including a $0.28 per
share gain attributable to the sale of 51% of the Company's
interest in its Photofinishing segment and the resulting joint
venture formation, compared to net earnings of $0.39 per share
recorded in the comparable period last year. Net earnings per
share, including net losses from discontinued operations of $0.05
for the first three quarters of 1995, were $0.34 per share.
Weighted average number of common and common equivalent shares
outstanding were 14,015,605 and 13,984,338 for the first three
quarters of 1996 and 1995, respectively.
14
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
ASSETS (UNAUDITED) (in thousands of dollars)
<CAPTION>
November 9, November 11, February 3,
1996 1995 1996
----------- ------------ -----------
<S> <C> <C> <C>
Current assets:
Cash $ 652 $ 2,196 $ 3,815
Short-term investments 29,072 7,291 4,516
Receivables 30,265 32,687 17,994
Inventories 22,658 37,951 33,937
Deferred cost unsold
portraits -- -- --
Deferred income taxes,
net 794 670 1,830
Income taxes 232 -- --
Prepaid expenses and
other current assets 9,387 12,493 10,733
----------- ------------ -----------
Total current assets 93,060 93,288 72,825
----------- ------------ -----------
Net property and
equipment 133,167 170,500 167,944
Investment in Fox joint
venture 48,590 -- --
Assets held for resale -- -- 5,055
Other assets:
Intangible assets, net 475 53,289 51,071
Other long-term assets 3,869 3,387 3,593
----------- ------------ -----------
Total assets $ 279,161 $ 320,464 $ 300,488
=========== ============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
15
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
LIABILITIES (UNAUDITED) (in thousands of dollars)
<CAPTION>
November 9, November 11, February 3,
1996 1995 1996
----------- ------------ -----------
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings $ -- $ 27,825 $ 2,875
Current maturities of
long-term obligations 10,000 5,007 5,000
Accounts payable 18,507 28,315 22,783
Accrued expenses and
other liabilities 23,835 29,261 25,710
Income taxes -- 2,229 7,645
Deferred income taxes, net -- -- --
----------- ------------ -----------
Total current
liabilitites 52,342 92,637 64,013
----------- ------------ -----------
Long-term obligations,
less current maturities 44,870 54,792 54,804
Other liabilities 4,524 4,549 5,476
Deferred income taxes, net 4,498 1,731 2,027
----------- ------------ -----------
Total liabilities $ 106,234 $ 153,709 $ 126,320
=========== ============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
16
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands of dollars except per share amounts)
<CAPTION>
Nov. 9, Nov. 11, Feb. 3,
1996 1995 1996
--------- --------- --------
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock, no par value,
1,000,000 shares authorized;no
shares issued and outstanding -- -- --
Preferred stock, Series A, no
par value -- -- --
Common stock, $0.40 par value,
50,000,000 shares authorized;
17,236,845, 17,168,331 and
17,169,402 shares outstanding
at November 9, 1996, November
11, 1995 and February 3, 1996,
respectively 6,895 6,867 6,868
Additional paid-in capital 33,248 32,053 32,071
Retained earnings 209,718 205,377 213,015
Cumulative foreign currency
translation adjustment (1,706) (1,729) (2,109)
--------- --------- ---------
248,155 242,568 249,845
Treasury stock at cost,
3,302,548, 3,302,548 and
3,302,548 shares at November 9,
1996, November 11, 1995 and
February 3, 1996, respectively (74,533) (74,533) (74,533)
Unamortized deferred
compensation-restricted stock (695) (1,280) (1,144)
--------- --------- ---------
Total stockholders' equity 172,927 166,755 174,168
--------- --------- ---------
Total liabilities and
stockholders' equity $279,161 $320,464 $300,488
========= ========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS--FINANCIAL CONDITION
- ---------------------------------------------------------
Total assets and total liabilities decreased from year end 1995 in
part due to the transfer of Fox Photo balances from the Company's
balance sheet to the new joint venture. As the Company owns a
minority interest in the joint venture, such assets and
liabilities are now excluded from the Company's consolidated
financial statements.
In addition, total assets changed due to the reduction of assets
held for sale from year-end offset by a seasonal increase in
receivables and the addition of minority interest to the balance
sheet. The balance of cash and short-term investments, increased
from year-end due to the receipt of proceeds from the sale of Fox
Photo common stock, were $29.7 million, $9.5 million and $8.3
million on November 9, 1996, November 11, 1995 and February 3,
1996, respectively.
18
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (in thousands of dollars)
Forty weeks ended November 9, 1996 and November 11, 1995
<CAPTION>
40 Weeks Ended
------------------
Nov. 9, Nov. 11,
1996 1995
-------- --------
<S> <C> <C>
Cash flows provided by operating activities $12,490 $18,311
Cash flows provided by (used in)
financing activities:
Proceeds from issuance of short-term
borrowings (2,875) 20,975
Repayment of long-term obligations (5,000) (130)
Issuance of common stock to
employee stock plans 1,204 793
Cash dividends (5,838) (5,817)
Purchase of treasury stock -- (1)
Cash flows provided by financing -------- --------
activities (12,509) 15,820
Cash flows provided by (used in) -------- --------
investing activities:
Purchases of short-term investments -- (10,322)
Proceeds from maturing of
short-term investments -- 10,217
Additions to property and equipment (30,830) (39,357)
Advance to venture (4,000) --
Proceeds from venture 56,100 --
-------- --------
Cash flows used in investing activities 21,270 (39,462)
-------- --------
Effect of exchange rate changes on
cash and equivalents 142 363
-------- --------
Net decrease in cash and cash equivalents 21,393 (4,968)
Cash and cash equivalents at
beginning of year 8,331 9,214
-------- --------
Cash and cash equivalents at end of period $29,724 $ 4,246
======== ========
Supplemental cash flow information:
Interest paid $ 4,414 $ 4,920
======== ========
Income taxes paid $ 8,750 $10,036
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
19
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
RECONCILIATION OF NET EARNINGS TO CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES (UNAUDITED) (in thousands of dollars)
Forty weeks ended November 9, 1996 and November 11, 1995
<CAPTION>
40 Weeks Ended
------------------
Nov. 9, Nov. 11,
1996 1995
-------- --------
<S> <C> <C>
Net earnings from continuing
operations $ 2,111 $ 5,398
Adjustments for items not requiring cash:
Depreciation and amortization 31,195 31,577
Deferred income taxes 807 681
Deferred compensation (951) 203
Minority interest in venture 430 --
Gain on sale of interest in photofinishing (6,180) --
segment
Other (1,664) (1,161)
Decrease (increase) in current assets:
Receivables and inventories (20,773) (13,506)
Deferred costs applicable to
unsold portraits -- 173
Assets held for resale 5,055 --
Prepaid expenses and other current assets (914) (2,721)
Increase (decrease) in current liabilities:
Accounts payable, accrued expenses
and other liabilities 11,251 4,870
Income taxes (7,877) (7,540)
-------- --------
Cash flows from continuing operations 12,490 17,974
Cash flows from discontinued operations -- 337
-------- --------
Cash flows used in operating activities $12,490 $18,311
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS--CASH FLOWS
- ------------------------------------------------
Capital expenditures for the first three quarters of 1996 were
$30.8 million, down from the $39.4 million incurred in the first
three quarters of 1995. Planned capital expenditures for the
entire fiscal year 1996 are expected to be lower than those of
fiscal 1995 due to the formation of the joint venture and planned
reductions in the remaining segments. The Company believes it has
sufficient liquidity over the course of the year to fund the
planned capital expenditure program through borrowings under the
revolving credit agreement and operating cash flows.
On November 12, 1996, the Company, as authorized by the Board of
Directors, completed the previously announced "Dutch Auction"
tender offer by purchasing 2,250,000 shares of the Company's
common stock at $19.00 per share for $42.8 million. The Company
used the proceeds from the sale of Fox's common stock to finance
the tender offer.
21
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY - COMMON STOCK, ADDITIONAL PAID-IN
CAPITAL AND RETAINED EARNINGS (UNAUDITED) (in thousands of
dollars) Fifty-two weeks ended February 3, 1996, and Forty weeks
ended November 9, 1996
<CAPTION>
Add'l
Common Paid-In Retained
Stock Capital Earnings
------- -------- ---------
<S> <C> <C> <C>
Balance at February 4, 1995 $6,849 $31,278 $206,440
Issuance of common stock:
Profit sharing plan and trust
(40,459 shares) 16 707 --
Stock bonus plan (1,429 shares) 1 20 --
Employee stock plans (3,915 shares) 2 66 --
Foreign currency translation -- -- --
Dividends ($0.56 per common share) -- -- (7,758)
Net earnings -- -- 14,333
Purchase of treasury stock, at cost -- -- --
Amortization of deferred
compensation-restricted stock -- -- --
------- -------- ---------
Balance at February 3, 1996 6,868 32,071 213,015
Issuance of common stock:
Profit sharing plan and trust
(40,725 shares) 16 754 --
Stock bonus plan (6,825 shares) 3 96 --
Employee stock plans (19,893 shares) 8 327 --
Foreign currency translation -- -- --
Dividends ($0.42 per common share) -- -- (5,838)
Net earnings -- -- 2,541
Amortization of deferred
compensation-restricted stock -- -- --
------- -------- ---------
Balance at November 9, 1996 $6,895 $33,248 $209,718
======= ======== =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
22
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CPI CORP. INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT AND TREASURY
STOCK AT COST (UNAUDITED) (in thousands of dollars)
Fifty-two weeks ended February 3, 1996 and Forty weeks ended
November 9, 1996
<CAPTION>
Cumulative
Foreign
Currency Treasury
Translation Stock
Adjustment At Cost
----------- ----------
<S> <C> <C>
Balance at February 4, 1995 $ (2,279) $ (74,531)
Issuance of common stock:
Profit sharing plan and trust
(40,459 shares) -- --
Stock bonus plan (1,429 shares) -- --
Employee stock plans (3,915 shares) -- --
Foreign currency translation 170 --
Dividends ($0.56 per common share) -- --
Net earnings -- --
Purchase of treasury stock, at cost -- (2)
Amortization of deferred
compensation-restricted stock -- --
----------- ----------
Balance at February 3, 1996 (2,109) (74,533)
Issuance of common stock:
Profit sharing plan and trust
(40,725 shares) -- --
Stock bonus plan (6,825 shares) -- --
Employee stock plans (19,893 shares) -- --
Foreign currency translation 403 --
Dividends ($0.42 per common share) -- --
Net earnings -- --
Amortization of deferred
compensation-restricted stock -- --
----------- ----------
Balance at November 9, 1996 $ (1,706) $ (74,533)
=========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
23
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY - DEFERRED COMPENSATION-RESTRICTED STOCK AND
TOTAL (UNAUDITED) (in thousands of dollars)
Fifty-two weeks ended February 3, 1996 and Forty weeks ended
November 9, 1996
<CAPTION>
Deferred
Compensation-
Restricted
Stock Total
------------- ----------
<S> <C> <C>
Balance at February 4, 1995 $ (1,757) $ 166,000
Issuance of common stock:
Profit sharing plan and trust
(40,459 shares) -- 723
Stock bonus plan (1,429 shares) -- 21
Employee stock plans (3,915 shares) -- 68
Foreign currency translation -- 170
Dividends ($0.56 per common share) -- (7,758)
Net earnings -- 14,333
Purchase of treasury stock, at cost -- (2)
Amortization of deferred
compensation-restricted stock 613 613
------------ ----------
Balance at February 3, 1996 (1,144) 174,168
Issuance of common stock:
Profit sharing plan and trust
(40,725 shares) -- 770
Stock bonus plan (6,825 shares) -- 99
Employee stock plans (19,893 shares) -- 335
Foreign currency translation -- 403
Dividends ($0.42 per common share) -- (5,838)
Net earnings -- 2,541
Amortization of deferred
compensation-restricted stock 448 448
------------- ----------
Balance at November 9, 1996 $ (696) $ 172,926
============= ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
24
<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 November 9, 1996, November 11, 1995
and February 3, 1996 and the results of its operations and
changes in its cash flows for the 40 weeks ended November 9,
1996 and November 11, 1995. 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 3, 1996.
2. Short-term investments are comprised of money market
instruments which aggregated $29.1 million, $7.3 million and
$4.5 million as of November 9, 1996, November 11, 1995, and
February 3, 1996, respectively, and are stated at cost which
approximates market.
3. On April 4, 1996, the Company announced its intention to sell
certain assets of its Electronic Publishing operations. On
May 3, 1996, the Company completed the transaction for $4.8
million. Additionally, the purchaser assumed certain
liabilities of the Electronic Publishing operation which
aggregate approximately $900,000. A provision of $3.8 million
was made in 1995 to reflect the discontinued business at its
estimated realizable value. The Company classified the
Electronic Publishing operation as a discontinued operation
and reclassified the prior years' financial statements to
reflect this transaction.
4. The components of net interest expense are as follows:
<TABLE>
<CAPTION>
--16 weeks ended-- --40 weeks ended--
Nov. 9, Nov. 11, Nov. 9, Nov. 11,
1996 1995 1996 1995
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest expense $ 1,341 $ 1,753 $ 3,428 $ 4,068
Interest income (196) (62) (275) (410)
-------- -------- -------- --------
Net interest expense $ 1,145 $ 1,691 $ 3,153 $ 3,658
======== ======== ======== ========
</TABLE>
5. On June 3, 1996, the Company announced the sale to Wolf
Camera, Inc. of 50 one-hour photofinishing stores located in
Florida, Georgia, Illinois and Tennessee for $1.9 million.
The Company did not recognize a material gain or loss on the
sale of these assets.
25
<PAGE>
6. On October 4, 1996, the Company entered into a joint venture
with Eastman Kodak Company ("Kodak"). The new joint venture,
plans for which were announced by the Company on August 8,
1996, will own and operate the Company's retail
photofinishing business previously conducted by the Company's
Fox Photo, Inc. ("Fox") and Proex Photo Systems, Inc.
("Proex") subsidiaries and operate under the trade names of
Fox Photo, CPI Photo Finish and Proex. Proex is a wholly
owned subsidiary of Fox.
In executing the Subscription Agreement, dated August 8, 1996,
by and among Kodak, the Company, Consumer Programs Holding,
Inc. (a wholly owned subsidiary of the Company) ("Holding")
and Fox (the "Subscription Agreement"), Kodak agreed to
purchase at Closing new shares of Fox constituting 51% of the
then outstanding common stock of Fox for a cash purchase price
of $56.1 million, subject to adjustment changes in Fox's net
worth between April 27, 1996 and the October 4, 1996
consummation date. The Company recognized a gain, net of
taxes, of $3.9 million or $0.28 per share. On a prospective
basis, the new joint venture will be reflected as a minority
interest investment within the financial statements.
The information below summarizes the unaudited proforma
results of operation for the 40 weeks ended November 9, 1996,
and November 11, 1995 and for the fiscal year ended
February 3, 1996 assuming the joint venture results have been
prepared for comparative purposes only and do not purport to
be indicative of the results of operations which actually
would have resulted had the combination been in effect on the
dates indicated, or which may result in the future.
<TABLE>
<CAPTION>
40 weeks ended Fiscal
----------------------- year end
Nov.9,1996 Nov.11,1995 Feb. 3,1996
---------- ----------- -----------
<S> <C> <C> <C>
Net Sales $ 241,025 $ 234,668 $ 338,243
========== =========== ===========
Earnings from continuing $ 3,438 $ 6,647 $ 18,703
operations ========== =========== ===========
Net Earnings $ 3,438 $ 6,003 $ 15,377
========== =========== ===========
Earnings per common share:
Continuing operations $ 0.25 $ 0.48 $ 1.34
========== =========== ===========
Net earnings $ 0.25 $ 0.43 $ 1.10
========== =========== ===========
</TABLE>
26
<PAGE>
7. On November 12, 1996 the Company announced the completion of
the previously announced "Dutch Auction" tender offer. The
Company, as authorized by the Board of Directors, purchased
2,250,000 shares of the Company's common stock at $19.00 per
share for $42.8 million. The Company used the proceeds from
the sale of Fox's common stock to finance the tender offer.
27
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 6(a). EXHIBITS
Exhibit 11 - Computation of Earnings per Common Share
Sixteen Weeks Ended November 9, 1996 and
November 11, 1995
Exhibit 11 - Computation of Earnings per Common Share
Forty Weeks Ended November 9, 1996
and November 11, 1995
Exhibit 27 - Financial Data Schedule
28
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 (b) REPORTS ON FORM 8-K
-- On August 22, 1996, the Company announced that on
August 8, 1996, it had entered into a definitive
agreement with Eastman Kodak Company ("Kodak") to
establish a joint venture with Kodak to own and
operate the Company's retail photofinishing
business. The Company also announced that on
August 19, 1996, the Board of Directors had
authorized the Company to purchase up to
$50,000,000 of the Company's common stock pursuant
to a "Dutch Auction" tender offer.
-- On September 26, 1996, CPI Corp. reported the
issuance of a press release on September 19, 1996,
announcing the expiration of the Hart-Scott-Rodino
Act waiting period for the photofinish joint venture
with Eastman Kodak Company.
-- On October 17, 1996, the Company reported the
necessary third party consents for the Photofinish
joint venture with Eastman Kodak Company were
obtained. In addition, the Company announced that
in October 1996, it had amended its $60 Million
Revolving Credit Agreement with three banks and Note
Agreement with two insurance companies.
-- On October 18, 1996, CPI Corp. reported the
completion of Eastman Kodak's purchase of a 51%
stake in the Company's Fox Photo, Inc. subsidiary for
$56.1 million in cash. In addition, the Company
requested a 60-day extension in providing proforma
financial information. The Company also reported
the issuance of a press release on October 18, 1996
stating the 3rd quarter portrait studio sales were
lower than expected.
-- On November 7, 1996, the Company reported the
issuance of a press release on November 5, 1996,
announcing the preliminary results of its Dutch
auction tender offer.
29
<PAGE>
SIGNATURE
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: December 17, 1996 By: /s/ Barry Arthur
---------------------------
Barry Arthur
Authorized Officer and
Principal Financial Officer
30
<PAGE>
CPI CORP.
EXHIBIT INDEX
PART I.
Item 6(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
Sixteen Weeks Ended November 9, 1996
and November 11, 1995
Exhibit 11 - Computation of Earnings Per Share
Forty Weeks Ended November 9, 1996
and November 11, 1995
Exhibit 27 - Financial Data Schedule
31
<PAGE>
PART I. ITEM 6(a) EXHIBITS EXHIBIT 11
<TABLE>
CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands of dollars except per share amounts)
Sixteen Weeks Ended November 9, 1996 and November 11, 1995
<CAPTION>
Sixteen Weeks Ended
---------------------
Nov. 09, Nov. 11,
1996 1995
--------- ---------
<S> <C> <C>
Primary:
Net earnings (loss) applicable
to common shares:
From continuing operations $ 5,044 $ 3,270
From discontinued operations -- (94)
--------- ---------
Net earnings (loss) $ 5,044 $ 3,176
========= =========
Shares (in thousands of shares):
Weighted average number of
common shares outstanding 17,238 17,168
Shares issuable under employee
stock plans - weighted average 44 37
Dilutive effect of exercise of
certain stock options 87 188
Less: Treasury stock - weighted
average (3,303) (3,303)
--------- ---------
Weighted average number of common
and common equivalent shares
outstanding 14,066 14,090
========= =========
Net earnings (loss) per common and
common equivalent shares:
From continuing operations $ 0.36 $ 0.24
From discontinued operations -- (0.01)
--------- ---------
Net earnings $ 0.36 $ 0.23
========= =========
</TABLE>
32
<PAGE>
PART I. ITEM 6(a) EXHIBITS EXHIBIT 11
<TABLE>
CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands of dollars except per share amounts)
Forty Weeks Ended November 9, 1996 and November 11, 1995
<CAPTION>
Forty Weeks Ended
------------------------
Nov. 09, Nov. 11,
1996 1995
--------- ---------
<S> <C> <C>
Primary:
Net earnings (loss) applicable
to common shares:
From continuing operations $ 2,111 $ 5,398
From discontinued operations -- (644)
--------- ---------
Net earnings (loss) $ 2,111 $ 4,754
========= =========
Shares (in thousands of shares):
Weighted average number of
common shares outstanding 17,227 17,167
Shares issuable under employee
stock plans - weighted average 40 29
Dilutive effect of exercise of
certain stock options 52 91
Less: Treasury stock - weighted
average (3,303) (3,303)
--------- ---------
Weighted average number of common
and common equivalent shares
outstanding 14,016 13,984
========= =========
Net earnings (loss) per common and
common equivalent shares:
From continuing operations $ 0.15 $ 0.39
From discontinued operations -- (0.05)
--------- ---------
Net earnings $ 0.15 $ 0.34
========= =========
</TABLE>
33
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> NOV-09-1996
<CASH> 652
<SECURITIES> 29,072
<RECEIVABLES> 31,041
<ALLOWANCES> 776
<INVENTORY> 22,658
<CURRENT-ASSETS> 93,060
<PP&E> 225,157
<DEPRECIATION> 91,990
<TOTAL-ASSETS> 279,161
<CURRENT-LIABILITIES> 52,342
<BONDS> 0
6,895
0
<COMMON> 0
<OTHER-SE> 166,032
<TOTAL-LIABILITY-AND-EQUITY> 279,161
<SALES> 355,543
<TOTAL-REVENUES> 355,543
<CGS> 93,898
<TOTAL-COSTS> 355,270
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,428
<INCOME-PRETAX> 3,350
<INCOME-TAX> 1,239
<INCOME-CONTINUING> 2,111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,111
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
