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 20, 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 13,919,062 shares
- --------------------------- --------------------------------
Class Outstanding at August 29, 1996
<PAGE>
CPI CORP.
INDEX
Part I. Financial Information:
Item 1. Financial Statements:
Management's Discussion and Analysis - Overview
Interim Condensed Consolidated Statements
of Earnings - For the 12 Weeks Ended
July 20, 1996 and July 22, 1995
Management's Discussion and Analysis - Results
of Operations - For the 12 Weeks Ended
July 20, 1996 and July 22, 1995
Interim Condensed Consolidated Statements
of Earnings - For the 24 Weeks Ended
July 20, 1996 and July 22, 1995
Management's Discussion and Analysis - Results
of Operations - For the 24 Weeks Ended
July 20, 1996 and July 22, 1995
Interim Condensed Consolidated Balance
Sheets - July 20, 1996, July 22, 1995
and February 3, 1996
Management's Discussion and Analysis - Financial
Condition
Interim Condensed Consolidated Statements
of Cash Flows - For the 24 Weeks Ended
July 20, 1996 and July 22, 1995
Management's Discussion and Analysis - Cash Flows
Interim Condensed Consolidated Statements
of Changes in Stockholders' Equity - For
the 52 Weeks Ended February 3, 1996 and
for the 24 Weeks Ended July 20, 1996
Notes to Interim Condensed Consolidated
Financial Statements
Item 6.(a) Exhibits
Exhibit 11 - Computation of Earnings
per Common Share
Exhibit 27 - Financial Data Schedule
Part II. Other Information:
Item 4 Submission of Matters to a Vote of
Security Holders
Item 6.(b) Reports on Form 8-K
Signature
Exhibit Index
<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 second fiscal quarters of 1996 and 1995 consisted
of twelve weeks and ended July 20, 1996 and July 22, 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 second quarter 1996 and second quarter 1995 will mean the second
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 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.
SUBSEQUENT EVENT
On August 8, 1996, the Company announced that 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 retail
photofinishing business is currently conducted by the Company's Fox
Photo, Inc. ("Fox") and Proex Photo Systems, Inc. ("Proex")
subsidiaries and operates under the trade names of Fox Photo, CPI
Photo Finish and Proex. Proex is a wholly owned subsidiary of Fox.
Pursuant to a 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
<PAGE>
"Subscription Agreement"), Kodak will purchase new shares of Fox
constituting 51% of the then outstanding common stock of Fox for a
cash purchase price of $56.1 million. The purchase price will be
subject to upward or downward adjustment to account for changes in
Fox's net worth between April 27, 1996 and the date the transaction
is consummated.
Pursuant to the terms of a Stockholders' Agreement (the
"Stockholders' Agreement") to be entered into by Kodak, the
Company, Holding and Fox upon consummation of the joint venture
transaction, 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 provides that Kodak will designate four
members and the Company will designate three members of Fox's
seven-member Board of Directors. Alyn V. Essman, the Company's
Chairman and Chief Executive Officer, will be the initial Chairman
of Fox's Board of Directors. Certain specified significant actions
will require the consent of both Kodak and the Company.
The consummation of the joint venture transaction is subject to
customary conditions including the expiration or termination of
applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the procurement of
necessary third party consents.
On August 19, 1996, the Company announced that 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. The Company expects to use the proceeds from the sale of
Fox's common stock pursuant to the Subscription Agreement to
finance the tender offer.
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS (UNAUDITED)
(in thousands of dollars except per share amounts)
Twelve weeks ended July 20, 1996 and July 22, 1995
<CAPTION>
Twelve Weeks Ended
---------------------
July 20, July 22,
1996 1995
--------- ---------
<S> <C> <C>
Net sales $105,440 $107,056
Costs and expenses:
Cost of sales (exclusive of
depreciation expense shown below) 29,702 28,384
Selling, administrative and
general expenses 66,372 64,232
Depreciation 8,766 8,041
Amortization 985 1,410
--------- ---------
105,825 102,067
--------- ---------
Income (loss) from operations (385) 4,989
Net interest expense 1,038 993
Other income 132 71
--------- ---------
Earnings (losses) before income taxes
and discontinued operations (1,291) 4,067
Income tax expense (benefit) (478) 1,505
--------- ---------
Net earnings (losses) from
continuing operations (813) 2,562
--------- ---------
Discontinued operations:
Losses from operations, net of
income tax benefit of $183 in
1995 - (310)
--------- ---------
Net earnings (losses) $ (813) $ 2,252
========= =========
Earnings per common share:
Net earnings (losses) from
continuing operations $ (0.06) $ 0.18
Net losses from discontinued
operations - (0.02)
--------- ---------
Net earnings (losses) per share $ (0.06) $ 0.16
========= =========
Dividends per common share $ 0.14 $ 0.14
========= =========
Weighted average number of common
and common equivalent shares
outstanding (in thousands
of shares) 14,001 13,930
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS--RESULTS OF OPERATIONS
- -----------------------------------------------------------
<TABLE>
NET SALES (in thousands of dollars)
Twelve Weeks Ended July 20, 1996 and July 22, 1995
<CAPTION>
Twelve Weeks Ended
---------------------------------------
July 20, July 22, Amount
1996 1995 Change
--------- --------- --------
<S> <C> <C> <C>
Portrait Studios $ 51,354 $ 49,585 $ 1,769
Photofinishing 42,127 46,170 (4,043)
Wall Decor 11,959 11,301 658
--------- --------- --------
Total net sales $105,440 $107,056 $(1,616)
========= ========= ========
</TABLE>
NET SALES
Sales from continuing operations decreased 1.5% to $105.4 million
in the second quarter 1996 from $107.1 million in the second
quarter 1995 due primarily to decreased sales in the Photofinishing
segment partially offset by increased sales in the Portrait Studios
and Wall Decor segments.
Portrait Studios sales were $51.4 million in the second quarter
1996, increasing 3.6% from $49.6 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 continue to respond favorably to this
new technology. In the second quarter 1996, Portrait Studios
customer volume was relatively unchanged and sales average
increased compared to the second quarter of 1995.
In the Photofinishing segment, sales decreased 8.8% to $42.1
million in the second quarter 1996 compared to $46.2 million
recorded in the corresponding period last year. The sales decrease
reflects the sale of 50 locations in addition to the net closure of
32 locations from second quarter 1995 through second quarter 1996
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.
Sales in the Wall Decor segment were $12.0 million in the second
quarter 1996, increasing 5.8% from $11.3 million recorded in the
comparable period last year, due largely to the opening of 14 new
locations since the end of the second quarter of 1995. Sales in
same store Wall Decor locations were down 3.6% in the second
quarter 1996 from the comparable period last year.
<PAGE>
INCOME FROM OPERATIONS
Loss from operations was $385,000 in second quarter 1996, down from
$5.0 million in income from operations recorded in second quarter
1995. This decrease is attributable to lower operating earnings in
all three business segments as further discussed below.
<TABLE>
OPERATING EARNINGS (in thousands of dollars)
Twelve Weeks Ended July 20, 1996 and July 22, 1995
<CAPTION>
Twelve Weeks Ended
---------------------------------------
July 20, July 22, Amount
1996 1995 Change
--------- --------- --------
<S> <C> <C> <C>
Portrait Studios $ 3,382 $ 5,192 $ (1,810)
Photofinishing 1,718 2,937 (1,219)
Wall Decor (462) 54 (516)
--------- --------- --------
Total operating earnings $ 4,638 $ 8,183 $(3,545)
========= ========= ========
</TABLE>
OPERATING EARNINGS
Portrait Studio operating earnings decreased 34.9% to $3.4 million
in the second quarter 1996 from $5.2 million in the second 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. The prior
implementation of the Studio Enhancement Program and subsequent
heavy investment in capital and service created fixed charges in
depreciation and employment cost which disproportionately affect
operating earnings in low activity periods such as the first and
second fiscal quarters. For the second quarter 1996, depreciation
and employment costs increased $701,000 and $861,000, respectively,
over the comparable period last year.
Photofinishing operating earnings for the second quarter 1996
decreased to $1.7 million from the $2.9 million recorded in the
comparable period last year due primarily to an unfavorable sales
mix and a decrease in roll volume, which were slightly offset by
higher average sales per roll in comparable stores.
The seasonally slow second quarter for the Wall Decor segment
resulted in operating losses of $462,000, a decrease from the
$54,000 operating earnings recorded in the second quarter of 1995,
due primarily to seasonal losses from the addition of 14 locations
opened during the latter part of 1995 and the first two quarters of
1996.
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA (in thousands of dollars)
Twelve Weeks Ended July 20, 1996 and July 22, 1995
<CAPTION>
Twelve Weeks Ended
---------------------------------------
July 20, July 22, Amount
1996 1995 Change
--------- --------- --------
<S> <C> <C> <C>
Total operating earnings $ 4,638 $ 8,183 $(3,545)
General corporate
expenses 5,023 3,195 (1,828)
Interest expense 1,069 1,206 137
Interest income 31 214 (183)
Other income 132 71 61
--------- --------- --------
Earnings (losses)
before income tax and
discontinued operations (1,291) 4,067 (5,358)
Income tax expense (benefit) (478) 1,505 1,983
--------- --------- --------
Net earnings (losses) from
continuing operations $ (813) $ 2,562 $(3,375)
========= ========= ========
</TABLE>
NET EARNINGS (LOSSES)
Net losses from continuing operations were $813,000 in second
quarter 1996, a decrease from the $2.6 million in net earnings
recorded in second quarter 1995. This decrease is attributable to
lower income from operations and an increase in corporate expense
due to higher employee benefit costs.
Net losses per share from continuing operations were $0.06 per
share in the second quarter 1996 compared to net income from
continuing operations of $0.18 per share recorded in the second
quarter 1995. Net earnings per share, including net losses from
discontinued operations of $0.02 for second quarter 1995, were
$0.16 per share. Weighted average number of common and common
equivalent shares outstanding were 14,000,530 and 13,930,322 for
second quarters 1996 and 1995, respectively.
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS (UNAUDITED)
(in thousands of dollars except per share amounts)
Twenty-four weeks ended July 20, 1996 and July 22, 1995
<CAPTION>
Twenty-four Weeks Ended
-----------------------
July 20, July 22,
1996 1995
--------- ---------
<S> <C> <C>
Net sales $210,108 $210,449
Costs and expenses:
Cost of sales (exclusive of
depreciation expense shown below) 58,453 56,144
Selling, administrative and
general expenses 135,442 130,470
Depreciation 17,234 15,889
Amortization 1,959 2,757
--------- ---------
213,088 205,260
--------- ---------
Income (loss) from operations (2,980) 5,189
Net interest expense 2,008 1,966
Other income 331 156
--------- ---------
Earnings (losses) before income taxes
and discontinued operations (4,657) 3,379
Income tax expense (benefit) (1,723) 1,250
--------- ---------
Net earnings (losses) from
continuing operations (2,934) 2,129
--------- ---------
Discontinued operations:
Losses from operations, net of
income tax benefit of $324 in
1995 - (551)
--------- ---------
Net earnings (losses) $ (2,934) $ 1,578
========= =========
Earnings per common share:
Net earnings (losses) from
continuing operations $ (0.21) $ 0.15
Net losses from discontinued
operations - (0.04)
--------- ---------
Net earnings (losses) per share $ (0.21) $ 0.11
========= =========
Dividends per common share $ 0.28 $ 0.28
========= =========
Weighted average number of common
and common equivalent shares
outstanding (in thousands
of shares) 13,982 13,914
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NET SALES (in thousands of dollars)
Twenty-four Weeks Ended July 20, 1996 and July 22, 1995
<CAPTION>
Twenty-four Weeks Ended
---------------------------------------
July 20, July 22, Amount
1996 1995 Change
--------- --------- --------
<S> <C> <C> <C>
Portrait Studios $108,215 $105,052 $ 3,163
Photofinishing 78,220 83,908 (5,688)
Wall Decor 23,673 21,489 2,184
--------- --------- --------
Total net sales $210,108 $210,449 $ (341)
========= ========= ========
</TABLE>
NET SALES
Sales from continuing operations were relatively unchanged at
$210.1 million for the first two quarters of 1996 when compared to
the $210.4 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.
Portrait Studios sales were $108.2 million for the first two
quarters of 1996, increasing 3.0% from $105.1 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 continue to respond
favorably to this new technology. For the first two quarters of
1996, Portrait Studios customer volume and sales volume increased
compared to the prior year's corresponding operating periods.
In the Photofinishing segment, sales decreased 6.8% to $78.2
million for the first two quarters of 1996 compared to $83.9
million recorded in the corresponding period last year. The sales
decrease reflects the sale of 50 stores in addition to the net
closure of 32 stores from second quarter 1995 through second
quarter 1996 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.
Sales in the Wall Decor segment were $23.7 million for the first
two quarters of 1996, increasing 10.2% from $21.5 million recorded
in the comparable period last year, due largely to the opening of
14 new locations since the end of second quarter 1995. Sales in
same store Wall Decor locations were down 1.5% for the first half
of 1996 from the comparable period last year.
<PAGE>
INCOME FROM OPERATIONS
Loss from operations was $3.0 million for the first two quarters of
1996, down from $5.2 million in income from operations 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)
Twenty-four Weeks Ended July 20, 1996 and July 22, 1995
<CAPTION>
Twenty-four Weeks Ended
---------------------------------------
July 20, July 22, Amount
1996 1995 Change
--------- --------- --------
<S> <C> <C> <C>
Portrait Studios $ 7,887 $ 11,420 $(3,533)
Photofinishing (357) 1,180 (1,537)
Wall Decor (1,278) (546) (732)
--------- --------- --------
Total operating earnings $ 6,252 $ 12,054 $(5,802)
========= ========= ========
</TABLE>
OPERATING EARNINGS
Portrait Studio operating earnings decreased 30.9% to $7.9 million
for the first two quarters of 1996 from $11.4 million for the first
two 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.
The prior implementation of the Studio Enhancement Program and
subsequent heavy investment in capital and service created fixed
charges in depreciation and employment cost which
disproportionately affect operating earnings in low activity
periods such as the first and second fiscal quarters. For the
first half of 1996, depreciation and employment were increased $1.5
million and $906,000, respectively, over the comparable period last
year.
Photofinishing operating losses for the first two quarters of 1996
decreased to $357,000 from $1.2 million in operating earnings
recorded in the comparable period last year due primarily to an
unfavorable sales mix and a decrease in roll volume, which were
partially offset by higher average sales per roll in comparable
stores.
In the Wall Decor segment, which has a seasonally slow first half,
operating losses were $1.3 million, an increase in operating losses
from the $546,000 recorded for the first two quarters of 1995 due
primarily to the seasonal losses from the addition of 14 locations
opened since the end of the second quarter of 1995.
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA (in thousands of dollars)
Twenty-four Weeks Ended July 20, 1996 and July 22, 1995
<CAPTION>
Twenty-four Weeks Ended
---------------------------------------
July 20, July 22, Amount
1996 1995 Change
--------- --------- --------
<S> <C> <C> <C>
Total operating earnings $ 6,252 $ 12,054 $(5,802)
General corporate
expenses 9,232 6,865 (2,366)
Interest expense 2,087 2,315 228
Interest income 79 349 (271)
Other income 331 156 175
--------- --------- --------
Income (loss) before
income tax and
discontinued operations (4,657) 3,379 (8,036)
Income tax expense
(benefit) (1,723) 1,250 2,973
--------- --------- --------
Net income (loss) from
continuing operations $ (2,934) $ 2,129 $(5,063)
========= ========= ========
</TABLE>
NET EARNINGS (LOSSES)
Net losses from continuing operations were $2.9 million in the
first two quarters of 1996, a decrease from $2.1 million in net
income recorded in the first two quarters of 1995 resulting from
lower income from operations and an increase in corporate expense
due to higher employee benefit costs and severance and early
retirement costs.
Net losses per share from continuing operations were $0.21 per
share in the first two quarters of 1996 compared to net earnings of
$0.15 per share recorded in the comparable period last year. Net
earnings per share, including net losses from discontinued
operations of $0.04 for the first two quarters of 1995, were $0.11
per share. Weighted average number of common and common equivalent
shares outstanding were 13,982,022 and 13,913,751 for the first two
quarters of 1996 and 1995, respectively.
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
ASSETS (UNAUDITED) (in thousands of dollars)
<CAPTION>
July 20, July 22, February 3,
1996 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Current assets:
Cash $ 3,374 $ 2,424 $ 3,815
Short-term investments 2,762 7,335 4,516
Receivables, less allowance
of $1,081, $1,716 and $1,216,
respectively 18,999 20,231 17,994
Inventories 31,164 31,307 33,937
Deferred income taxes, net 810 685 1,830
Refundable income taxes 2,666 - -
Prepaid expenses and other
current assets 8,927 10,384 10,733
--------- --------- ---------
Total current assets 68,702 72,366 72,825
--------- --------- ---------
Net property and equipment 170,200 170,103 167,944
Net assets of business held
for sale - - 5,055
Other assets:
Intangible assets, net 50,214 54,516 51,071
Other long-term assets 4,120 3,472 3,593
--------- --------- ---------
Total assets $293,236 $300,457 $300,488
========= ========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
LIABILITIES (UNAUDITED) (in thousands of dollars)
<CAPTION>
July 20, July 22, February 3,
1996 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings $ 9,300 $ 19,300 $ 2,875
Current maturities of long-term
obligations 5,000 18 5,000
Accounts payable 29,517 30,526 22,783
Accrued expenses and other
liabilities 20,219 18,967 25,710
Income taxes - 1,765 7,645
--------- --------- ---------
Total current liabilities 64,036 70,576 64,013
--------- --------- ---------
Long-term obligations, less
current maturities 54,846 59,777 54,804
Other liabilities 4,228 3,525 5,476
Deferred income taxes, net 1,491 1,423 2,027
--------- --------- ---------
Total liabilities $124,601 $135,301 $126,320
========= ========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands of dollars except per share amounts)
<CAPTION>
July 20, July 22, February 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;
17,221,551, 17,165,487 and
17,169,402 shares outstanding
at July 20, 1996, July 22,
1995 and February 3, 1996,
respectively 6,889 6,866 6,868
Additional paid-in capital 32,990 32,006 32,071
Retained earnings 206,192 204,142 213,015
Cumulative foreign currency
translation adjustment (2,030) (1,865) (2,109)
--------- --------- ---------
244,041 241,149 249,845
Treasury stock at cost,
3,302,548, 3,302,507 and
3,302,548 shares at July 20,
1996, July 22, 1995 and
February 3, 1996, respectively (74,533) (74,532) (74,533)
Unamortized deferred
compensation-restricted stock (873) (1,461) (1,144)
--------- --------- ---------
Total stockholders' equity 168,635 165,156 174,168
--------- --------- ---------
Total liabilities and
stockholders' equity $293,236 $300,457 $300,488
========= ========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS--FINANCIAL CONDITION
- ---------------------------------------------------------
Total assets at the end of second quarter 1996 decreased from year-
end 1995, reflecting decreases in short-term investments,
inventories and net assets of business held for sale offset by an
increase in refundable income taxes. The balances of cash and
short-term investments were $6.1 million, $9.8 million and $8.3
million on July 20, 1996, July 22, 1995 and February 3, 1996,
respectively.
Total liabilities decreased $1.7 million to $124.6 million at the
end of the second quarter 1996 from $126.3 million recorded at
year-end, reflecting an increase in short-term borrowings offset by
a decrease in income tax liabilities.
Stockholders' equity decreased 3.2% to $168.6 million in second
quarter 1996 from year-end due primarily to a decrease in retained
earnings of $6.8 million.
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (in thousands of dollars)
Twenty-four weeks ended July 20, 1996 and July 22, 1995
<CAPTION>
24 Weeks Ended
------------------
July 20, July 22,
1996 1995
-------- --------
<S> <C> <C>
Cash flows provided by operating activities $13,792 $13,341
Cash flows provided by (used in)
financing activities:
Proceeds from the issuance of
short-term borrowings 6,425 12,450
Repayment of long-term obligations - (113)
Issuance of common stock to
employee stock plans 939 744
Cash dividends (3,889) (3,875)
Purchase of treasury stock - (1)
-------- --------
Cash flows provided by
financing activities 3,475 9,205
-------- --------
Cash flows provided by (used in)
investing activities:
Purchases of short-term investments - (5,106)
Proceeds from maturing of
short-term investments - 4,983
Additions to property and equipment (19,490) (27,429)
-------- --------
Cash flows used in investing activities (19,490) (27,552)
-------- --------
Effect of exchange rate changes on
cash and equivalents 29 293
-------- --------
Net decrease in cash and cash equivalents (2,194) (4,713)
Cash and cash equivalents at
beginning of year 8,331 9,214
-------- --------
Cash and cash equivalents at end of period $ 6,137 $ 4,501
======== ========
Supplemental cash flow information:
Interest paid $ 2,202 $ 2,525
======== ========
Income taxes paid $ 8,459 $ 8,661
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<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)
Twenty-four weeks ended July 20, 1996 and July 22, 1995
<CAPTION>
24 Weeks Ended
-----------------
July 20, July 22,
1996 1995
-------- --------
<S> <C> <C>
Net profit (loss) from continuing operations $(2,934) $ 2,129
Adjustments for items not requiring cash:
Depreciation and amortization 19,193 18,646
Deferred income taxes 484 357
Deferred compensation (1,247) (821)
Other (1,266) (963)
Decrease (increase) in current assets:
Receivables and inventories 1,769 5,629
Deferred costs applicable to
unsold portraits - 173
Assets held for resale 5,055 -
Prepaid expenses and other current assets 1,806 (440)
Increase (decrease) in current liabilities:
Accounts payable, accrued expenses
and other liabilities 1,242 (3,419)
Income taxes (10,310) (8,003)
-------- --------
Cash flows from continuing operations 13,792 13,288
Cash flows from discontinued operations - 53
-------- --------
Cash flows used in operating activities $13,792 $13,341
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS--CASH FLOWS
- ------------------------------------------------
Capital expenditures for the first two quarters of 1996 were $19.5
million, down from the $27.4 million incurred in the first half of
1995. Planned capital expenditures for the entire fiscal year 1996
are expected to be lower than those of fiscal 1995. 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 August 19, 1996, the Company announced that the Board of
Directors had authorized the Company to purchase up to $50.0
million of the Company's common stock pursuant to a "Dutch Auction"
tender offer. The Company expects to use the proceeds from the
announced joint venture with Eastman Kodak to finance the tender
offer.
<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 Twenty-four weeks ended
July 20, 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 (6,766 shares) 3 96 -
Employee stock plans (4,658 shares) 2 69 -
Foreign currency translation - - -
Dividends ($0.28 per common share) - - (3,889)
Net loss - - (2,934)
Amortization of deferred
compensation-restricted stock - - -
------- -------- ---------
Balance at July 20, 1996 $6,889 $32,990 $206,192
======= ======== =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<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 Twenty-four weeks ended
July 20, 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 (6,658 shares) - -
Employee stock plans (4,658 shares) - -
Foreign currency translation 79 -
Dividends ($0.28 per common share) - -
Net loss - -
Amortization of deferred
compensation-restricted stock - -
-------- ---------
Balance at July 20, 1996 $(2,030) $(74,533)
======== =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<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 Twenty-four weeks ended
July 20, 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 (6,766 shares) - 99
Employee stock plans (4,658 shares) - 71
Foreign currency translation - 79
Dividends ($0.28 per common share) - (3,889)
Net loss - (2,934)
Amortization of deferred
compensation-restricted stock 271 271
-------- ---------
Balance at July 20, 1996 $ (873) $168,635
======== =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<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 20, 1996, July 22, 1995 and
February 3, 1996 and the results of its operations and
changes in its cash flows for the 24 weeks ended July 20, 1996
and July 22, 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 $2.8 million, $7.3 million and $4.5 million
as of July 20, 1996, July 22, 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>
--12 weeks ended-- --24 weeks ended--
July 20, July 22, July 20, July 22,
1996 1995 1996 1995
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest expense $ 1,069 $ 1,207 $ 2,087 $ 2,315
Interest income (31) (214) (79) (349)
-------- -------- -------- --------
Net interest expense $ 1,038 $ 993 $ 2,008 $ 1,966
======== ======== ======== ========
</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.
<PAGE>
CPI CORP.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
6. On August 8, 1996, the Company announced that 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 retail
photofinishing business is currently conducted by the Company's
Fox Photo, Inc. ("Fox") and Proex Photo Systems, Inc. ("Proex")
subsidiaries and operates under the trade names of Fox Photo,
CPI Photo Finish and Proex. Proex is a wholly owned subsidiary
of Fox.
Pursuant to a 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 will purchase new shares of Fox
constituting 51% of the then outstanding common stock of Fox for
a cash purchase price of $56.1 million. The purchase price will
be subject to upward or downward adjustment to account for
changes in Fox's net worth between April 27, 1996 and the date
the transaction is consummated.
Pursuant to the terms of a Stockholders' Agreement (the
"Stockholders' Agreement") to be entered into by Kodak, the
Company, Holding and Fox upon consummation of the joint venture
transaction, 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 provides that Kodak will designate
four members and the Company will designate three members of
Fox's seven-member Board of Directors. Alyn V. Essman, the
Company's Chairman and Chief Executive Officer, will be the
initial Chairman of Fox's Board of Directors. Certain specified
significant actions will require the consent of both Kodak and
the Company.
The consummation of the joint venture transaction is subject to
customary conditions including the expiration or termination of
applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the procurement of
<PAGE>
CPI CORP.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
necessary third party consents.
On August 19, 1996, the Company announced that 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. The Company expects to use the proceeds
from the sale of Fox's common stock pursuant to the Subscription
Agreement to finance the tender offer.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 6(a). EXHIBITS
Exhibit 11 - Computation of Earnings per Common Share
Twelve Weeks Ended July 22, 1996 and
July 20, 1995
Exhibit 11 - Computation of Earnings per Common Share
Twenty-four Weeks Ended July 22, 1996
and July 20, 1995
Exhibit 27 - Financial Data Schedule
<PAGE>
PART II. OTHER INFORMATION
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 6, 1996. 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>
Shares Shares
For Withheld
---------- ----------
<S> <C> <C>
Milford Bohm 12,012,617 273,287
Alyn V. Essman 12,019,843 266,061
Lee M. Liberman 12,133,324 152,581
Robert L. Virgil 12,140,033 145,901
Russell Isaak 12,020,243 265,661
Nicholas L. Reding 12,141,025 144,879
Mary Ann Krey 12,141,494 144,410
Martin Sneider 12,138,741 147,163
</TABLE>
b) The Board of Directors' appointment of KPMG Peat
Marwick LLP to audit the Company's accounts for the
1996 fiscal year was approved by a vote of 12,256,255
shares in favor, 14,171 shares opposed and 15,478
shares abstaining.
ITEM 6(b) REPORTS ON FORM 8-K
-- On June 13, 1996, CPI Corp. submitted the Asset Purchase
Agreement, executed on June 3, 1996, between Fox Photo,
Inc. and Wolf Camera, Inc. for the purchase of fifty
retail one-hour photofinishing stores and the Amendment
to Asset Purchase Agreement, executed on June 3, 1996,
between Fox Photo, Inc. and Wolf Camera, Inc.
<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: August 30, 1996 By: /s/ Barry Arthur
---------------------------
Barry Arthur
Authorized Officer and
Principal Financial Officer
<PAGE>
CPI CORP.
EXHIBIT INDEX
PART I.
Item 6(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
Twelve Weeks Ended July 20, 1996
and July 22, 1995
Exhibit 11 - Computation of Earnings Per Share
Twenty-four Weeks Ended July 20, 1996
and July 22, 1995
Exhibit 27 - Financial Data Schedule
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)
Twelve Weeks Ended July 20, 1996 and July 22, 1995
<CAPTION>
Twelve Weeks Ended
---------------------
July 20, July 22,
1996 1995
--------- ---------
<S> <C> <C>
Primary:
Net earnings (loss) applicable
to common shares:
From continuing operations $ (813) $ 2,562
From discontinued operations - (310)
--------- ---------
Net earnings (loss) $ (813) $ 2,252
========= =========
Shares (in thousands of shares):
Weighted average number of
common shares outstanding 17,222 17,166
Shares issuable under employee
stock plans - weighted average 38 13
Dilutive effect of exercise of
certain stock options 44 54
Less: Treasury stock - weighted
average (3,303) (3,303)
--------- ---------
Weighted average number of common
and common equivalent shares
outstanding 14,001 13,930
========= =========
Net earnings (loss) per common and
common equivalent shares:
From continuing operations $ (0.06) $ 0.18
From discontinued operations - (0.02)
--------- ---------
Net earnings (loss) $ (0.06) $ 0.16
========= =========
</TABLE>
<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)
Twenty-four Weeks Ended July 20, 1996 and July 22, 1995
<CAPTION>
Twenty-four Weeks Ended
------------------------
July 20, July 22,
1996 1995
--------- ---------
<S> <C> <C>
Primary:
Net earnings (loss) applicable
to common shares:
From continuing operations $ (2,934) $ 2,129
From discontinued operations - (551)
--------- ---------
Net earnings (loss) $ (2,934) $ 1,578
========= =========
Shares (in thousands of shares):
Weighted average number of
common shares outstanding 17,219 17,166
Shares issuable under employee
stock plans - weighted average 38 24
Dilutive effect of exercise of
certain stock options 28 27
Less: Treasury stock - weighted
average (3,303) (3,303)
--------- ---------
Weighted average number of common
and common equivalent shares
outstanding 13,982 13,914
========= =========
Net earnings (loss) per common and
common equivalent shares:
From continuing operations $ (0.21) $ 0.15
From discontinued operations - (0.04)
--------- ---------
Net earnings (loss) $ (0.21) $ 0.11
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> JUL-20-1996
<CASH> 3,374
<SECURITIES> 2,762
<RECEIVABLES> 20,080
<ALLOWANCES> 1,081
<INVENTORY> 31,164
<CURRENT-ASSETS> 68,702
<PP&E> 339,283
<DEPRECIATION> 169,083
<TOTAL-ASSETS> 293,236
<CURRENT-LIABILITIES> 64,036
<BONDS> 0
0
0
<COMMON> 6,889
<OTHER-SE> 161,746
<TOTAL-LIABILITY-AND-EQUITY> 293,236
<SALES> 210,108
<TOTAL-REVENUES> 210,108
<CGS> 58,453
<TOTAL-COSTS> 213,088
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,087
<INCOME-PRETAX> (4,657)
<INCOME-TAX> (1,723)
<INCOME-CONTINUING> (2,934)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,934)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
