-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F1Np8VMNDxQmtAu5pDvdgtaZUmmkFv88FJFbprXLF0WoZYo3H+9ykm9Kbz9NBMg1 1HnNmeFy8yR+uUGHvTnNlQ== 0000025354-98-000031.txt : 19981228 0000025354-98-000031.hdr.sgml : 19981228 ACCESSION NUMBER: 0000025354-98-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981114 FILED AS OF DATE: 19981222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CPI CORP CENTRAL INDEX KEY: 0000025354 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 431256674 STATE OF INCORPORATION: DE FISCAL YEAR END: 0203 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10204 FILM NUMBER: 98773610 BUSINESS ADDRESS: STREET 1: 1706 WASHINGTON AVE CITY: ST LOUIS STATE: MO ZIP: 63103-1790 BUSINESS PHONE: 3142311575 MAIL ADDRESS: STREET 1: 1706 WASHINGTON AVE CITY: ST LOUIS STATE: MO ZIP: 63103 10-Q 1 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 November 14, 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 December 21, 1998 there were 9,829,729 shares of the Registrant's common stock outstanding. This quarterly report on Form 10-Q contains 31 pages, of which this is page 1. 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 will end February 6, 1999 and consist of 52 weeks while fiscal year 1997 ended February 7, 1998 and consisted of 53 weeks. The third fiscal quarters of 1998 and 1997 consisted of sixteen-weeks and ended November 14, 1998 and November 8, 1997, respectively. Throughout Management's Discussion and Analysis and the Notes to the Interim Condensed Consolidated Financial Statements, reference to 1998 and 1997 will mean the fiscal year end 1998 and 1997, respectively, and reference to third quarter 1998 and third quarter 1997 will mean the third fiscal quarter of 1998 and 1997, respectively. Due to the fifty-third week of 1997, third quarter 1998 had a slow mid-summer week in July replaced by a strong holiday-season week in November, making the direct comparison of both quarterly and year-to-date information between 1998 and 1997 difficult. 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 third quarters of 1998 and 1997, $967,000 and $312,000, respectively, in amortization related to the Promissory Note was recognized. In addition, $2.4 million and $312,000 were recognized for the first three quarters of 1998 and 1997, respectively. On a prospective basis, $2.8 million will be recognized for all of 1998. As part of the Disposition Transaction, the Company entered into a two-year Noncompetition and Nonsolicitation Agreement (the 2 "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 $1.5 million and $522,000 of income during the third quarter of 1998 and 1997, respectively. For the first three quarters of 1998 and 1997, $3.8 million and $522,000 was recognized from the amortization of the Noncompete Agreement. Prospectively, the Company will recognize $5.0 million and $3.2 million in amortization, respectively, in fiscal years 1998 and 1999. In conjunction with the dissolution of the joint venture, the Company and Fox terminated the Consulting Agreement as of October 2, 1997 and materially reduced the Service Agreement during the first quarter of 1998. The Consulting Agreement and Service Agreement were collateral agreements with Fox and Kodak under which the Company provided certain administrative and management services to Fox. 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. Under this authorization, as of November 14, 1998, the Company has purchased 3,615,046 shares for $80.9 million at an average share price of $22.37. Acquired shares are held as treasury stock and will be available for general corporate purposes. During the third quarter 1998, the Company purchased 240,000 shares of stock for $5.1 million at an average stock price of $21.09. In addition, in January 1998, the Company, as authorized by the Board of Directors, completed a Dutch Auction tender offer by purchasing 1,999,215 shares of the Company's common stock at $23.00 per share for a total cost of $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. FORWARD-LOOKING STATEMENTS - -------------------------- The statements contained in this report which are not historical facts are forward-looking statements that involve risks and 3 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 not 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. 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 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 Photography segment, 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 compliance upgrades, were substantially installed by the end of the third quarter of 1998 for an estimated cost of $3.2 million. An additional $178,000 will be spent by the end of second quarter 1999 to complete the final changes to all 4 financial systems. Laboratory, telephone and physical plant systems and equipment as well as all personal computers in the Home Office are being 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 $460,000. Sears Portrait Studio 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 Sears Portrait Studio (SPS) Field operations. Development of the new system, which included Y2K compliance, continued through 1997 and, starting in fourth quarter of 1998, the Company expects to install 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 mid-1999. At the same time the new point-of-sale system is rolled-out, upgrading of the software used in the sales stations and camera rooms of the SPS Field locations will be installed at negligible cost. Prints Plus - ----------- Although the point-of-sale system utilized by Prints Plus locations is Y2K compliant, the hardware used to operate the system has not been tested. Both the testing and upgrading of the system hardware are expected to be completed by early 1999. In addition, the upgrading of all financial and merchandise distribution systems utilized by Prints Plus is expected to be completed by June 1999. Total estimated cost for Y2K compliance for all of Prints Plus is estimated to be $421,000. Third Party - ----------- The Company has material relationships with several large companies providing goods and services to the Photography and Wall Decor segments: --Sears Roebuck and Company, the licensor of Sears Portrait Studio, 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; --MCI, a telecommunications company which provides communication links between the Company and its remote locations as well as telephone services in the Home Office; 5 --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. Taking the above 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 the end of 1998. 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 by November 1999. MANAGEMENT'S DISCUSSION & ANALYSIS - RESULTS OF OPERATIONS - ---------------------------------------------------------- NET SALES (in thousands of dollars) Sixteen-weeks Ended November 14, 1998 and November 8, 1997
Sixteen-weeks Ended ------------------------------------ Nov. 14, Nov. 8, Amount Percent 1998 1997 Change Change ------- -------- -------- ------- Portrait Studios $106,171 $ 91,166 $ 15,005 16.5% Wall Decor 17,834 16,990 844 5.0% -------- -------- -------- Total net sales $124,005 $108,156 $ 15,849 14.7% ======== ======== ========
6 NET SALES (in thousands of dollars) Forty-weeks Ended November 14, 1998 and November 8, 1997
Forty-weeks Ended ------------------------------------ Nov. 14, Nov. 8, Amount Percent 1998 1997 Change Change ------- -------- -------- ------- Portrait Studios $224,646 $205,623 $ 19,023 9.3% Wall Decor 43,710 41,201 2,509 6.1% -------- -------- -------- Total net sales $268,356 $246,824 $ 21,532 8.7% ======== ======== ========
NET SALES - --------- As the previous tables indicate, total sales for the third quarter and the first three quarters of 1998 increased over 1997 by 14.7% and 8.7%, respectively, reflecting increased sales in both the Portrait Studios and Wall Decor segments. However, if the sixteen-week third quarter and forty-week first three quarters of 1998 were matched on a calendar basis to the same timeframe in 1997, due to the one-week shift in sales previously discussed, the increase in sales would have been 7.8% and 5.3% for the third and first three quarters of 1998, respectively. Portrait Studios 1998 sales were up 16.5% and 9.3% from the third quarter 1997 and first three quarters of 1997, respectively. Again of note, if a calendar match of weeks was made, third quarter 1998 sales would have been up 8.3% over the same timeframe in 1997 and the first three quarters of 1998 sales would have been up 5.3% over year-to-date sales in 1997. Both the quarterly and year-to-date increases in net sales are attributable to improved customer traffic in the portrait studios and higher average sales per customer due in part to price increases and greater customer acceptance of various portrait programs. Portrait Studios continued to show accelerating sales increases for the third quarter and into the fourth quarter. The Company estimates sales for Portrait Studios for the 20-week period ending December 12, 1998 to increase 11.5% over the comparable calendar period of 1997. Wall Decor 1998 sales were up 5.0% and 6.1% from the third quarter 1997 and first three quarters of 1997, respectively. Both the quarterly and year-to-date increases in net sales 7 reflected favorable customer responses to new products. SELECTED FINANCIAL DATA (in thousands of dollars except share and per share amounts) Sixteen-weeks Ended November 14, 1998 and November 8, 1997
Sixteen-weeks Ended ----------------------------------------- Nov. 14, Nov. 8, Amount Percent 1998 1997 Change Change (Fav/(Unfav)) --------- --------- --------- ------- Operating earnings (loss): Portrait Studios $ 13,577 $ 10,209 $ 3,368 33.0% Wall Decor (674) (904) 230 25.4% --------- --------- --------- Total operating earnings 12,903 9,305 3,598 38.7% General corporate expenses 4,879 3,992 (887) (22.2%) Interest in joint venture loss -- 1,474 1,474 100.0% Interest expense 1,415 1,436 21 1.5% Interest income 1,104 725 379 52.3% Loss on sale of interest in Photofinishing segment -- 4,189 4,189 100.0% Other income 1,596 628 968 154.1% --------- --------- --------- Earnings (loss) before income taxes 9,309 (433) 9,742 Income tax expense 3,258 292 (2,966) --------- --------- --------- Net earnings (loss) $ 6,051 $ (725) $ 6,776 ========= ========= ========= Net earnings (loss) per share: Diluted $ 0.59 $ (0.06) $ 0.65 ========= ========= ========= Basic $ 0.61 $ (0.06) $ 0.67 ========= ========= ========= Weighted average number of shares outstanding (in thousands of shares): Diluted 10,200 11,871 (1,671) ========= ========= ========= Basic 9,961 11,871 (1,910) ========= ========= =========
8 SELECTED FINANCIAL DATA (in thousands of dollars except share and per share amounts) Forty-weeks Ended November 14, 1998 and November 8, 1997
Forty-weeks Ended ---------------------------------------- Nov. 14, Nov. 8, Amount Percent 1998 1997 Change Change (Fav/(Unfav)) --------- --------- --------- ------- Operating earnings (loss) Portrait Studios $ 20,099 $ 19,873 $ 226 1.1% Wall Decor (2,620) (3,196) 576 18.0% --------- --------- --------- Total operating earnings 17,479 16,677 802 4.8% General corporate expenses 10,056 9,898 (158) (1.6%) Interest in joint venture loss -- 3,304 3,304 100.0% Interest expense 3,557 3,351 (206) (6.1%) Interest income 2,734 1,125 1,609 143.0% Loss on sale of interest in Photofinishing segment -- 4,189 4,189 100.0% Other income 4,065 877 3,188 363.5% --------- --------- --------- Earnings (loss) before income taxes 10,665 (2,063) 12,728 Income tax expense (benefit) 3,733 (311) (4,044) --------- --------- --------- Net earnings (loss) $ 6,932 $ (1,752) $ 8,684 ========= ========= ========= Net earnings (loss) per share: Diluted $ 0.68 $ (0.15) $ 0.83 ========= ========= ========= Basic $ 0.70 $ (0.15) $ 0.85 ========= ========= ========= Weighted average number of shares outstanding (in thousands of shares): Diluted 10,246 11,794 (1,548) ========= ========= ========= Basic 9,963 11,794 (1,831) ========= ========= =========
9 OPERATING EARNINGS - ------------------ Primarily reflecting an increase in the Portrait Studios segment, quarterly and year-to-date operating earnings for 1998 were up 38.7% and 4.8% from the third quarter 1997 and first three quarters of 1997, respectively. Portrait Studios operating earnings increased 33.0% and 1.1% for the third quarter 1998 and first three quarters of 1998, respectively, from 1997. If operating earnings were adjusted to show the effect of the one-week shift previously discussed, operating earnings for both the third quarter and year-to-date 1998 would have been lower than those recorded in the same timeframes in 1997. This decrease in both the third quarter and first three quarters operating earnings for the Portrait Studio division is due to higher employment and employment related costs which resulted from improving customer service. If sales for the last eight weeks of the fiscal year maintain the 11.5% growth pace established during the third quarter 1998 and first four weeks of the fourth quarter of 1998, total sales for Portrait Studios will approach $324 million for the 52-week 1998 fiscal year compared to the $303.7 million recorded in the 53- week 1997 fiscal year. However, due to the increased costs previously mentioned, the Company is estimating full-year operating margins to be 1% to 2% of sales lower in 1998 than in 1997. Wall Decor operating losses decreased for the third quarter and first three quarters of 1998 from the third quarter and first three quarters of 1997. Both the quarterly and year-to-date changes in operating earnings reflect higher sales offset slightly by higher employment and occupancy costs. NET EARNINGS - ------------ Net earnings before income taxes were $9.3 million in the third quarter 1998 compared to third quarter 1997 net losses before income taxes of $433,000. In addition, year-to-date, net earnings before income taxes were $10.7 million compared to $2.1 million in net losses before taxes recorded in the first three quarters of 1997. For both the third quarter and year-to-date, improved earnings resulted from an increase in operating earnings; an increase in interest income, which reflected the imputed interest from the Kodak Note receivable; an increase in other income, which reflected the amortization of the Non-Compete Agreement; and the absence of both the loss on sale of interest in the photo- finishing segment and the Company's share of operating losses from the interest in the Fox joint venture. For further 10 information regarding the effects of the dissolution of the joint venture, see the Management's Discussion and Analysis - Overview section entitled "Joint Venture." EARNINGS PER SHARE - ------------------ On a diluted basis, earnings per share for both the third quarter and the year-to-date reflected a reduction in the weighted average shares outstanding primarily due to the repurchase of stock through the Dutch Auction tender offer completed in January 1998 and subsequent shares repurchased in third quarter 1998. In addition, 1997 third quarter and year-to-date income taxes reflected the impact of factors related to the disposition of the Fox Photo joint venture. The aggregate of the first, second and third quarter diluted earnings per share does not equal year-to-date earnings per share due to the effect of outstanding stock options being antidilutive in the first quarter and the change in weighted number of shares outstanding. MANAGEMENT'S DISCUSSION & ANALYSIS-FINANCIAL CONDITION AND CASH - --------------------------------------------------------------- FLOW - ---- Total assets, total liabilities and stockholders' equity for third quarter 1998 were relatively unchanged from year-end. However, stockholders' equity at the end of third quarter 1998 reflected a decrease from the same time last year as a result of the Dutch Auction tender offer completed in January 1998 and subsequent repurchase of stock in third quarter 1998. 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 Debt Agreement will commence in 2001. Borrowings under the Revolving Credit Agreement for both the third quarter and first three quarters of 1998 have been nominal. In April 1998, one of the three domestic banks that was involved in the Company's Revolving Credit Agreement exited the market for this type of loan agreement. The two remaining banks elected to increase their respective shares of the Revolving Credit Agreement, leaving the amount unchanged. The Company believes it has sufficient liquidity and capital resources to meet planned capital expenditures, normal working capital requirements and dividends to shareholders. In addition, the Company expects a substantial increase in liquidity in fourth quarter 1998 as the $43.9 million Note Receivable from Eastman Kodak is due in January 1999. 11 CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (in thousands of dollars except share and per share amounts) Sixteen-weeks ended November 14, 1998 and November 8, 1997
Sixteen-weeks Ended ------------------------ Nov. 14, Nov. 8, 1998 1997 ------------ ----------- Net sales $ 124,005 $ 108,156 Costs and expenses: Cost of sales (exclusive of depreciation expense shown below) 17,314 17,079 Selling, administrative and general expenses 89,480 76,474 Depreciation 8,867 8,598 Amortization 320 692 ------------ ----------- 115,981 102,843 ------------ ----------- Income from operations 8,024 5,313 Net interest expense 311 711 Interest in joint venture loss - 1,474 Loss on sale of interest in Photo- finishing segment - 4,189 Other income 1,596 628 ------------ ----------- Earnings (loss) before income taxes 9,309 (433) Income tax expense 3,258 292 ------------ ----------- Net earnings (loss) $ 6,051 $ (725) ============ =========== Earnings (loss) per common share - diluted $ 0.59 $ (0.06) ============ =========== Weighted average number of common and common equivalent shares outstanding - diluted 10,200,465 11,870,663 ============ =========== Earnings (loss) per common share - basic $ 0.61 $ (0.06) ============ =========== Weighted average number of common and common equivalent shares outstanding - basic 9,960,810 11,870,663 ============ =========== See accompanying notes to consolidated financial statements.
12 CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (in thousands of dollars except share and per share amounts) Forty-weeks ended November 14, 1998 and November 8, 1997
Forty-weeks Ended ------------------------ Nov. 14, Nov. 8, 1998 1997 ----------- ----------- Net sales $ 268,356 $ 246,824 Costs and expenses: Cost of sales (exclusive of depreciation expense shown below) 39,404 41,433 Selling, administrative and general expenses 198,407 175,792 Depreciation 22,136 21,188 Amortization 986 1,632 ----------- ----------- 260,933 240,045 ----------- ----------- Income from operations 7,423 6,779 Net interest expense 823 2,226 Interest in joint venture loss - 3,304 Loss on sale of interest in Photo- finishing segment - 4,189 Other income 4,065 877 ----------- ----------- Earnings (loss) before income taxes 10,665 (2,063) Income tax expense (benefit) 3,733 (311) ----------- ----------- Net earnings (loss) $ 6,932 $ (1,752) =========== =========== Earnings (loss) per common share- diluted $ 0.68 $ (0.15) =========== =========== Weighted average number of common and common equivalent shares outstanding - diluted 10,246,209 11,794,471 =========== =========== Earnings (loss) per common share- basic $ 0.70 $ (0.15) =========== =========== Weighted average number of common and common equivalent shares outstanding - basic 9,963,052 11,794,471 =========== =========== See accompanying notes to consolidated financial statements.
13 CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS - ASSETS (UNAUDITED) (in thousands of dollars)
Nov. 14, Nov. 8, Feb. 7, 1998 1997 1998 ----------- ------------ ----------- Current assets: Cash $ 675 $ 1,732 $ 1,176 Short-term investments 9,572 33,624 14,117 Receivables less allowance of $491, $706 and $291, respectively 22,734 21,543 11,665 Notes receivable 43,461 40,347 41,085 Inventories 20,990 23,110 18,044 Prepaid expenses and other current assets 9,239 10,403 8,139 Deferred income taxes, net 142 - 180 Refundable income taxes - 2,644 - ----------- ------------ ----------- Total current assets 106,813 133,403 94,406 ----------- ------------ ----------- Net property and equipment 113,183 125,576 124,718 Other assets: Intangible assets, net 636 674 665 Other long-term assets 8,269 4,805 8,972 ----------- ------------ ----------- Total assets $ 228,901 $ 264,458 $ 228,761 =========== ============ =========== See accompanying notes to consolidated financial statements.
14 CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS - LIABILITIES (UNAUDITED) (in thousands of dollars)
Nov. 14, Nov. 8, Feb. 7, 1998 1997 1998 ----------- ------------ ---------- Current liabilities: Current maturities of long-term obligations $ - $ 1,250 $ - Accounts payable 18,797 18,121 13,565 Accrued expenses and other liabilities 29,635 29,514 24,863 Income taxes 2,218 - 9,014 Deferred income taxes, net - 301 - ----------- ------------ ---------- Total current liabilities 50,650 49,186 47,442 ----------- ------------ ---------- Long-term obligations, less current maturities 59,547 59,798 59,482 Other liabilities 12,951 13,142 17,314 Deferred income taxes, net 3,905 6,727 2,431 ----------- ------------ ---------- Total liabilities $ 127,053 $ 128,853 $ 126,669 ----------- ------------ ---------- See accompanying notes to consolidated financial statements.
15 CPI CORP. INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS - STOCKHOLDERS' EQUITY (UNAUDITED) (in thousands of dollars except share amounts)
Nov.14, 1998 Nov.8, 1997 Feb.7, 1998 ------------ ------------ ----------- 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; 17,693,990, 17,482,495 and 17,499,137 shares outstanding at Nov. 14, 1998, Nov. 8, 1997 and Feb. 7, 1998, respectively 7,078 6,993 6,999 Additional paid-in capital 40,975 37,332 37,614 Retained earnings 228,774 213,230 226,032 Cumulative foreign currency translation adjustment (3,747) (2,521) (2,751) ----------- ------------ ----------- 273,080 255,034 267,894 Treasury stock at cost, 7,864,261, 5,611,832 and 7,612,047 shares at Nov. 14, 1998, Nov. 8, 1997 and Feb. 7, 1998, respectively (171,184) (119,280) (165,789) Unamortized deferred compensation-restricted stock (48) (149) (13) ----------- ------------ ----------- Total stockholders' equity 101,848 135,605 102,092 ----------- ------------ ----------- Total liabilities and stockholders' equity $ 228,901 $ 264,458 $ 228,761 =========== ============ =========== See accompanying notes to consolidated financial statements.
16 CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands of dollars) Forty-weeks ended November 14, 1998 and November 8, 1997
40-Weeks Ended -------------------- Nov. 14, Nov. 8, 1998 1997 --------- --------- Cash flows provided by operating activities $ 12,245 $ 11,549 Cash flows provided by (used in) financing activities: Proceeds of long-term borrowings - 61,909 Repayment of long-term obligations - (55,951) Issuance of common stock to employee stock plans 3,439 4,146 Cash dividends (4,190) (4,923) Purchase of treasury stock (5,395) (1,145) --------- --------- Cash flows provided by (used in) financing activities (6,146) 4,036 --------- --------- Cash flows used in investing activities: Additions to property and equipment (10,601) (16,001) Noncompete agreement - 10,000 Advance payment from venture - 4,000 Issuance of restricted stock (53) - --------- --------- Cash flows used in investing activities (10,654) (2,001) --------- --------- Effect of exchange rate changes on cash and equivalents (490) (151) --------- --------- Net increase (decrease) in cash and cash equivalents (5,045) 13,433 Cash and cash equivalents at beginning of year 15,292 21,923 --------- --------- Cash and cash equivalents at end of period $ 10,247 $ 35,356 ========= ========= Supplemental cash flow information: Interest paid $ 2,241 $ 2,786 ========= ========= Income taxes paid $ 9,329 $ 7,109 ========= ========= See accompanying notes to consolidated financial statements.
17 CPI CORP. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS RECONCILIATION OF NET EARNINGS TO CASH FLOWS PROVIDED BY OPERATING ACTIVITIES (UNAUDITED) (in thousands of dollars) Forty-weeks ended November 14, 1998 and November 8, 1997
40-Weeks Ended ------------------- Nov. 14, Nov. 8, 1998 1997 --------- -------- Net earnings (loss) from operations $ 6,932 $(1,752) Adjustments for items not requiring cash: Depreciation and amortization 23,123 22,821 Deferred income taxes 1,513 778 Deferred compensation (517) (1,809) Interest in joint venture loss - 3,304 Loss on sale of interest in photofinishing segment - 4,189 Amortization of noncompete agreement (3,846) (522) Amortization of discount on note receivable (2,376) (312) Other (677) (2,838) Increase in current assets: Receivables and inventories (14,015) (11,995) Prepaid expenses and other current assets (1,099) (1,300) Refundable income taxes - (2,644) Increase (decrease) in current liabilities: Accounts payable, accrued expenses and other liabilities 10,003 8,778 Income taxes (6,796) (5,149) -------- -------- Cash flows from operations $12,245 $11,549 ======== ======== See accompanying notes to consolidated financial statements.
18 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 Forty-weeks ended November 14, 1998
Add'l Common Paid-In Retained Stock Capital Earnings ------- -------- --------- 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 (25,602 shares) 10 528 - Stock bonus plan (3,936 shares) 2 93 - Employee stock plans(165,315 shares) 67 2,740 - Foreign currency translation - - - Dividends ($0.42 per common share) - - (4,190) Net earnings - - 6,932 Purchase of treasury stock, at cost - - - Amortization of deferred compensation-restricted stock - - - ------- -------- --------- Balance at November 14, 1998 $7,078 $40,975 $228,774 ======= ======== ========= See accompanying notes to consolidated financial statements.
19 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 Forty-weeks ended November 14, 1998
Cumulative Foreign Currency Treasury Translation Stock Adjustment At Cost ----------- ---------- 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 (25,602 shares) - - Stock bonus plan (3,936 shares) - - Employee stock plans(165,315 shares) - - Foreign currency translation (996) - Dividends ($0.42 per common share) - - Net earnings - - Purchase of treasury stock, at cost - (5,395) Amortization of deferred compensation-restricted stock - - ----------- ---------- Balance at November 14, 1998 $ (3,747) $(171,184) =========== ========== See accompanying notes to consolidated financial statements.
20 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 Forty-weeks ended November 14, 1998
Deferred Compensation- Restricted Stock Total ------------- ---------- 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 (25,602 shares) - 538 Stock bonus plan (3,936 shares) - 95 Employee stock plans(165,315 shares) (53) 2,754 Foreign currency translation - (996) Dividends ($0.42 per common share) - (4,190) Net earnings - 6,932 Purchase of treasury stock, at cost - (5,395) Amortization of deferred compensation-restricted stock 18 18 ----------- ---------- Balance at November 14, 1998 $ (48) $ 101,848 =========== ========== See accompanying notes to consolidated financial statements.
21 CPI CORP. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for a fair presentation of the Company's financial position as of November 14, 1998, November 8, 1997 and February 7, 1998 and the results of its operations and changes in its cash flows for the 40 weeks ended November 14, 1998 and November 8, 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:
----- 40-weeks ended ------ Nov. 14, 1998 Nov. 8, 1997 ------------- -------------- Interest expense $ 3,557 $ 3,351 Interest income (2,734) (1,125) ----------- -------------- Net interest expense $ 823 $ 2,226 =========== ==============
3. Short-term investments are comprised of money market instruments which aggregated $9.6 million, $33.6 million and $14.1 million as of November 14, 1998, November 8, 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 third quarters of 1998 and 1997, $967,000 and $312,000, respectively, in amortization related to the Promissory Note was recognized. In addition $2.4 million and $312,000 were recognized for the first three quarters of 1998 and 1997, respectively. On a prospective basis, $2.8 million will be recognized for all of 1998. 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 22 agreement. During the third quarters of 1998 and 1997, amortization of the Noncompetition and Nonsolicitation Agreement amounted to $1.5 million and $522,000, respectively. For the first three quarters of 1998 and 1997, amortization amounted to $3.8 million and $522,000, respectively. Prospectively, the Company will recognize $5.0 million and $3.2 million in amortization, respectively, in fiscal years 1998 and 1999. 5. During the first quarter of 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. Comprehensive income (loss) for the third quarters of 1998 and 1997 was $5.7 million and ($1.0) million, respectively. For the first three quarters of 1998 and 1997, comprehensive income (loss) was $5.9 million and ($2.4) million, respectively. 23 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 Sixteen-weeks ended November 14, 1998 and November 8, 1997 Exhibit 11.2 - Computation of Earnings per Common Share - Diluted Forty-weeks ended November 14, 1998 and November 8, 1997 Exhibit 11.3 - Computation of Earnings per Common Share - Basic Sixteen-weeks ended November 14, 1998 and November 8, 1997 Exhibit 11.4 - Computation of Earnings per Common Share - Basic Forty-weeks ended November 14, 1998 and November 8, 1997 Exhibit 27.1 - Financial Data Schedule b) REPORTS ON FORM 8-K - On September 1, 1998, CPI Corp. reported the issuance of a press release on August 25, 1998 announcing: second quarter results from operations, diluted EPS 13 cents versus prior-year 12 cents, lower operating earnings offset by other income and reduced expenses, and encouraging trends in Sears Portrait Studio sales. 24 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: December 22, 1998 25
CPI CORP. EXHIBIT INDEX Exhibit 11.1 - Computation of Earnings per Common 27 Share - Diluted Sixteen-weeks ended November 14, 1998 and November 8, 1997 Exhibit 11.2 - Computation of Earnings per Common 28 Share - Diluted Forty-weeks ended November 14, 1998 and November 8, 1997 Exhibit 11.3 - Computation of Earnings per Common 29 Share - Basic Sixteen-weeks ended November 14, 1998 and November 8, 1997 Exhibit 11.4 - Computation of Earnings per Common 30 Share - Basic Forty-weeks ended November 14, 1998 and November 8, 1997 Exhibit 27.1 - Financial Data Schedule 31
26 EX-11.1 2 COMPUTATION OF EARNINGS PER SHARE-DILUTED EXHIBIT 11.1 CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE - DILUTED (in thousands of dollars or shares except per share amounts) Sixteen-weeks Ended November 14, 1998 and November 8, 1997
Sixteen-weeks Ended ---------------------- Nov. 14, Nov. 8, 1998 1997 --------- --------- Diluted: Net earnings (loss) applicable to common shares $ 6,051 $ (725) ========= ========= Shares: Weighted average number of common shares outstanding 17,677 17,483 Shares issuable under employee stock plans - weighted average 41 --* Dilutive effect of exercise of certain stock options 198 --* Less: Treasury stock-weighted average (7,716) (5,612) --------- --------- Weighted average number of common and common equivalent shares outstanding 10,200 11,871 ========= ========= Net earnings (loss) per common and common equivalent shares $ 0.59 $ (0.06) ========= ========= * The dilutive effect of 40,290 stock options as well as 293,563 shares issuable under employee stock plans was not considered as the effect is antidilutive.
27 EX-11.2 3 COMPUTATION OF EARNINGS PER SHARE-DILUTED EXHIBIT 11.2 CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE - DILUTED (in thousands of dollars or shares except per share amounts) Forty-weeks Ended November 14, 1998 and November 8, 1997
Forty-weeks Ended ---------------------- Nov. 14, Nov, 8, 1998 1997 --------- --------- Diluted: Net earnings (loss) applicable to common shares $ 6,932 $ (1,752) ========= ========= Shares: Weighted average number of common shares outstanding 17,624 17,378 Shares issuable under employee stock plans - weighted average 37 --* Dilutive effect of exercise of certain stock options 246 --* Less: Treasury stock-weighted average (7,661) (5,584) --------- --------- Weighted average number of common and common equivalent shares outstanding 10,246 11,794 ========= ========= Net earnings (loss) per common and common equivalent shares $ 0.68 $ (0.15) ========= ========= * The dilutive effect of 34,750 stock options as well as 179,419 shares issuable under Employee Stock Plans was not considered as the effect is antidilutive.
28 EX-11.3 4 COMPUTATION OF EARNINGS PER SHARE-BASIC EXHIBIT 11.3 CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE - BASIC (in thousands of dollars or shares except per share amounts) Sixteen-weeks Ended November 14, 1998 and November 8, 1997
Sixteen-weeks Ended ---------------------- Nov. 14, Nov. 8, 1998 1997 --------- --------- Basic: Net earnings (loss) applicable to common shares $ 6,051 $ (725) ========= ========= Shares: Weighted average number of common shares outstanding 17,677 17,483 Less: Treasury stock - weighted average (7,716) (5,612) --------- --------- Weighted average number of common and common equivalent shares outstanding 9,961 11,871 ========= ========= Net earnings (loss) per common and common equivalent shares $ 0.61 $ (0.06) ========= =========
29 EX-11.4 5 COMPUTATION OF EARNINGS PER SHARE-BASIC EXHIBIT 11.4 CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE - BASIC (in thousands of dollars or shares except per share amounts) Forty-weeks Ended November 14, 1998 and November 8, 1997
Forty-weeks Ended ---------------------- Nov. 14, Nov. 8, 1998 1997 --------- --------- Basic: Net earnings (loss) applicable to common shares $ 6,932 $ (1,752) ========= ========= Shares: Weighted average number of common shares outstanding 17,624 17,378 Less: Treasury stock - weighted average (7,661) (5,584) --------- --------- Weighted average number of common and common equivalent shares outstanding 9,963 11,794 ========= ========= Net earnings (loss) per common and common equivalent shares $ 0.70 $ (0.15) ========= =========
30 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 1000 FEB-06-1999 FEB-08-1998 NOV-14-1998 9-MOS 675 9,572 66,686 491 20,990 106,813 250,275 (137,092) 228,901 50,650 0 0 0 7,078 94,770 228,901 268,356 268,356 39,404 260,933 0 0 3,557 10,665 3,733 6,932 0 0 0 6,932 0.70 0.68
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