UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 19, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File No. 1-10204
CPI CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
43-1256674
(I.R.S. Employer Identification No.)
1706 Washington Avenue, St. Louis, Missouri 63103-1790
(Address of principal executive offices) (zip code)
(314) 231-1575
(Registrant's telephone number, including area code)
NO CHANGE
--------------------------------------
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant has (1) filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
As of August 29, 1997 there were 11,753,896 shares of the
Registrant's common stock outstanding. This quarterly report on
Form 10-Q contains 30 pages, of which this is page 1.
<PAGE>
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSES OF RESULTS OF
OPERATIONS, FINANCIAL CONDITION AND CASH FLOW
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 1996 ended February 1, 1997 and
consisted of 52 weeks. The second fiscal quarters of 1997 and
1996 consisted of twelve weeks and ended July 19, 1997 and July
20, 1996, respectively. Throughout the Management's Discussion
and Analysis and Notes to Interim Condensed Consolidated
Financial Statements, reference to 1996 will mean the fiscal year
end 1996 and reference to second quarter 1997 and second quarter
1996 will mean the second fiscal quarter of 1997 and 1996,
respectively.
JOINT VENTURE
In October 1996, the Company entered into a joint venture with
Eastman Kodak Company, thereby reducing its ownership in its
retail photofinishing business previously conducted by the
Company's Fox Photo, Inc. and Proex Photo Systems, Inc.
subsidiaries to 49%. The ownership of the new joint venture is
accounted for under the equity method and is reflected as an
investment in Fox joint venture within the financial statements.
NOTE AND CREDIT AGREEMENTS
As previously disclosed in an 8-K Current Report filed on July 1,
1997, on June 16, 1997, the Company prepaid the $55.0 million
balance of its existing $60.0 million Senior Notes and privately
placed new Senior Notes in the amount of $60.0 million (the "Note
Agreement") with two insurance companies. The notes, issued
pursuant to the Note Agreement mature over a ten-year period with
an average maturity of seven-years and with the first principal
payment due on the fourth anniversary of the agreement. Interest
on the notes is payable semi-annually at an average rate of
7.46%. The Note Agreement requires the Company maintain certain
financial ratios and comply with certain restrictive covenants.
2
<PAGE>
The Company incurred $597,000 in issuance costs associated with
the private placement of the notes. These costs are being
amortized ratably over the ten-year life of the notes.
Also on June 16, 1997, after evaluating projected cash
requirements, the Company terminated its existing $60.0
million revolving credit agreement and entered into a new $40.0
million revolving credit agreement (the "Credit Agreement") with
three domestic banks. The Credit Agreement, which will expire on
June 16, 2000, has a variable interest rate charged at either LIBOR
or federal funds, with an applicable margin added, or prime rate,
based on the Company's discretion. A commitment fee of 0.125% to
0.25% per annum (which is based on ratio of consolidated debt to
EBITDA) is payable on the unused portion of the Credit Agreement.
The Company is not required to maintain compensating balances in
connection with the Credit Agreement and has substantially the
same financial covenants with the Credit Agreement as those set
forth in the Company's $60.0 million Note Agreement.
STOCK REPURCHASE
The Company's Board of Directors has authorized the Company to
purchase up to 4,500,000 shares of its outstanding common stock
through purchases at management's discretion from time to time at
acceptable market prices. Acquired shares are held as treasury
stock and will be available for general corporate purposes.
During the second quarter 1997, the Company purchased 54,785
shares of stock for $1.1 million at an average stock price of
$19.37.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share." SFAS No. 128 establishes standards for the
computation and presentation of earnings per share for entities
with publicly held common stock or potential common stock. This
Statement is effective for financial statements issued for
periods ending after December 15, 1997, and requires retroactive
restatement of all prior period earnings per share data presented.
The effect of SFAS No. 128 on the financial periods presented is
not material to the Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and its components
in a full set of general purpose financial statements.
All items that are required to be recognized under accounting
standards as components of comprehensive income must be reported
in a financial statement with the same prominence as other
financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997.
3
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This
Statement established standards for reporting information about
operating segments as well as related disclosures about products
and services, geographic areas, and major customers. This
Statement is effective for fiscal years beginning after
December 15, 1997. Management believes the effects of SFAS
No. 131 on the Company's reporting of segment information will
not be material.
4
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED) (in thousands of dollars except per share amounts)
Twelve weeks ended July 19, 1997 and July 20, 1996
<CAPTION>
Twelve Weeks Ended
---------------------
July 19, July 20,
1997 1996
--------- ---------
<S> <C> <C>
Net sales $ 68,494 $105,440
Costs and expenses:
Cost of sales (exclusive of
depreciation expense shown below) 11,669 29,702
Selling, administrative, general expense 47,051 66,372
Depreciation 6,396 8,766
Amortization 467 985
--------- ---------
65,583 105,825
--------- ---------
Income (loss) from operations 2,911 (385)
Net interest expense 920 1,038
Interest in joint venture profit 19 -
Other income 188 132
--------- ---------
Earnings (loss) before income taxes 2,198 (1,291)
Income tax expense (benefit) 813 (478)
--------- ---------
Net earnings (loss) $ 1,385 $ (813)
========= =========
Net earnings (loss) per share $ 0.12 $ (0.06)
========= =========
Dividends per common share $ 0.14 $ 0.14
========= =========
Weighted average number of common and
common equivalent shares outstanding
(in thousands of shares) 11,921 14,001
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS--RESULTS OF OPERATIONS
- -----------------------------------------------------------
<TABLE>
SELECTED FINANCIAL DATA (in thousands of dollars)
Twelve Weeks Ended July 19, 1997 and July 20, 1996
<CAPTION>
Twelve Weeks Ended
-------------------------------------
July 19, July 20, Amount
1997 1996 Change
--------- --------- --------
<S> <C> <C> <C>
Total operating earnings $ 5,784 $ 4,638 $ 1,146
General corporate
expenses 2,873 5,023 2,150
--------- --------- --------
Income (Loss) from
operations 2,911 (385) 3,296
Interest in joint
venture profit 19 - 19
Interest expense 1,084 1,069 (15)
Interest income 164 31 133
Other income 188 132 56
--------- --------- --------
Earnings (loss)
before income tax 2,198 (1,291) 3,489
Income tax expense (benefit) 813 (478) (1,291)
--------- --------- --------
Net earnings (loss) $ 1,385 $ (813) $ 2,198
========= ========= ========
</TABLE>
NET EARNINGS (LOSS)
Net earnings were $1.4 million in second quarter 1997, compared
to $813,000 in net loss recorded in second quarter 1996. This
increase is attributable to higher income from operations and
lower corporate expenses, which resulted from the allocation
through service and consulting contracts with the joint venture
of administrative salaries and overhead costs, and from lower
employee benefit costs. For the second quarter 1997, the
interest in joint venture profit reflected the seasonal increase
in earnings for the photofinishing business.
Net earnings per share were $0.12 per share in the second quarter
1997 compared to net loss of $0.06 per share recorded in the
second quarter 1996, reflecting the earnings increase and the
repurchase of 2,309,284 shares from November 1996 to June 1997,
which resulted in a change in weighted average number of common
and common equivalent shares outstanding to 11,920,790 for the
second quarter 1997 from 14,000,530 for the second quarter 1996.
6
<PAGE>
<TABLE>
NET SALES (in thousands of dollars)
Twelve Weeks Ended July 19, 1997 and July 20, 1996
<CAPTION>
Twelve Weeks Ended
---------------------------------------
July 19, July 20, Amount
1997 1996 Change
--------- --------- ---------
<S> <C> <C> <C>
Portrait Studios $ 56,383 $ 51,494 $ 4,889
Photofinishing -- 41,987 (41,987)
Wall Decor 12,111 11,959 152
--------- --------- ---------
Total net sales $ 68,494 $105,440 $(36,946)
========= ========= =========
</TABLE>
NET SALES
Reported sales were $68.5 million in the second quarter 1997
versus $105.4 million in the second quarter 1996, reflecting an
increase in Portrait Studios sales offset by the exclusion of
sales for the Photofinishing segment as a result of the formation
of the joint venture with Eastman Kodak in October 1996.
Portrait Studios sales were $56.4 million in the second quarter
1997, increasing 9.5% from $51.5 million recorded in the
comparable period last year. Although customer volume declined,
sales per customer increased due in part to the tactical price
increases introduced during the first quarter 1997 and to
continued favorable customer response to new programs.
Sales in the Wall Decor segment were $12.1 million in the second
quarter 1997, relatively unchanged from the $12.0 million
recorded in the comparable period last year, due to the net
opening of four new locations since the end of second quarter
1996 offset slightly by a 3.7% decrease in same-store sales.
7
<PAGE>
RESULTS FROM OPERATIONS
Income from operations was $2.9 million in second quarter 1997,
an improvement from the $385,000 in operating loss recorded in
second quarter 1996. This improvement is attributable to higher
operating earnings in Portrait Studios offset slightly by
increased operating losses in the Wall Decor business and the
elimination of the Photofinishing operating earnings caused by
the creation of the joint venture.
<TABLE>
OPERATING EARNINGS (in thousands of dollars)
Twelve Weeks Ended July 19, 1997 and July 20, 1996
<CAPTION>
Twelve Weeks Ended
---------------------------------------
July 19, July 20, Amount
1997 1996 Change
--------- --------- --------
<S> <C> <C> <C>
Portrait Studios $ 6,822 $ 3,382 $ 3,440
Photofinishing -- 1,718 (1,718)
Wall Decor (1,038) (462) (576)
--------- --------- --------
Total operating earnings $ 5,784 $ 4,638 $ 1,146
========= ========= ========
</TABLE>
OPERATING EARNINGS
Portrait Studios' operating earnings increased to $6.8 million
for the second quarter 1997 from $3.4 million recorded in the
second quarter 1996 due primarily to higher sales and reduced
cost of sales, which resulted from more efficient use of dye
sublimation paper and materials, offset slightly by higher
depreciation costs.
The seasonally slow second quarter for the Wall Decor segment
resulted in operating losses of $1.0 million for second quarter
1997 compared to $462,000 in operating losses recorded in the
second quarter of 1996. The increase in losses is due to the
seasonal losses from the four locations opened since the end of
the second quarter of 1996 and higher employment and occupancy
expenses in all locations.
8
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS (UNAUDITED)
(in thousands of dollars except per share amounts)
Twenty-four weeks ended July 19, 1997 and July 20, 1996
<CAPTION>
Twenty-four Weeks Ended
-----------------------
July 19, July 20,
1997 1996
---------- ----------
<S> <C> <C>
Net sales $138,668 $210,108
Costs and expenses:
Cost of sales (exclusive of
depreciation expense shown below) 24,354 58,453
Selling, administrative, general expenses 99,317 135,442
Depreciation 12,590 17,234
Amortization 941 1,959
--------- ---------
137,202 213,088
--------- ---------
Income (loss) from operations 1,466 (2,980)
Net interest expense 1,515 2,008
Interest in joint venture loss (1,830) -
Other income 249 331
--------- ---------
Loss before income taxes (1,630) (4,657)
Income tax benefit 603 1,723
--------- ---------
Net loss (1,027) (2,934)
========= =========
Net loss per share $ (0.09) $ (0.21)
========= =========
Dividends per common share $ 0.28 $ 0.28
========= =========
Weighted average number of common and
common equivalent shares outstanding
(in thousands of shares) 11,878 13,982
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA (in thousands of dollars)
Twenty-four Weeks Ended July 19, 1997 and July 20, 1996
<CAPTION>
Twenty-four Weeks Ended
---------------------------------------
July 19, July 20, Amount
1997 1996 Change
--------- --------- --------
<S> <C> <C> <C>
Total operating earnings $ 7,372 $ 6,252 $ 1,120
General corporate
expenses 5,906 9,232 3,326
--------- --------- --------
Income (loss) from
operations 1,466 (2,980) 4,446
Interest in joint
venture loss (1,830) -- (1,830)
Interest expense 1,915 2,087 172
Interest income 400 79 321
Other income 249 331 (82)
--------- --------- --------
Loss before income taxes (1,630) (4,657) 3,027
Income tax benefit 603 1,723 (1,120)
--------- --------- --------
Net loss $ (1,027) $ (2,934) $ 1,907
========= ========= ========
</TABLE>
NET EARNINGS (LOSS)
Net loss was $1.0 million in the first two quarters of 1997,
compared to $2.9 million in net loss recorded in the first two
quarters of 1996. This improvement is a result of higher income
from operations and lower corporate expenses, which resulted from
the allocation through service and consulting contracts with the
joint venture of administrative salaries and overhead cost, and
from lower employee benefit costs, partially offset by the
interest in joint venture loss.
Net loss per share was $0.09 per share in the first two quarters
of 1997 compared to net loss of $0.21 per share recorded in the
comparable period last year reflecting the earnings increase and
the repurchase of 2,309,284 shares from November 1996 to June
1997, which resulted in a change in weighted average number of
common and common equivalent shares outstanding to 11,878,057 for
the first two quarters of 1997 from 13,982,022 for the first two
quarters of 1996.
10
<PAGE>
<TABLE>
NET SALES (in thousands of dollars)
Twenty-four Weeks Ended July 19, 1997 and July 20, 1996
<CAPTION>
Twenty-four Weeks Ended
---------------------------------------
July 19, July 20, Amount
1997 1996 Change
--------- --------- ---------
<S> <C> <C> <C>
Portrait Studios $114,457 $108,354 $ 6,103
Photofinishing -- 78,081 (78,081)
Wall Decor 24,211 23,673 538
--------- --------- ---------
Total net sales $138,668 $210,108 $(71,440)
========= ========= =========
</TABLE>
NET SALES
Reported sales were $138.7 million for the first two quarters of
1997 versus $210.1 million for the first two quarters of 1996,
reflecting an increase in Portrait Studios sales offset by the
exclusion of sales for the Photofinishing segment as a result of
the formation of the joint venture with Eastman Kodak in October
1996.
Portrait Studios sales were $114.5 million for the first two
quarters of 1997, increasing 5.6% from $108.4 million recorded in
the comparable period last year. Although customer volume
declined, sales per customer increased due in part to the
tactical price increases introduced during the first quarter 1997
and to continued favorable customer response to new programs.
Sales in the Wall Decor segment were $24.2 million for the first
two quarters of 1997, increasing 2.3% from $23.7 million recorded
in the comparable period last year, due to the net opening of
four new locations since the end of second quarter 1996. Sales
in same-store Wall Decor locations were down 2.8% for the first
half of 1997 from the comparable period last year.
11
<PAGE>
RESULTS FROM OPERATIONS
Income from operations was $1.5 million for the first two
quarters of 1997, an improvement from the $3.0 million in loss
from operations recorded in the comparable period last year.
This improvement is attributable to higher operating earnings in
the Portrait Studio segment and the elimination of the
Photofinishing operating loss with the creation of the joint
venture, offset slightly by decreased operating earnings in the
Wall Decor segment.
<TABLE>
OPERATING EARNINGS (in thousands of dollars)
Twenty-four Weeks Ended July 19, 1997 and July 20, 1996
<CAPTION>
Twenty-four Weeks Ended
---------------------------------------
July 19, July 20, Amount
1997 1996 Change
--------- --------- --------
<S> <C> <C> <C>
Portrait Studios $ 9,664 $ 7,887 $ 1,777
Photofinishing -- (357) 357
Wall Decor (2,292) (1,278) (1,014)
--------- --------- --------
Total operating earnings $ 7,372 $ 6,252 $ 1,120
========= ========= ========
</TABLE>
OPERATING EARNINGS
Portrait Studio operating earnings increased 22.5% to $9.7
million for the first two quarters of 1997 from $7.9 million for
the first two quarters of 1996 due primarily to higher sales and
reduced cost of sales, which resulted from more efficient use of
dye sublimation paper and materials, offset slightly by higher
depreciation costs.
In the Wall Decor segment, which has a seasonally slow first
half, operating losses were $2.3 million, an increase in
operating losses from the $1.3 million recorded for the first
two quarters of 1996 due to the seasonal losses from the four
locations opened since the end of the second quarter of 1996 and
higher employment and occupancy expenses in all locations.
12
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
ASSETS (UNAUDITED) (in thousands of dollars)
<CAPTION>
July 19, July 20, February 1,
1997 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Current assets:
Cash $ 603 $ 3,374 $ 5,226
Short-term investments 11,416 2,762 16,697
Receivables less allowance of
$536, $1,081 and $382,
respectively 15,258 18,999 13,378
Inventories 18,555 31,164 19,280
Deferred income taxes, net - 810 -
Refundable income taxes 3,742 2,666 -
Prepaid expenses and other
current assets 10,923 8,927 9,104
--------- --------- ---------
Total current assets 60,497 68,702 63,685
--------- --------- ---------
Net property and equipment 129,259 170,200 130,762
Investment in Fox joint venture 46,276 - 48,105
Other assets:
Intangible assets, net 686 50,214 491
Other long-term assets 5,671 4,120 3,677
--------- --------- ---------
Total assets $242,389 $293,236 $246,720
========= ========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
LIABILITIES (UNAUDITED) (in thousands of dollars)
<CAPTION>
July 19, July 20, February 1,
1997 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings $ - $ 9,300 $ -
Current maturities of long-term
obligations 1,236 5,000 10,000
Accounts payable 16,940 29,517 15,263
Accrued expenses and other
liabilities 18,193 20,219 21,394
Income taxes - - 3,926
Deferred income taxes, net 287 - 264
--------- --------- ---------
Total current liabilities 36,656 64,036 50,847
--------- --------- ---------
Long-term obligations, less
current maturities 60,108 54,846 44,888
Other liabilities 3,551 4,228 5,473
Deferred income taxes, net 6,442 1,491 5,987
--------- --------- ---------
Total liabilities $106,757 $124,601 $107,195
========= ========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands of dollars except per share amounts)
<CAPTION>
July 19, July 20, February 1,
1997 1996 1997
-------- -------- -----------
<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;
17,334,702, 17,221,551 and
17,238,873 shares outstanding
at July 19, 1997, July 20,
1996 and February 1, 1997,
respectively 6,934 6,889 6,896
Additional paid-in capital 34,889 32,990 33,283
Retained earnings 215,599 206,192 219,905
Cumulative foreign currency
translation adjustment (2,207) (2,030) (1,860)
--------- --------- ---------
255,215 244,041 258,224
Treasury stock at cost,
5,611,832, 3,302,548 and
5,552,548 shares at July 19,
1997, July 20, 1996 and
February 1, 1997, respectively (119,281) (74,533) (118,136)
Unamortized deferred
compensation-restricted stock (302) (873) (563)
--------- --------- ----------
Total stockholders' equity 135,632 168,635 139,525
--------- --------- ----------
Total liabilities and
stockholders' equity $242,389 $293,236 $ 246,720
========= ========= ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS--FINANCIAL CONDITION
- ---------------------------------------------------------
Total assets at the end of second quarter 1997 decreased 1.8%
from year-end 1996, reflecting decreases in cash and short-term
investments resulting from the seasonal cash needs of the
business offset by an increase in refundable income taxes. The
balances of cash and short-term investments were $12.0 million,
$6.1 million and 21.9 million on July 19, 1997, July 20, 1996 and
February 1, 1997, respectively.
Total liabilities were relatively unchanged from year-end. As
previously disclosed in the Management's Discussion and Analysis-
- -Overview section, the Company has restructured its financing and
modified certain restrictive covenants of its Note and Credit
Agreements as of June 16, 1997.
Stockholders' equity decreased 2.8% to $135.6 in second quarter
1997 from year-end due primarily to a decrease in retained
earnings resulting from the first two quarters of 1997 net loss,
the repurchase of treasury stock and the distribution of
quarterly dividends.
16
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (in thousands of dollars)
Twenty-four weeks ended July 19, 1997 and July 20, 1996
<CAPTION>
24 Weeks Ended
------------------
July 19, July 20,
1997 1996
-------- --------
<S> <C> <C>
Cash flows provided by (used in) operating
activities $(2,255) $13,792
Cash flows provided by (used in)
financing activities:
Proceeds from issuance of short-term debt - 6,425
Proceeds from issuance of long-term debt 61,933 -
Repayment of long-term debt (55,646) -
Issuance of common stock to
employee stock plans 1,644 939
Cash dividends (3,279) (3,889)
Purchase of treasury stock (1,145) -
-------- --------
Cash flows provided by financing activities 3,507 3,475
-------- --------
Cash flows used in investing activities:
Additions to property and equipment 11,087 19,490
-------- --------
Effect of exchange rate changes on
cash and equivalents (69) 29
-------- --------
Net decrease in cash and cash equivalents (9,904) (2,194)
Cash and cash equivalents at
beginning of year $21,923 $ 8,331
-------- --------
Cash and cash equivalents at end of period $12,019 $ 6,137
======== ========
Supplemental cash flow information:
Interest paid $ 2,786 $ 2,202
======== ========
Income taxes paid $ 6,668 $ 8,459
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
17
<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 19, 1997 and July 20, 1996
<CAPTION>
24 Weeks Ended
-----------------
July 19, July 20,
1997 1996
-------- --------
<S> <C> <C>
Net loss from continuing operations $(1,027) $(2,934)
Adjustments for items not requiring cash:
Depreciation and amortization 13,531 19,193
Deferred income taxes 478 484
Deferred compensation (1,923) (1,247)
Other (2,978) (1,266)
Interest in joint venture loss 1,830 -
Decrease (increase) in current assets:
Receivables and inventories (1,155) 1,769
Assets held for resale - 5,055
Refundable income taxes (3,742) (2,666)
Prepaid expenses and other current assets (1,819) 1,806
Increase (decrease) in current liabilities:
Accounts payable, accrued expenses
and other liabilities (1,524) 1,242
Income taxes (3,926) (7,644)
-------- --------
Cash flows provided by (used in) operating
activities $(2,255) $13,792
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS--CASH FLOWS
- ------------------------------------------------
Capital expenditures for the first two quarters of 1997 were
$11.1 million, down from $19.5 million incurred in the first
half of 1996. Planned capital expenditures for the entire 1997
are expected to be lower than those of 1996.
Through operating cash flows and borrowings under the Credit
Agreement, the Company believes it has sufficient liquidity over
the course of the year to meet cash requirements for operations,
planned capital expenditures and dividends to shareholders.
19
<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 1, 1997, and Twenty-four weeks
ended July 19, 1997
<CAPTION>
Add'l
Common Paid-In Retained
Stock Capital Earnings
------- -------- ---------
<S> <C> <C> <C>
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 (21,921 shares) 9 362 -
Foreign currency translation - - -
Dividends ($0.56 per common share) - - (7,473)
Net earnings - - 14,363
Purchase of treasury stock, at cost - - -
Amortization of deferred
compensation-restricted stock - - -
------- -------- ---------
Balance at February 1, 1997 $6,896 $33,283 $219,905
Issuance of common stock:
Profit sharing plan and trust
(41,439 shares) 16 680 -
Stock bonus plan (4,334 shares) 2 79 -
Employee stock plans (50,056 shares) 20 847 -
Foreign currency translation - - -
Dividends ($0.28 per common share) - - (3,279)
Net earnings - - (1,027)
Purchase of treasury stock, at cost - - -
Amortization of deferred
compensation-restricted stock - - -
------- -------- ---------
Balance at July 19, 1997 $6,934 $34,889 $215,599
======= ======== =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
20
<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 1, 1997 and Twenty-four weeks
ended July 19, 1997
<CAPTION>
Cumulative
Foreign
Currency Treasury
Translation Stock
Adjustment At Cost
----------- ----------
<S> <C> <C>
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 (21,921 shares) - -
Foreign currency translation 249 -
Dividends ($0.56 per common share) - -
Net earnings - -
Purchase of treasury stock, at cost (43,603)
Amortization of deferred
compensation-restricted stock - -
----------- ----------
Balance at February 1, 1997 $ (1,860) $(118,136)
Issuance of common stock:
Profit sharing plan and trust
(41,439 shares) - -
Stock bonus plan (4,334 shares) - -
Employee stock plans (50,056 shares) - -
Foreign currency translation (347) -
Dividends ($0.28 per common share) - -
Net earnings - -
Purchase of treasury stock, at cost - (1,145)
Amortization of deferred
compensation-restricted stock - -
----------- ----------
Balance at July 19, 1997 $ (2,207) $(119,281)
=========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
21
<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 1, 1997 and Twenty-four weeks
ended July 19, 1997
<CAPTION>
Deferred
Compensation-
Restricted
Stock Total
------------- ---------
<S> <C> <C>
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 (21,921 shares) - 371
Foreign currency translation - 249
Dividends ($0.56 per common share) - (7,473)
Net earnings - 14,363
Purchase of treasury stock, at cost (43,603)
Amortization of deferred
compensation-restricted stock 581 581
------------- ---------
Balance at February 1, 1997 $ (563) $139,525
============= =========
Issuance of common stock:
Profit sharing plan and trust
(41,439 shares) - 696
Stock bonus plan (4,334 shares) - 81
Employee stock plans (50,056 shares) - 867
Foreign currency translation - (347)
Dividends ($0.28 per common share) - (3,279)
Net earnings - (1,027)
Purchase of treasury stock, at cost - (1,145)
Amortization of deferred
compensation-restricted stock 261 261
------------ ---------
Balance at July 19, 1997 $ (302) $135,632
============ =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
22
<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 19, 1997, July 20,
1996 and February 1, 1997 and the results of its operations
and changes in its cash flows for the 12 weeks ended July 19,
1997 and July 20, 1996. 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 1, 1997.
2. The components of net interest expense are as follows:
<TABLE>
<CAPTION>
24 WEEKS ENDED
-------------------------------
July 19, 1997 July 20, 1996
-------------- --------------
<S> <C> <C>
Interest expense $ 1,915 $ 2,087
Interest income (400) (79)
-------------- --------------
Net interest expense $ 1,515 $ 2,008
============== ==============
</TABLE>
3. Short-term investments are comprised of money market
instruments which aggregated $11.4 million, $2.8 million and
$16.7 million as of July 19, 1997, July 20, 1996, and
February 1, 1997, respectively, and are stated at cost which
approximates market.
4. In October 1996, the Company entered into a joint venture with
Eastman Kodak Company, thereby reducing its ownership in its
retail photofinishing business previously conducted by the
Company's Fox Photo, Inc. and Proex Photo Systems, Inc.
subsidiaries to 49%. The ownership of the new joint venture
is accounted for under the equity method and is reflected as
an investment in Fox joint venture within the financial
statements.
5. On June 16, 1997, the Company prepaid the $55.0 million
balance of its existing $60.0 million Senior Notes and
privately placed new Senior Notes in the amount of $60.0
million (the "Note Agreement") with two insurance companies.
The notes, issued pursuant to the Note Agreement, mature over
a ten-year period with an average maturity of seven-years and
with the first principal payment due on the fourth anniversary
of the agreement. Interest on the notes is payable semi-
23
<PAGE>
annually at an average rate of 7.46%. The Note Agreement
requires the Company maintain certain financial ratios and
comply with certain restrictive covenants. The Company
incurred $597,000 in issuance costs associated with
the private placement of the notes. These costs are being
amortized ratably over the ten-year life of the notes.
6. On June 16, 1997, after evaluating projected cash
requirements, the Company terminated its existing $60.0
million revolving credit agreement and entered into a new
$40.0 million revolving credit agreement (the "Credit
Agreement") with three domestic banks. The Credit Agreement,
which will expire on June 16, 2000, has a variable interest
rate charged at either LIBOR or federal funds, with an
applicable margin added, or prime rate, based on the Company's
discretion. A commitment fee of 0.125% to 0.25% per annum
(which is based on the ratio of consolidated debt to EBITDA)
is payable on the unused portion of the Credit Agreement. The
Company is not required to maintain compensating balances in
connection with the Credit Agreement and has substantially the
same financial covenants with the Credit Agreement as those
set forth in the Company's $60.0 million Note Agreement.
7. Certain prior year amounts have been reclassified to conform
with the 1997 presentation.
24
<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 Thursday, June 12, 1997. 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 10,318,942 124,864
Alyn V. Essman 10,323,883 119,923
Lee M. Liberman 10,317,415 126,391
Robert L. Virgil 10,320,585 123,221
Russell Isaak 10,325,314 118,492
Nicholas L. Reding 10,325,020 118,786
Mary Ann Krey 10,325,624 118,182
Martin Sneider 10,273,200 170,606
Patrick J. Morris 10,276,979 168,827
</TABLE>
b) The Board of Directors' appointment of KPMG Peat
Marwick LLP to audit the Company's accounts for the
1997 fiscal year was approved by a vote of 10,420,860
shares in favor, 17,219 shares opposed and 5,726
shares abstaining.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
Exhibit 11.1 - Computation of Earnings per Common
Share Twelve Weeks Ended July 19, 1997
and July 22, 1996
Exhibit 11.2 - Computation of Earnings per Common
Share Twenty-four Weeks Ended July 19,
1997 and July 22, 1996
Exhibit 27.0 - Financial Data Schedule
b) REPORTS ON FORM 8-K
- On June 18, 1997, CPI Corp. reported the issuance of
a press release on June 16, 1997 announcing: the
refinancing of $60.0 million in senior debt with
Prudential Insurance Company of America and The
Guardian Life Insurance Company of America; entering
into new $40.0 million revolving line of credit
25
<PAGE>
agreements with Mercantile Bank of St. Louis, N.A.,
Sumitomo Bank, Ltd. and Harris Trust and Savings
Bank; and strength in Sears Portrait Studio sales.
- On July 1, 1997, CPI Corp. summarized and disclosed
the Note Agreement between Prudential Insurance
Company of America, The Guardian Life Insurance
Company of America and the Company and the Credit
Agreement between Mercantile Bank of St. Louis,
N.A., Sumitomo Bank, Ltd. and Harris Trust and
Savings Bank and the Company.
26
<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.
(Registrant)
By: /s/ Barry Arthur
---------------------------
Barry Arthur
Authorized Officer and
Principal Financial Officer
Dated: September 2, 1997
27
<PAGE>
CPI CORP.
EXHIBIT INDEX
Exhibit 11.1 - Computation of Earnings Per Share
Twelve Weeks Ended July 19, 1997
and July 20, 1996
Exhibit 11.2 - Computation of Earnings Per Share
Twenty-four Weeks Ended July 19, 1997
and July 20, 1996
Exhibit 27.0 - Financial Data Schedule
28
EXHIBIT 11.1
<TABLE>
CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands of dollars except per share amounts)
Twelve Weeks Ended July 19, 1997 and July 20, 1996
<CAPTION>
Twelve Weeks Ended
---------------------
July 19, July 20,
1997 1996
--------- ---------
<S> <C> <C>
Primary:
Net earnings (loss) applicable
to common shares $ 1,385 $ (813)
========= =========
Shares (in thousands of shares):
Weighted average number of
common shares outstanding 17,335 17,222
Shares issuable under employee
stock plans - weighted average 31 38
Dilutive effect of exercise of
certain stock options 128 44
Less: Treasury stock - weighted
average (5,573) (3,303)
--------- ---------
Weighted average number of common
and common equivalent shares
outstanding 11,921 14,001
========= =========
Net earnings (loss) per common and
common equivalent shares $ 0.12 $ (0.06)
========= =========
</TABLE>
29
EXHIBIT 11.2
<TABLE>
CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands of dollars except per share amounts)
Twenty-four Weeks Ended July 19, 1997 and July 20, 1996
<CAPTION>
Twenty-four Weeks Ended
------------------------
July 19, July 20,
1997 1996
--------- ---------
<S> <C> <C>
Primary:
Net loss applicable to common shares: $ (1,027) $ (2,934)
========= =========
Shares (in thousands of shares):
Weighted average number of
common shares outstanding 17,309 17,219
Shares issuable under employee
stock plans - weighted average 31 38
Dilutive effect of exercise of
certain stock options 103 28
Less: Treasury stock - weighted
average (5,565) (3,303)
--------- ---------
Weighted average number of common
and common equivalent shares
outstanding 11,878 13,982
========= =========
Net loss per common and
common equivalent shares $ (0.09) $ (0.21)
========= =========
</TABLE>
30
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-07-1998
<PERIOD-END> JUL-19-1997
<CASH> 603
<SECURITIES> 11,416
<RECEIVABLES> 15,794
<ALLOWANCES> 536
<INVENTORY> 18,555
<CURRENT-ASSETS> 60,497
<PP&E> 235,789
<DEPRECIATION> 106,530
<TOTAL-ASSETS> 242,389
<CURRENT-LIABILITIES> 36,656
<BONDS> 0
<COMMON> 6,934
0
0
<OTHER-SE> 128,698
<TOTAL-LIABILITY-AND-EQUITY> 242,389
<SALES> 138,668
<TOTAL-REVENUES> 138,668
<CGS> 24,354
<TOTAL-COSTS> 137,202
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,915
<INCOME-PRETAX> (1,630)
<INCOME-TAX> 603
<INCOME-CONTINUING> (1,027)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,027)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
