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 1, 1999
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 10, 1999 there were 9,918,800 shares of the
Registrant's common stock outstanding. This quarterly report
on Form 10-Q contains 23 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 1998 ended February 6, 1999 and consisted
of 52 weeks. The first fiscal quarters of 1999 and 1998 consisted
of twelve weeks and ended May 1, 1999 and May 2, 1998,
respectively. Throughout the MANAGEMENT'S DISCUSSION AND ANALYSIS
and NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS, reference to 1998 will mean the fiscal year-end 1998
and reference to first quarter 1999 and first quarter 1998 will
mean the first fiscal quarter of 1999 and 1998, respectively.
YEAR 2000 ISSUE
The Year 2000 (Y2K) issue is primarily the result of computer
software and hardware using two digits rather than four to define
the applicable year. For example, the year "00" may be recognized
as 1900 rather than 2000 and may result in computers and computer
applications failing or creating erroneous results.
In reviewing Y2K issues, the Company has identified four areas of
primary concern:
1.) the administrative offices and laboratories located
in St. Louis, Missouri; Las Vegas, Nevada; Thomaston,
Connecticut and Mississauga, Ontario (Canada)
(referred to as "Home Office");
2.) the individual locations of the Portrait Studio,
which operate under the name "Sears Portrait Studios,"
(referred to as "SPS Field");
3.) the administrative support office and individual
locations of the Wall Decor segment, which operate
under the name "Prints Plus" (referred to as "Prints
Plus") and
4.) third party vendors or suppliers.
Home Office
- -----------
Due in part to Y2K issues in older systems, fully-compliant Y2K
basic operating and data-base systems were put in place in the
Home Office by the end of the first quarter of 1998. In addition,
due to this change, all financial systems in the Home Office were
reviewed by year-end 1997 and new financial systems, including Y2K
2
<PAGE>
compliance upgrades, were substantially installed by the end of
1998 for an estimated cost of $3.4 million. An additional $475,000
will be spent by the end of second quarter 1999 to complete the
final changes to all financial systems. Laboratory, telephone and
physical plant systems and equipment as well as all personal
computers in the Home Office have been tested for Y2K issues and,
after an analysis of the test results is made, new or upgraded
systems and equipment will be obtained by mid-1999 at an estimated
cost of $555,000.
SPS Field
- ----------
In 1996, as part of the Company's on-going long-range planning
and development process, the Company began the process of
updating the point-of-sale system used in the SPS Field
operations. Development of the new system, which included Y2K
compliance, continued through 1997 and, starting in May of 1999,
the Company began installing the software and hardware for the new
point-of-sale system in the SPS Field locations. Full
implementation of the new system is expected to be completed by
third quarter of 1999. At the same time the new point-of-sale
system is rolled-out, upgraded software used in the sales stations
and camera rooms of the SPS Field locations will be installed at
negligible cost.
Prints Plus
- -----------
Although the hardware used to operate the point-of-sale system
utilized by Prints Plus locations is Y2K compliant, the software
used is not and is currently being rewritten. The expected
completion date and rollout of the Y2K compliant point-of-sale
system software for Prints Plus is the end of August. In
addition, the upgrading of all financial and merchandise
distribution systems utilized by Prints Plus is expected to be
completed by late August 1999. Total estimated cost for Y2K
compliance for all of Prints Plus is estimated to be $420,000.
Third Party
- -----------
The Company has material relationships with several large
companies providing goods and services to the Portrait Studio and
Wall Decor segments:
--Sears, Roebuck and Company, the licensor of Sears
Portrait Studios, the Company's primary line of business;
--Eastman Kodak Company, a provider of photographic film and
paper, dye sublimation paper and related equipment and
supplies;
--Sony Corporation, a provider of dye sublimation paper and
related equipment and supplies;
3
<PAGE>
--MCI, a telecommunications company which provides communi-
cation links between the Company and its remote locations
as well as telephone services in the Home Office;
--United Parcel Services, Roadway Package Services and
Airborne Express Services, companies which handle the
transportation of finished products to and from the Home
Office and individual locations;
--Mercantile Bank N.A. of St. Louis and Harris Trust and
Savings Bank, financial institutions which provide credit
facilities and other banking services;
--Prudential Insurance Company and the Guardian Insurance
Company, holders of the Company's senior debt.
All of these companies have published material indicating their
awareness of the Y2K issue and the steps they are taking to
remedy the problem. However, although the Company does not
anticipate service interruptions from its major third party
suppliers and vendors, no assurance can be given that the Company
will not experience supply disruptions due to Y2K issues.
Contingency Plans
- -----------------
Taking the previous information into consideration, while the
Company has already begun implementing changes as a result of its
Y2K assessment, a full assessment of the Y2K issues will not be
completed until late June 1999. After all changes are implemented
and testing of the new systems or related equipment is completed,
the Company will develop contingency plans for possible Y2K
compliance problems. The Company expects to have the contingency
plans in place for Home Office by late June 1999 and SPS Field and
Prints Plus by September 1999.
NONCOMPETE AGREEMENT
As part of the Company's disposition of its remaining shares of Fox
Photo, Inc. ("Fox") to Eastman Kodak Company in 1997, the Company
entered 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.
For both first quarter 1999 and 1998, amortization relating to the
two-year Noncompete Agreement was $1.2 million. Prospectively, in
the second and third fiscal quarters of 1999, the remaining $2.0
million balance will be recognized.
4
<PAGE>
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, readiness, expectant
costs and contingency planning regarding Year 2000 issues, future
cash requirements and capital expenditures, are only predictions
or expectations; actual events or results may differ materially
as a result of risks facing the Company. Such risks include, but
are not limited to customer demand for the Company's products and
services, the overall level of economic activity in the Company's
major markets, competitors' actions, manufacturing interruptions,
dependence on certain suppliers, changes in the Company's
relationship with Sears, Roebuck & Company and the condition and
strategic planning of Sears, Roebuck & Company, fluctuations in
operating results, the attractions 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 6, 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS-RESULTS OF OPERATIONS
- ----------------------------------------------------------
<TABLE>
NET SALES (in thousands of dollars)
Twelve-weeks Ended May 1, 1999 and May 2, 1998
<CAPTION>
Twelve Weeks Ended
----------------------
May 1, May 2, Amount
1999 1998 Change
--------- --------- --------
<S> <C> <C> <C>
Portrait Studios $ 65,074 $ 60,145 $ 4,929
Wall Decor 12,588 13,209 (621)
--------- --------- --------
Total net sales $ 77,662 $ 73,354 $ 4,308
========= ========= ========
</TABLE>
NET SALES
Total net sales for first quarter 1999 were up 5.9% primarily as a
result of increased sales in Portrait Studios, which far more than
offset a slight decrease in sales of the Wall Decor segment.
5
<PAGE>
Portrait Studios first quarter 1999 net sales were up 8.2% over
first quarter 1998 as a result of higher average sales per
customer, due to greater customer acceptance of various portrait
products, and relatively unchanged customer traffic.
Sales in the Wall Decor segment were down 4.7% for first quarter
1999 when compared to first quarter 1998 as a result of lower same-
store sales. Recognizing the extraordinarily strong sales
performance for first quarter 1998, the Company had anticipated
lower sales in first quarter 1999. However, the Company does not
expect this trend to continue for the remainder of fiscal 1999.
<TABLE>
SELECTED FINANCIAL DATA (in thousands of dollars)
Twelve-weeks Ended May 1, 1999 and May 2, 1998
<CAPTION>
Twelve Weeks Ended
----------------------
May 1, May 2, Amount
1999 1998 Change
--------- --------- --------
<S> <C> <C> <C>
Operating earnings (loss):
Portrait Studios $ 2,951 $ 1,642 $ 1,309
Wall Decor (975) (866) (109)
--------- --------- --------
Total operating earnings 1,976 776 1,200
General corporate expenses 2,750 2,578 (172)
Interest expense 1,057 1,075 18
Interest income 765 846 (81)
Other income 1,180 1,253 (73)
--------- --------- --------
Earnings (loss) before
income taxes $ 114 $ (778) $ 892
========== ========= ========
</TABLE>
OPERATING EARNINGS
Total operating earnings for first quarter 1999 were up as a result
of an increase in Portrait Studios operating earnings, which were
partially offset by a decrease in operating earnings for the Wall
Decor segment.
Portrait Studios operating earnings were up as a result of
increased sales combined with decreased advertising costs, which
resulted from less broadcast media advertising. These factors were
6
<PAGE>
partially offset by increased employment costs, which resulted
from: increased labor hours, due to more intense customer
servicing, and higher wages, due to tight labor markets and the
introduction of the Independent Study Program (ISP), a new studio
employee compensation plan discussed in the Company's 1998 Annual
Report to Shareholders. For all of fiscal 1999, ISP is expected to
increase employment expenses $3.0 to $4.0 million.
Wall Decor operating losses increased as a result of lower same-
store sales, offset slightly by lower occupancy costs.
NET EARNINGS AND EARNINGS PER SHARE
Net earnings before income taxes were $114,000 in first quarter
1999 compared to first quarter 1998 net losses before taxes of
$778,000, with the improvement a result of operating earnings,
offset slightly by higher corporate expenses, which resulted
primarily from higher employee medical costs.
Diluted earnings per share were $0.01 for first quarter 1999
compared to a loss of $0.05 per share for first quarter 1998
reflecting the improved net earnings.
MANAGEMENT'S DISCUSSION AND ANALYSIS - FINANCIAL CONDITION AND CASH
- -------------------------------------------------------------------
CASH FLOW
- ---------
Total assets decreased 3.3% in first quarter 1999 from year-end
1998, reflecting decreases in cash and cash equivalents resulting
from the seasonal cash needs of the business.
Total liabilities decreased 6.5% in first quarter 1999 from year-
end, reflecting seasonal decreases in accrued employment costs and
income taxes and a decrease in other liabilities, which resulted
from the amortization of $1.2 million of the Noncompete Agreement
with Eastman Kodak Company. Prospectively, the Company will
recognize the remaining $2.0 million balance of the Noncompete
Agreement through amortization in the second and third quarters of
fiscal 1999.
Stockholders' equity was relatively unchanged in first quarter 1999
from year-end as the change in retained earnings resulting from the
issuance of common stock and the first quarter 1999 net earnings,
offset by the distribution of quarterly dividends.
With its strong cash and cash equivalents position, the Company
believes it has sufficient liquidity to meet planned capital
expenditures, normal working capital requirements and dividends to
shareholders.
7
<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 1, 1999 and May 2, 1998
<CAPTION>
Twelve Weeks Ended
---------------------------
May 1, May 2,
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 77,662 $ 73,354
Costs and expenses:
Cost of sales (exclusive of
depreciation expense shown below) 11,742 11,785
Selling, administrative and
general expenses 59,899 56,496
Depreciation 6,583 6,510
Amortization 212 365
------------ ------------
78,436 75,156
------------ ------------
Loss from operations (774) (1,802)
Interest expense 1,057 1,075
Interest income 765 846
Other income 1,180 1,253
------------ ------------
Earnings (loss) before income taxes 114 (778)
Income tax expense (benefit) 40 (272)
------------ ------------
Net earnings (loss) $ 74 $ (506)
============ ============
Net earnings (loss) per share -
diluted $ 0.01 $ (0.05)
============ ============
Weighted average number of common
and common equivalent shares
outstanding - diluted 10,160,789 9,914,203
============ ============
Net earnings (loss) per share -
basic $ 0.01 $ (0.05)
============ ============
Weighted average number of common
and common equivalent shares
outstanding - basic 9,899,269 9,914,203
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
8
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
ASSETS (UNAUDITED) (in thousands of dollars)
<CAPTION>
May 1, May 2, February 6,
1999 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 66,189 $ 6,787 $ 76,000
Receivables, less
allowance of $266, $411
and $302, respectively 11,098 11,775 10,374
Notes receivable - 41,776 -
Inventories 18,793 16,968 19,071
Prepaid expenses and
other current assets 8,352 8,113 8,194
Refundable income taxes 4,045 - -
Deferred tax assets 32 169 32
--------- --------- ---------
Total current assets 108,509 85,588 113,671
--------- --------- ---------
Net property and equipment 108,561 121,311 111,148
Other assets, net of
amortization of $1,253,
$1,215 and $1,244,
respectively 9,821 9,403 9,874
--------- --------- ---------
Total assets $ 226,891 $ 216,302 $ 234,693
========= ========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands of dollars)
<CAPTION>
May 1, May 2, February 6,
1999 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings $ - $ 450 $ -
Accounts payable 11,199 15,220 9,641
Accrued employment
costs 9,393 11,145 14,256
Sales taxes payable 1,421 1,672 2,461
Accrued advertising
expense 2,965 3,276 2,054
Accrued expenses and
other liabilities 5,644 5,282 4,644
Income taxes - 230 2,720
--------- --------- -----------
Total current
liabilities 30,622 37,275 35,776
--------- --------- -----------
Long-term obligations,
less current maturities 59,579 59,501 59,559
Other liabilities 11,921 14,791 14,444
Deferred income taxes 8,407 2,930 8,398
--------- --------- -----------
Total liabilities $ 110,529 $ 114,497 $ 118,177
--------- --------- -----------
<FN>
See accompanying footnotes to consolidated financial statements.
</FN>
</TABLE>
10
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS -
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands of dollars) (continued)
<CAPTION>
May 1, May 2, February 6,
1999 1998 1999
---------- ----------- ----------
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock, no par
value, 1,000,000 shares
authorized; no shares
outstanding - - -
Preferred stock, Series
A, no par value - - -
Common stock, $0.40 par
value, 50,000,000
shares authorized;
17,770,767, 17,609,252
and 17,730,100 shares
outstanding at May 1,
1999, May 2, 1998
and February 6, 1999,
respectively 7,108 7,044 7,092
Additional paid-in capital 42,417 39,557 41,605
Retained earnings 241,101 224,141 242,409
Accumulated other
comprehensive income (3,042) (2,802) (3,363)
---------- ----------- ----------
287,584 267,940 287,743
Treasury stock at cost,
7,864,261, 7,624,261
and 7,864,261 shares
at May 1, 1999, May
2, 1998 and February
6, 1999, respectively (171,184) (166,124) (171,184)
Unamortized deferred
compensation-restricted
stock (38) (11) (43)
---------- ----------- ----------
Total stockholders'
equity 116,362 101,805 116,516
---------- ----------- ----------
Total liabilities and
stockholders' equity $ 226,891 $ 216,302 $ 234,693
========== =========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
11
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (UNAUDITED) (in thousands of dollars)
Twelve weeks ended May 1, 1999 and May 2, 1998
<CAPTION>
12 Weeks Ended
-------------------
May 1, May 2,
1999 1999
--------- --------
<S> <C> <C>
Cash flows used in operating activities $(5,428) $(6,107)
Cash flows provided by (used in) financing
activities:
Proceeds of short-term borrowings - 450
Issuance of common stock to employee stock
plans 828 1,988
Cash dividends (1,382) (1,385)
Purchase of treasury stock - (335)
-------- --------
Cash flows provided by (used in)
financing activities (554) 718
-------- --------
Cash flows used in investing activities:
Additions to property and equipment (3,996) (3,103)
-------- --------
Cash flows used in investing activities (3,996) (3,103)
-------- --------
Effect of exchange rate changes on
cash and cash equivalents 167 (13)
-------- --------
Net decrease in cash and cash equivalents (9,811) (8,505)
Cash and cash equivalents at beginning of
year 76,000 15,292
-------- --------
Cash and cash equivalents at end of period $66,189 $ 6,787
======== ========
Supplemental cash flow information:
Interest paid $ - $ -
======== ========
Income taxes paid $ 6,738 $ 8,134
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
12
<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 1, 1999 and May 2, 1998
<CAPTION>
12 Weeks Ended
-------------------
May 1, May 2,
1999 1998
--------- ---------
<S> <C> <C>
Reconciliation of net earnings to cash flows
used in operating activities:
Net earnings (loss) from operations $ 74 $ (506)
Adjustments for items not requiring cash:
Depreciation and amortization 6,795 6,875
Deferred income taxes 9 511
Deferred revenue (74) -
Amortization of noncompete agreement (1,154) (1,154)
Amortization of discount on note
receivable - (691)
Other (1,275) (1,517)
Decrease (increase) in current assets:
Receivables and inventories (446) 965
Refundable income taxes (4,045) -
Prepaid expenses and other current assets (158) 27
Decrease in current liabilities:
Accounts payable, accrued expenses and
other liabilities (2,435) (1,833)
Income taxes (2,719) (8,784)
-------- --------
Cash flows used in operating activities $(5,428) $(6,107)
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
13
<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-two weeks
ended February 6, 1999 and Twelve weeks ended May 1, 1999
<CAPTION>
Add'l
Common Paid-In Retained
Stock Capital Earnings
------- -------- ---------
<S> <C> <C> <C>
Balance at February 7, 1998 $6,999 $37,614 $226,032
Issuance of common stock (230,963) 93 3,991 -
Comprehensive income:
Net earnings - - 21,944
Foreign currency translation - - -
Comprehensive income - - -
Dividends ($0.56 per common share) - - (5,567)
Purchase of treasury stock, at cost - - -
Amortization of deferred
compensation-restricted stock - - -
------- -------- ---------
Balance at February 6, 1999 $7,092 $41,605 $242,409
Issuance of common stock (40,667) 16 812 -
Comprehensive income:
Net earnings - - 74
Foreign currency translation - - -
Comprehensive income - - -
Dividends ($0.14 per common share) - - (1,382)
Purchase of treasury stock, at cost - - -
Amortization of deferred
compensation-restricted stock - - -
------- -------- ---------
Balance at May 1, 1999 $7,108 $42,417 $241,101
======= ======== =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
CPI CORP. INTERIM CONDENSED CPI CORP. INTERIM CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -
ACCUMULATED OTHER COMPREHENSIVE INCOME AND TREASURY STOCK AT
COST (UNAUDITED) (in thousands of dollars except share and per
share amounts) Fifty-two weeks ended February 6, 1999 and Twelve
weeks ended May 1, 1999
<CAPTION>
Accumulated
Other Treasury
Comprehensive Stock
Income At Cost
------------- -----------
<S> <C> <C>
Balance at February 7, 1998 $ (2,751) $ (165,789)
Issuance of common stock (230,963) - -
Comprehensive income:
Net earnings - -
Foreign currency translation (612) -
Comprehensive income - -
Dividends ($0.56 per common share) - -
Purchase of treasury stock, at cost - (5,395)
Amortization of deferred
compensation-restricted stock - -
----------- ----------
Balance at February 6, 1999 $ (3,363) $(171,184)
Issuance of common stock (40,667) - -
Comprehensive income:
Net earnings - -
Foreign currency translation 321 -
Comprehensive income - -
Dividends ($0.14 per common share) - -
Purchase of treasury stock, at cost - -
Amortization of deferred
compensation-restricted stock - -
----------- ----------
Balance at May 1, 1999 $ (3,042) $(171,184)
=========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
15
<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-two weeks ended February 6, 1999 and Twelve
weeks ended May 1, 1999
<CAPTION>
Deferred
Compensation-
Restricted
Stock Total
------------- ----------
<S> <C> <C>
Balance at February 7, 1998 $ (13) $ 102,092
Issuance of common stock (230,963) (53) 4,031
Comprehensive income:
Net earnings -
Foreign currency translation -
Comprehensive income - 21,332
Dividends ($0.56 per common share) - (5,567)
Purchase of treasury stock, at cost - (5,395)
Amortization of deferred
compensation-restricted stock 23 23
----------- -----------
Balance at February 6, 1999 $ (43) $ 116,516
Issuance of common stock (40,667) - 828
Comprehensive income:
Net earnings -
Foreign currency translation -
Comprehensive income - 395
Dividends ($0.14 per common share) - (1,382)
Purchase of treasury stock, at cost - -
Amortization of deferred
compensation-restricted stock 5 5
----------- -----------
Balance at May 1, 1999 $ (38) $ 116,362
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
16
<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 1, 1999, May 2, 1998, and
February 6, 1999 and the results of its operations and changes
in its cash flows for the 12 weeks ended May 1, 1999 and
May 2, 1998. 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 6, 1999.
2. As part of the Company's disposition of its remaining shares
of Fox Photo, Inc. ("Fox") to Eastman Kodak Company in 1997,
the Company entered 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.
For both first quarter 1999 and 1998, amortization relating
to the two-year Noncompete Agreement was $1.2 million.
Prospectively, in the second and third fiscal quarters of
1999, the remaining $2.0 million balance will be recognized.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS:
The following exhibits are being filed as part of
this Report:
Exhibit 11.1 - Computation of Earnings per Common
Share - Diluted
Twelve Weeks Ended May 1, 1999 and
May 2, 1998
Exhibit 11.2 - Computation of Earnings per Common
Share - Basic
Twelve Weeks Ended May 1, 1999 and
May 2, 1998
Exhibit 27 - Financial Data Schedule
b) REPORTS ON FORM 8-K
- On April 7, 1999, CPI Corp. reported the issuance
of a press release on March 26, 1999 announcing
the unaudited results from the fourth quarter
and the full 1998 fiscal year, which ended
February 6, 1999, were better than expected.
- On April 14, 1999, CPI Corp. reported the issuance
of a press release on April 9, 1999 announcing
net earnings were up 72.6% due mainly to the
effect of the photofinishing segment sale and a
sales increase of 6.2%.
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 11, 1999
19
<PAGE>
<TABLE>
<CAPTION>
CPI CORP.
EXHIBIT INDEX
<S> <C>
Exhibit 11.1 - Computation of Earnings per Common 21
Share - Diluted
Twelve Weeks Ended May 1, 1999 and
May 2, 1998
Exhibit 11.2 - Computation of Earnings per Common 22
Share - Basic
Twelve Weeks Ended May 1, 1999 and
May 2, 1998
Exhibit 27 - Financial Data Schedule 23
</TABLE>
20
EXHIBIT 11.1
<TABLE>
CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE - DILUTED
(in thousands of dollars or shares except per share amounts)
Twelve Weeks Ended May 1, 1999 and May 2, 1998
<CAPTION>
Twelve Weeks Ended
----------------------
May 1, May 2,
1999 1998
--------- ---------
<S> <C> <C>
Diluted:
Net earnings (loss) applicable to
common shares $ 74 $ (506)
========= =========
Shares:
Weighted average number of
common shares outstanding 17,763 17,536
Shares issuable under employee
stock plans - weighted average 34 --*
Dilutive effect of exercise of
certain stock options 228 --*
Less: Treasury stock - weighted
average (7,864) (7,622)
--------- ---------
Weighted average number of common
and common equivalent shares
outstanding 10,161 9,914
========= =========
Net earnings (loss) per common and
common equivalent shares $ 0.01 $ (0.05)
========= =========
<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.
</FN>
</TABLE>
21
EXHIBIT 11.2
<TABLE>
CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE - BASIC
(in thousands of dollars and shares except per share amounts)
Twelve Weeks Ended May 1, 1999 and May 2, 1998
<CAPTION>
Twelve Weeks Ended
----------------------
May 1, May 2,
1999 1998
--------- ---------
<S> <C> <C>
Basic:
Net earnings (loss) applicable to
common shares $ 74 $ (506)
========= =========
Shares:
Weighted average number of
common shares outstanding 17,763 17,536
Less: Treasury stock - weighted
average (7,864) (7,622)
--------- ---------
Weighted average number of common
and common equivalent shares
outstanding 9,899 9,914
========= =========
Net earnings (loss) per common and
common equivalent shares $ 0.01 $ (0.05)
========= =========
</TABLE>
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<FISCAL-YEAR-END> FEB-05-2000
<PERIOD-START> FEB-06-1999
<PERIOD-END> MAY-01-1999
<PERIOD-TYPE> 3-MOS
<CASH> 1,044
<SECURITIES> 65,145
<RECEIVABLES> 11,364
<ALLOWANCES> 266
<INVENTORY> 18,793
<CURRENT-ASSETS> 108,509
<PP&E> 258,027
<DEPRECIATION> (149,466)
<TOTAL-ASSETS> 226,891
<CURRENT-LIABILITIES> 30,622
<BONDS> 0
0
0
<COMMON> 7,108
<OTHER-SE> 109,254
<TOTAL-LIABILITY-AND-EQUITY> 226,891
<SALES> 77,662
<TOTAL-REVENUES> 77,662
<CGS> 11,742
<TOTAL-COSTS> 78,436
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,057
<INCOME-PRETAX> 114
<INCOME-TAX> 40
<INCOME-CONTINUING> 74
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
