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 May 2, 1998
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 June 11, 1998 there were 9,994,357 shares of the
Registrant's common stock outstanding. This quarterly report on
Form 10-Q contains 26 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
- -----------------------------------------------
FISCAL YEARS
- ------------
The Company's fiscal year ends the first Saturday of February.
Accordingly, fiscal year 1997 ended February 7, 1998, consisted
of 53 weeks. The first fiscal quarters of 1998 and 1997
consisted of twelve weeks and ended May 2, 1998 and April 26,
1997, respectively. Throughout the Management's Discussion and
Analysis and Notes to the Interim Condensed Consolidated
Financial Statements, reference to 1997 will mean the fiscal year
end 1997 and reference to first quarter 1998 and first quarter
1997 will mean the first fiscal quarter of 1998 and 1997,
respectively.
JOINT VENTURE
- -------------
On October 2, 1997, the Company sold its remaining 49% interest
in Fox Photo, Inc. ("Fox") to Eastman Kodak Company ("Kodak") for
a $43.9 million non-interest bearing promissory note (the
"Promissory Note") due on January 4, 1999 (the "Disposition
Transaction"). Due to the non-interest bearing nature of the
Promissory Note, a discount of $3.9 million was established and
is being amortized into income until the maturity of the
Promissory Note. During the first quarter of 1998, $691,000 in
amortization related to the Promissory Note was recognized and,
on a prospective basis, $2.8 million will be recognized for all
of fiscal year 1998.
As part of the Disposition Transaction, the Company entered into
a two-year Noncompetition and Nonsolicitation Agreement (the
"Noncompete Agreement") with Fox under which the Company agreed
not to engage in the retail photofinishing business and, subject
to certain exceptions, not to employ Fox employees without
consent. The Company received a $10.0 million cash consideration
for entering into the Noncompete Agreement, which is being
amortized into income over the two-year period of the agreement.
Accordingly, the Company recognized $1,154,000 of income during
the first quarter of 1998 from the amortization of the Noncompete
Agreement.
In conjunction with the dissolution of the joint venture, the
Company and Fox terminated the Consulting Agreement as of
2
<PAGE>
October 2, 1997 and materially reduced the Service Agreement
during the first quarter of 1998.
STOCK REPURCHASE
- ----------------
In January 1998, the Company completed another Dutch Auction
tender offer by purchasing 1,999,215 shares of the Company's
common stock at $23.00 per share for $46.5 million. The weighted
average shares outstanding have been adjusted to reflect the
changes in shares outstanding resulting from the repurchase of
the Company's common stock for each of the first quarters of the
last two fiscal years.
FORWARD-LOOKING STATEMENTS
- --------------------------
The statements contained in this report which are not historical
facts are forward-looking statements that involve risks and
uncertainties. Management wishes to caution the reader that
these forward-looking statements, such as the Company's outlook
for Sears Portrait Studios and Prints Plus, are only predictions;
actual events or results may differ materially as a result of
risks facing the Company. Such risks include, but are not
limited to, the Company's ongoing ability to develop and
introduce attractive new products, the overall level of economic
activity in the Company's major markets, the effectiveness of
marketing activities of major competitors, manufacturing
interruptions, dependence on certain suppliers, fluctuations
in operating results, the attraction and retention of qualified
personnel, Year 2000 compliance issues and other risks as may be
described in the Company's filings with the Securities and
Exchange Commission, including its Form 10-K for the year ended
February 7, 1998.
OPERATING RESULTS
- -----------------
<TABLE>
NET SALES (in thousands of dollars)
Twelve Weeks Ended May 2, 1998 and April 26, 1997
<CAPTION>
Twelve Weeks Ended
---------------------------------------
May 2, April 26, Amount
1998 1997 Change
--------- --------- ---------
<S> <C> <C> <C>
Portrait Studios $ 60,145 $ 58,074 $ 2,071
Wall Decor 13,209 12,100 1,109
--------- --------- ---------
Total net sales $ 73,354 $ 70,174 $ 3,180
========= ========= =========
</TABLE>
3
<PAGE>
Net sales were $73.4 million in the first quarter of 1998,
increasing 4.5% over the comparable period last year with each
business segment contributing to the sales increase.
Portrait Studio sales increased 3.6% to $60.1 million in the
first quarter of 1998 from $58.1 million in the first quarter of
1997. The sales increase reflects an increase in customer volume
coupled with a higher average sale per customer.
Sales in the Wall Decor segment were $13.2 million in the first
quarter of 1998, increasing 9.2% from the $12.1 million recorded
in the comparable period last year, with much of the gain due to
new product introductions. While the first quarter sales growth
rate may not be sustainable, the Company anticipates achieving
moderate sales gains throughout the year as a result of focused
efforts to improve operations.
<TABLE>
SELECTED FINANCIAL DATA
(in thousands of dollars except per share amounts)
Twelve Weeks Ended May 2, 1998 and April 26, 1997
<CAPTION>
Twelve Weeks Ended
-------------------------------------
May 2, April 26, Amount
1998 1997 Change
--------- --------- --------
<S> <C> <C> <C>
Operating earnings:
Portrait Studios $ 1,642 $ 2,843 $(1,201)
Wall Decor (866) (1,254) 388
--------- --------- --------
Total operating earnings 776 1,589 (813)
General corporate
expenses 2,578 3,033 455
Interest in joint
venture loss - 1,849 1,849
Interest expense 1,075 830 (245)
Interest income 846 235 611
Other income 1,253 61 1,192
--------- --------- --------
Loss before income taxes (778) (3,827) 3,049
Income tax benefit 272 1,416 (1,144)
--------- --------- --------
Net Loss $ (506) $ (2,411) $ 1,905
========= ========= ========
Net Loss per share:
Diluted $ (0.05) $ (0.21) $ 0.16
========= ========= ========
Basic $ (0.05) $ (0.21) $ 0.16
========= ========= ========
Weighted average number of
shares outstanding
(in thousands of shares):
Diluted 9,914 11,726 1,812
========= ========= =========
Basic 9,914 11,726 1,812
========= ========= =========
</TABLE>
4
<PAGE>
Portrait Studio operating earnings declined $1.2 million despite
the increase in sales in the first quarter of 1998. Higher
expenses for studio employment, marketing, employee training and
depreciation contributed to the reduction in operating margins in
the first quarter of 1998 as compared to the comparable period in
the previous year.
Wall Decor improvement in operations resulted primarily from
higher sales. General corporate expenses are lower due primarily
to a reduction in employment costs.
Net loss before income taxes improved $3.0 million in the first
quarter of 1998 as compared to the first quarter of 1997.
Factors contributing to the improvement include the absence of
losses from interest in the Fox Photo joint venture, an increase
in interest income which reflects the imputed interest from the
Kodak Note receivable, an increase in other income reflecting the
amortization of the Non-Compete Agreement, increased operating
earnings in the Wall Decor segment and lower corporate expenses.
The increase in interest expense in the first quarter of 1998 as
compared to the comparable period in the prior year reflects a
$5.0 million increase in the level of borrowing in the Company
Senior Debt combined with a higher associated interest rate.
On a diluted basis, losses per share amounted to $.05 in the
first quarter of 1998 compared to a $.21 loss recorded in the
first quarter of 1997. The current quarter loss per share
reflects a reduction in the effective income tax rate and a
reduction in the weighted average shares outstanding. The lower
tax rate reflects the impact on the Company's effective income
tax rate of factors related to the disposition of the Fox Photo
joint venture. The reduction in the weighted average shares
outstanding is primarily due to the Dutch Auction Tender Offer
completed in January 1998. Due to the seasonal loss in the first
quarter, both the lower tax rate and the fewer shares outstanding
accentuates the loss on a per share basis. However, both of
these items will have a beneficial effect on earnings per share
in more seasonally favorable times of the year.
FINANCIAL CONDITION AND CASH FLOWS
- ----------------------------------
The Company is capitalized by stockholders' equity, a $60.0
million long-term Debt Agreement and a $40.0 million Revolving
Credit agreement. The first principal payment on the long-term
Note Agreement commences in 2001. Borrowings under the revolving
credit agreements have been nominal.
5
<PAGE>
Stockholders' equity was $101.8 million at May 2, 1998,
essentially unchanged from 1997 year-end but substantially down
from the $135.7 million on April 26, 1997. The decrease in
stockholder equity over the last year reflects the Dutch Auction
Tender Offer completed in January 1998.
One of the three domestic banks that was involved in the
Company's revolving credit agreement exited the market for these
types of loan agreements in April 1998. The two remaining banks
have elected to increase their respective shares of the $40.0
million revolving credit agreement, leaving the amount of the
note agreement unchanged.
The Company expects a substantial increase in liquidity by fiscal
year-end as the $43.9 million Note Receivable from Eastman Kodak
is due in January 1999.
The Company believes it has sufficient liquidity and capital
resources to meet planned capital expenditures, normal working
capital requirements and dividends to shareholders.
6
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED) (in thousands of dollars except share and per share
amounts) Twelve weeks ended May 2, 1998 and April 26, 1997
<CAPTION>
Twelve Weeks Ended
----------------------
May 2, April 26,
1998 1997
--------- ---------
<S> <C> <C>
Net sales $ 73,354 $ 70,174
Costs and expenses:
Cost of sales (exclusive of
depreciation expense shown below) 11,785 12,685
Selling, administrative and
general expenses 56,496 52,266
Depreciation 6,510 6,194
Amortization 365 473
--------- ---------
75,156 71,618
--------- ---------
Loss from operations (1,802) (1,444)
Net interest expense 229 595
Interest in joint venture loss - 1,849
Other income 1,253 61
--------- ---------
Loss before income taxes (778) (3,827)
Income tax benefit 272 1,416
--------- ---------
Net loss $ (506) $ (2,411)
========= =========
Loss per common share - diluted $ (0.05) $ (0.21)
========= =========
Weighted average number of common and
common equivalent shares outstanding-
diluted 9,914,203 11,725,834
========== ==========
Loss per common share - basic $ (0.05) $ (0.21)
========= =========
Weighted average number of common and
common equivalent shares outstanding-
basic 9,914,203 11,725,834
========= ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
ASSETS (UNAUDITED) (in thousands of dollars)
<CAPTION>
May 2, April 26, February 7,
1998 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Current assets:
Cash $ 1,342 $ 1,155 $ 1,176
Short-term investments 5,445 8,662 14,117
Receivables less
allowance of $411, $403
and $291, respectively 11,775 14,094 11,665
Notes receivable 41,776 - 41,085
Inventories 16,968 18,120 18,044
Prepaid expenses and
other current assets 8,113 8,291 8,139
Deferred income taxes,
net 169 - 180
Income taxes - 4,009 -
----------- ------------ -----------
Total current assets 85,588 54,331 94,406
----------- ------------ -----------
Net property and
equipment 121,311 129,014 124,718
Investment in Fox joint
venture - 46,257 -
Other assets:
Intangible assets, net 657 506 665
Other long-term assets 8,746 3,566 8,972
----------- ------------ -----------
Total assets $ 216,302 $ 233,674 $ 228,761
=========== ============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
8
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
LIABILITIES (UNAUDITED)
(in thousands of dollars)
<CAPTION>
May 2, April 26, February 7,
1998 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings $ 450 $ - $ -
Current maturities of
long-term obligations - 10,000 -
Accounts payable 15,220 13,209 13,565
Accrued expenses and
other liabilities 21,375 19,382 24,863
Income taxes 230 - 9,014
Deferred income taxes,
net - 275 -
----------- ------------ -----------
Total current
liabilities 37,275 42,866 47,442
----------- ------------ -----------
Long-term obligations,
less current maturities 59,501 44,889 59,482
Other liabilities 14,791 4,005 17,314
Deferred income taxes, net 2,930 6,206 2,431
----------- ------------ -----------
Total liabilities $ 114,497 $ 97,966 $ 126,669
=========== ============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands of dollars except share amounts)
<CAPTION>
May 2, April 26, February 7,
1998 1997 1998
----------- ------------ -----------
<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;
17,609,252, 17,282,882
and 17,499,137 shares
outstanding at May 2,
1998, April 26, 1997
and February 7, 1998,
respectively 7,044 6,913 6,999
Additional paid-in
capital 39,557 34,000 37,614
Retained earnings 224,141 215,857 226,032
Cumulative foreign
currency translation
adjustment (2,802) (2,413) (2,751)
----------- ------------ -----------
267,940 254,357 267,894
Treasury stock at cost,
7,624,261, 5,557,047
and 7,612,047 shares
at May 2, 1998, April
26, 1997 and February
7, 1998, respectively (166,124) (118,219) (165,789)
Unamortized deferred
compensation-restricted
stock (11) (430) (13)
----------- ------------ -----------
Total stockholders'
equity 101,805 135,708 102,092
----------- ------------ -----------
Total liabilities and
stockholders' equity $ 216,302 $ 233,674 $ 228,761
=========== ============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE> 10
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (in thousands of dollars)
Twelve weeks ended May 2, 1998 and April 26, 1997
<CAPTION>
12 Weeks Ended
-------------------
05/02/98 04/26/97
--------- --------
<S> <C> <C>
Cash flows used in operating activities $(6,107) $(6,535)
Cash flows provided by (used in) financing
activities:
Proceeds of short-term borrowings 450 -
Repayment of long-term obligations - (17)
Issuance of common stock to
employee stock plans 1,988 734
Cash dividends (1,385) (1,636)
Purchase of treasury stock (335) (83)
-------- --------
Cash flows provided by (used in)
financing activities 718 (1,002)
-------- --------
Cash flows used in investing activities:
Additions to property and equipment (3,103) (4,446)
-------- --------
Cash flows used in investing activities (3,103) (4,446)
-------- --------
Effect of exchange rate changes on
cash and equivalents (13) (123)
-------- --------
Net decrease in cash and cash equivalents (8,505) (12,106)
Cash and cash equivalents at
beginning of year 15,292 21,923
-------- --------
Cash and cash equivalents at end of period $ 6,787 $ 9,817
======== ========
Supplemental cash flow information:
Interest paid $ - $ 1,755
======== ========
Income taxes paid $ 8,134 $ 6,374
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
11
<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)
Twelve weeks ended May 2, 1998 and April 26, 1997
<CAPTION>
12 Weeks Ended
-------------------
05/02/98 04/26/97
--------- --------
<S> <C> <C>
Net loss from continuing operations $ (506) $(2,411)
Adjustments for items not requiring cash:
Depreciation and amortization 6,875 6,667
Deferred income taxes 511 230
Deferred compensation (1,370) (1,468)
Interest in joint venture loss - 1,849
Amortization of noncompete agreement (1,154) -
Amortization of discount on note
receivable (691) -
Other (147) (657)
Decrease (increase) in current assets:
Receivables and inventories 965 444
Prepaid expenses and other current assets 27 812
Increase (decrease) in current liabilities:
Accounts payable, accrued expenses
and other liabilities (1,833) (4,066)
Income taxes (8,784) (7,935)
-------- --------
Cash flows from continuing operations $(6,107) $(6,535)
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
12
<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 except share and per share amounts) Fifty-three weeks
ended February 7, 1998 and Twelve weeks ended May 2, 1998
<CAPTION>
Add'l
Common Paid-In Retained
Stock Capital Earnings
------- -------- ---------
<S> <C> <C> <C>
Balance at February 1, 1997 $6,896 $33,283 $219,905
Issuance of common stock:
Profit sharing plan and trust
(41,639 shares) 16 684 -
Stock bonus plan (4,334 shares) 1 78 -
Employee stock plans(214,291 shares) 86 3,569 -
Foreign currency translation - - -
Dividends ($0.56 per common share) - - (6,586)
Net earnings - - 12,713
Purchase of treasury stock, at cost - - -
Amortization of deferred
compensation-restricted stock - - -
------- -------- ---------
Balance at February 7, 1998 $6,999 $37,614 $226,032
Issuance of common stock:
Profit sharing plan and trust
(25,576 shares) 11 527 -
Employee stock plans (84,539 shares) 34 1,416 -
Foreign currency translation - - -
Dividends ($0.14 per common share) - - (1,385)
Net loss - - (506)
Purchase of treasury stock, at cost - - -
Amortization of deferred
compensation-restricted stock - - -
------- -------- ---------
Balance at May 2, 1998 $7,044 $39,557 $224,141
======= ======== =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
13
<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 except share
and per share amounts) Fifty-three weeks ended February 7, 1998
and Twelve weeks ended May 2, 1998
<CAPTION>
Cumulative
Foreign
Currency Treasury
Translation Stock
Adjustment At Cost
----------- ----------
<S> <C> <C>
Balance at February 1, 1997 $ (1,860) $(118,136)
Issuance of common stock:
Profit sharing plan and trust
(41,639 shares) - -
Stock bonus plan (4,334 shares) - -
Employee stock plans(214,291 shares) - -
Foreign currency translation (891) -
Dividends ($0.56 per common share) - -
Net earnings - -
Purchase of treasury stock, at cost - (47,653)
Amortization of deferred
compensation-restricted stock - -
----------- ----------
Balance at February 7, 1998 $ (2,751) $(165,789)
Issuance of common stock:
Profit sharing plan and trust
(25,576 shares) - -
Employee stock plans (84,539 shares) - -
Foreign currency translation (51) -
Dividends ($0.14 per common share) - -
Net loss - -
Purchase of treasury stock, at cost - (335)
Amortization of deferred
compensation-restricted stock - -
----------- ----------
Balance at May 2, 1998 $ (2,802) $(166,124)
=========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY - DEFERRED COMPENSATION-RESTRICTED STOCK AND
TOTAL (UNAUDITED) (in thousands of dollars except share and per
share amounts) Fifty-three weeks ended February 7, 1998 and
Twelve weeks ended May 2, 1998
<CAPTION>
Deferred
Compensation-
Restricted
Stock Total
------------- ----------
<S> <C> <C>
Balance at February 1, 1997 $ (563) $ 139,525
Issuance of common stock:
Profit sharing plan and trust
(41,639 shares) - 700
Stock bonus plan (4,334 shares) - 79
Employee stock plans(214,291 shares) (15) 3,640
Foreign currency translation - (891)
Dividends ($0.56 per common share) - (6,586)
Net earnings - 12,713
Purchase of treasury stock, at cost - (47,653)
Amortization of deferred
compensation-restricted stock 565 565
----------- ----------
Balance at February 7, 1998 $ (13) $ 102,092
Issuance of common stock:
Profit sharing plan and trust
(25,576 shares) - 538
Employee stock plans (84,539 shares) - 1,450
Foreign currency translation - (51)
Dividends ($0.14 per common share) - (1,385)
Net loss - (506)
Purchase of treasury stock, at cost - (335)
Amortization of deferred
compensation-restricted stock 2 2
----------- ----------
Balance at May 2, 1998 $ (11) $ 101,805
=========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
15
<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 May 2, 1998,
April 26, 1997 and February 7, 1998 and the results of its
operations and changes in its cash flows for the 12 weeks
ended May 2, 1998 and April 26, 1997. 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 7, 1998.
2. The components of net interest expense are as follows:
<TABLE>
<CAPTION>
-------12 weeks ended-------
May 2, 1998 April 26, 1997
----------- --------------
<S> <C> <C>
Interest expense $ 1,075 $ 830
Interest income (846) (235)
----------- --------------
Net interest expense $ 229 $ 595
=========== ==============
</TABLE>
3. Short-term investments are comprised of money market
instruments which aggregated $5.4 million, $8.7 million and
$14.1 million as of May 2, 1998, April 26, 1997 and
February 7, 1998, respectively, and are stated at cost which
approximates market.
4. On October 2, 1997, the Company sold its remaining 49%
interest in Fox to Kodak for a $43.9 million non-interest
bearing Promissory Note due on January 4, 1999. Due to the
non-interest bearing nature of the Promissory Note, a
discount of $3.9 million was established and is being
amortized into income until maturity. During the first
quarter of 1998, $691,000 in amortization related to the
Promissory Note was recognized.
As part of the Disposition Transaction, the Company entered
a two-year Noncompetition and Nonsolicitation Agreement with
Fox. The Company received $10.0 million cash consideration
which is being amortized into income over the life of the
16
<PAGE>
agreement. During the first quarter of 1998, amortization of
the Noncompetition and Nonsolicitation Agreement amounted to
$1,154,000. Prospectively, the Company will recognize $5.0
million and $3.2 million in amortization, respectively, in
fiscal years 1998 and 1999.
5. During the three periods ended May 2, 1998, the Company
adopted SFAS No. 130, "Reporting Comprehensive Income".
Statement No. 130 requires the separate reporting of
components of comprehensive income, as defined. This
statement requires the Company to separately report the
translation adjustments of SFAS No. 52, "Foreign Currency
Translation" as a component of comprehensive income.
Management has chosen, on an interim basis, to disclose the
requirements of this statement within the notes to the
consolidated financial statements. The foreign currency
translation adjustment accounted for as a separate component
of shareholders' equity was a loss of $51,000 and $553,000 for
the periods ended May 2, 1998 and April 26, 1997,
respectively.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
One of the three domestic banks that was involved in
the Company's revolving credit agreement exited the
market for these types of loan agreements in April 1998.
The two remaining banks have elected to increase their
respective shares of the $40.0 million revolving credit
agreement, leaving the amount of the note agreement
unchanged. Copies of the new promissory notes with the
remaining two domestic banks are included in this
Form 10-Q as Exhibits 10.28 and 10.29.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS:
The following exhibits are being filed as part of
this Report:
Exhibit 10.28 - Revolving Credit Note -
Mercantile Bank, N.A.
Exhibit 10.29 - Revolving Credit Note -
Harris Trust and Savings Bank
Exhibit 11.1 - Computation of Earnings per Common
Share - Diluted
Twelve Weeks Ended May 2, 1998 and
April 26, 1997
Exhibit 11.2 - Computation of Earnings per Common
Share - Basic
Twelve Weeks Ended May 2, 1998 and
April 26, 1997
Exhibit 27.1 - Financial Data Schedule
Exhibit 27.2 - Restated Financial Data Schedules
b) REPORTS ON FORM 8-K
- On April 13, 1998, CPI Corp. reported the issuance
of a press release on April 9, 1998 announcing the
fourth quarter and fiscal 1997 results from
operations, with sales of $366.7 million compared
with the prior year's $467.0 million. The lower
revenues reflect the sale of a 51% interest in the
Company's Fox Photo, Inc. photofinishing division
to Eastman Kodak Company in October 1996, with
subsequent revenues of that business being
reported separately by the joint venture. The
Company's remaining 49% interest in Fox Photo,
Inc. was sold to Eastman Kodak in October of
1997.
18
<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: June 12, 1998
19
<PAGE>
<TABLE>
<CAPTION>
CPI CORP.
EXHIBIT INDEX
<S> <C>
Exhibit 10.28 - Revolving Credit Note - 21
Mercantile Bank, N.A.
Exhibit 10.29 - Revolving Credit Note - 22
Harris Trust and Savings Bank
Exhibit 11.1 - Computation of Earnings per Common 23
Share - Diluted
Twelve Weeks Ended May 2, 1998 and
April 26, 1997
Exhibit 11.2 - Computation of Earnings per Common 24
Share - Basic
Twelve Weeks Ended May 2, 1998 and
April 26, 1997
Exhibit 27.1 - Financial Data Schedule 25
Exhibit 27.2 - Restated Financial Data Schedules 26
</TABLE>
20
EXHIBIT 10.28
REVOLVING CREDIT NOTE - MERCANTILE BANK, N.A.
21
<PAGE>
REVOLVING CREDIT NOTE - $22,000,000.00
St.Louis, Missouri
April 28, 1998
FOR VALUE RECEIVED, on the last day of the Revolving Credit
Period, the undersigned, CPI CORP., a Delaware corporation
("Borrower"), hereby promises to pay to the order of MERCANTILE
BANK NATIONAL ASSOCIATION ("Bank"), the principal sum of Twenty-Two
Million Dollars ($22,000,000.00), or such lesser sum as may then
constitute the aggregate unpaid principal amount of all Revolving
Credit Loans made by Bank to Borrower pursuant to the Revolving
Credit Agreement referred to below. The aggregate principal amount
of Revolving Credit Loans which Bank shall be committed to have
outstanding hereunder at any time shall not exceed Twenty-Two
Million Dollars ($22,000,000.00), which amount may be borrowed,
paid, reborrowed and repaid, in whole or in part, subject to the
terms and conditions hereof and of the Revolving Credit Agreement
referred to below. Borrower further promises to pay to the order
of Bank interest on the aggregate unpaid principal amount of such
Revolving Credit Loans on the dates and at the rate or rates
provided for in the Revolving Credit Agreement. All such payments
of principal and interest shall be made in lawful currency of the
United States in Federal or other immediately available funds at
the office of Mercantile Bank National Association, 721 Locust
Street, St. Louis, Missouri 63101.
All Revolving Credit Loans made by Bank and all repayments of
the principal thereof shall be recorded by Bank on its books and
records. Bank's books and records showing the account between Bank
and Borrower shall be admissible in evidence in any action or
proceeding and shall constitute prima facie proof of the items
therein set forth.
This Note is one of the "Notes" referred to in the Revolving
Credit Agreement dated June 16, 1997, by and among Borrower, the
banks listed on the signature pages thereof and Mercantile Bank
National Association, as agent (as the same may from time to time
be amended, modified, extended or renewed, the "Revolving Credit
Agreement"). The Revolving Credit Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon
the occurrence of certain stated events and also for prepayments on
account of principal hereof and interest hereon prior to the
maturity hereof upon the terms and conditions specified therein.
All capitalized terms used and not otherwise defined in this Note
shall have the respective meanings ascribed to them in the
Revolving Credit Agreement.
<PAGE>
Upon the occurrence of any Event of Default under the
Revolving Credit Agreement, Bank's obligation to make additional
Revolving Credit Loans under this Note may be terminated in the
manner and with the effect as provided in the Revolving Credit
Agreement and the entire outstanding principal balance of this Note
and all accrued and unpaid interest thereon may be declared to be
immediately due and payable in the manner and with the effect as
provided in the Revolving Credit Agreement.
In the event that any payment due hereunder shall not be paid
when due, whether by reason of maturity, acceleration or otherwise,
and this Note shall be placed in the hands of an attorney or
attorneys for collection, or if this Note shall be placed in the
hands of an attorney or attorneys for representation of Bank in
connection with bankruptcy or insolvency proceedings relating
hereto, Borrower hereby agrees to pay to the order of Bank, in
addition to all other amounts otherwise due hereon, the costs and
expenses of such collection and representation, including, without
limitation, reasonable attorneys' fees and expenses (whether or not
litigation shall be commenced in aid thereof). Borrower hereby
waives presentment for payment, demand, protest, notice of protest
and notice of dishonor.
This Note shall be governed by and construed in accordance
with the substantive laws of the State of Missouri (without
reference to conflict of law principles).
This Note is an amendment, restatement and continuation of
that certain Revolving Credit Note of Borrower dated June 16, 1997,
and payable to the order of Bank in the principal amount of
$17,000,000.00 (the "Original Note") and not a novation thereof.
All interest evidenced by the Original Note shall continue to be
due and payable until paid. Upon delivery of the original of this
Note by Borrower to Bank, the Original Note shall be deemed
cancelled by amendment and restatement and of no further force or
effect and shall be promptly returned to Borrower marked "Replaced
by Revolving Credit Note dated April 28, 1998."
CPI CORP.
By: /s/ Barry Arthur
----------------------------------------------
Title: CFO/Treasurer/Executive Vice President Finance
EXHIBIT 10.29
REVOLVING CREDIT NOTE - HARRIS TRUST AND SAVINGS BANK
22
<PAGE>
REVOLVING CREDIT NOTE - $18,000,000.00
St.Louis, Missouri
April 28, 1998
FOR VALUE RECEIVED, on the last day of the Revolving Credit
Period, the undersigned, CPI CORP., a Delaware corporation
("Borrower"), hereby promises to pay to the order of HARRIS TRUST
AND SAVINGS BANK ("Bank"), the principal sum of Eighteen Million
Dollars ($18,000,000.00), or such lesser sum as may then
constitute the aggregate unpaid principal amount of all Revolving
Credit Loans made by Bank to Borrower pursuant to the Revolving
Credit Agreement referred to below. The aggregate principal
amount of Revolving Credit Loans which Bank shall be committed to
have outstanding hereunder at any time shall not exceed Eighteen
Million Dollars ($18,000,000.00), which amount may be borrowed,
paid, reborrowed and repaid, in whole or in part, subject to the
terms and conditions hereof and of the Revolving Credit Agreement
referred to below. Borrower further promises to pay to the order
of Bank interest on the aggregate unpaid principal amount of such
Revolving Credit Loans on the dates and at the rate or rates
provided for in the Revolving Credit Agreement. All such
payments of principal and interest shall be made in lawful
currency of the United States in Federal or other immediately
available funds at the office of Mercantile Bank National
Association, 721 Locust Street, St. Louis, Missouri 63101.
All Revolving Credit Loans made by Bank and all repayments
of the principal thereof shall be recorded by Bank on its books
and records. Bank's books and records showing the account
between Bank and Borrower shall be admissible in evidence in any
action or proceeding and shall constitute prima facie proof of
the items therein set forth.
This Note is one of the "Notes" referred to in the Revolving
Credit Agreement dated June 16, 1997, by and among Borrower, the
banks listed on the signature pages thereof and Mercantile Bank
National Association, as agent (as the same may from time to time
be amended, modified, extended or renewed, the "Revolving Credit
Agreement"). The Revolving Credit Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon
the occurrence of certain stated events and also for prepayments
on account of principal hereof and interest hereon prior to the
maturity hereof upon the terms and conditions specified therein.
All capitalized terms used and not otherwise defined in this Note
shall have the respective meanings ascribed to them in the
Revolving Credit Agreement.
<PAGE>
Upon the occurrence of any Event of Default under the
Revolving Credit Agreement, Bank's obligation to make additional
Revolving Credit Loans under this Note may be terminated in the
manner and with the effect as provided in the Revolving Credit
Agreement and the entire outstanding principal balance of this
Note and all accrued and unpaid interest thereon may be declared
to be immediately due and payable in the manner and with the
effect as provided in the Revolving Credit Agreement.
In the event that any payment due hereunder shall not be
paid when due, whether by reason of maturity, acceleration or
otherwise, and this Note shall be placed in the hands of an
attorney or attorneys for collection, or if this Note shall be
placed in the hands of an attorney or attorneys for
representation of Bank in connection with bankruptcy or
insolvency proceedings relating hereto, Borrower hereby agrees to
pay to the order of Bank, in addition to all other amounts
otherwise due hereon, the costs and expenses of such collection
and representation, including, without limitation, reasonable
attorneys' fees and expenses (whether or not litigation shall be
commenced in aid thereof). Borrower hereby waives presentment
for payment, demand, protest, notice of protest and notice of
dishonor.
This Note shall be governed by and construed in accordance
with the substantive laws of the State of Missouri (without
reference to conflict of law principles).
This Note is an amendment, restatement and continuation of
that certain Revolving Credit Note of Borrower dated June 16,
1997, and payable to the order of Bank in the principal amount of
$13,000,000.00 (the "Original Note") and not a novation thereof.
All interest evidenced by the Original Note shall continue to be
due and payable until paid. Upon delivery of the original of
this Note by Borrower to Bank, the Original Note shall be deemed
cancelled by amendment and restatement and of no further force or
effect and shall be promptly returned to Borrower marked
"Replaced by Revolving Credit Note dated April 18, 1998."
CPI CORP.
By: /s/ Barry Arthur
----------------------------------------------
Title: CFO/Treasurer/Executive Vice President Finance
EXHIBIT 11.1
<TABLE>
CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE - DILUTED
(in thousands of dollars except share and per share amounts)
Twelve Weeks Ended May 2, 1998 and April 26, 1997
<CAPTION>
Twelve Weeks Ended
---------------------
May 2, April 26,
1998 1997
--------- ---------
<S> <C> <C>
Diluted:
Net loss applicable to common shares $ (506) $ (2,411)
========= =========
Shares:
Weighted average number of
common shares outstanding 17,536 17,283
Shares issuable under employee
stock plans - weighted average --# --*
Dilutive effect of exercise of
certain stock options --# --*
Less: Treasury stock - weighted
average (7,622) (5,557)
--------- ---------
Weighted average number of common
and common equivalent shares
outstanding 9,914 11,726
========= =========
Net loss per common and common
equivalent shares $ (0.05) $ (0.21)
========= =========
<FN>
# The dilutive effect of 36,498 stock options as well as 280,053
shares issuable under employee stock plans was not considered
as the effect is antidilutive.
* The dilutive effect of 31,099 stock options as well as 78,390
shares issuable under employee stock plans was not considered
as the effect is antidilutive.
</FN>
</TABLE>
23
EXHIBIT 11.2
<TABLE>
CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE - BASIC
(in thousands of dollars except share and per share amounts)
Twelve Weeks Ended May 2, 1998 and April 26, 1997
<CAPTION>
Twelve Weeks Ended
----------------------
May 2, April 26,
1998 1997
--------- ---------
<S> <C> <C>
Basic:
Net loss applicable to common shares $ (506) $ (2,411)
========= =========
Shares:
Weighted average number of
common shares outstanding 17,536 17,283
Less: Treasury stock - weighted
average (7,622) (5,557)
--------- ---------
Weighted average number of common
and common equivalent shares
outstanding 9,914 11,726
========= =========
Net loss per common and common
equivalent shares $ (0.05) $ (0.21)
========= =========
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<FISCAL-YEAR-END> FEB-06-1999
<PERIOD-START> FEB-08-1998
<PERIOD-END> MAY-02-1998
<PERIOD-TYPE> 3-MOS
<CASH> 1,342
<SECURITIES> 5,445
<RECEIVABLES> 53,962
<ALLOWANCES> 411
<INVENTORY> 16,968
<CURRENT-ASSETS> 85,588
<PP&E> 245,197
<DEPRECIATION> (123,886)
<TOTAL-ASSETS> 216,302
<CURRENT-LIABILITIES> 37,275
<BONDS> 0
0
0
<COMMON> 7,044
<OTHER-SE> 94,761
<TOTAL-LIABILITY-AND-EQUITY> 216,302
<SALES> 73,354
<TOTAL-REVENUES> 73,354
<CGS> 11,785
<TOTAL-COSTS> 75,156
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,075
<INCOME-PRETAX> (778)
<INCOME-TAX> 272
<INCOME-CONTINUING> (506)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (506)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C>
<FISCAL-YEAR-END> FEB-07-1998 FEB-01-1997 FEB-07-1998
<PERIOD-END> APR-26-1997 FEB-01-1997 FEB-07-1998
<PERIOD-TYPE> 3-MOS 12-MOS 12-MOS
<CASH> 1,155 5,226 1,176
<SECURITIES> 8,662 16,697 14,117
<RECEIVABLES> 14,497 13,760 53,041
<ALLOWANCES> 403 382 291
<INVENTORY> 18,120 19,280 18,044
<CURRENT-ASSETS> 54,331 63,685 94,406
<PP&E> 231,050 227,443 242,367
<DEPRECIATION> 102,036 96,681 117,649
<TOTAL-ASSETS> 233,674 246,720 228,761
<CURRENT-LIABILITIES> 42,866 50,847 47,442
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 6,913 6,896 6,999
<OTHER-SE> 128,795 132,629 95,093
<TOTAL-LIABILITY-AND-EQUITY> 233,674 246,720 228,761
<SALES> 70,174 467,034 366,701
<TOTAL-REVENUES> 70,174 467,034 366,701
<CGS> 12,685 110,013 57,782
<TOTAL-COSTS> 71,618 446,662 338,503
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 830 4,278 4,470
<INCOME-PRETAX> (3,827) 22,799 20,897
<INCOME-TAX> 1,416 8,436 8,184
<INCOME-CONTINUING> (2,411) 14,363 12,713
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (2,411) 14,363 12,713
<EPS-PRIMARY> (0.21) 1.07 1.09
<EPS-DILUTED> (0.21) 1.06 1.07
<PAGE>
</TABLE>
