CPI CORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED JULY 24, 2004

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-10204

CPI Corp.
(Exact name of registrant as specified in its charter)

Delaware		43-1256674
(State of Incorporation)		(I.R.S. Employer Identification No.)

1706 Washington Ave., St. Louis, Missouri		63103
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (314) 231-1575

Indicate by check mark whether the Registrant [1] has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and [2] has been subject to such filing requirements for the past 90 days.

|X| Yes |_| No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

|X| Yes |_| No

As of August 27, 2004, the Registrant had 7,750,198 common shares outstanding.

CPI CORP.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
12 Weeks and 24 Weeks Ended July 24, 2004

			Page


PART 1. FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Interim Condensed Consolidated Balance Sheets July 24, 2004 (Unaudited) and February 7, 2004	1

		Interim Condensed Consolidated Statements of Operations (Unaudited) 12 and 24 Weeks Ended July 24, 2004 and July 19, 2003	3

		Interim Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) 24 Weeks Ended July 24, 2004	4

		Interim Condensed Consolidated Statements of Cash Flows (Unaudited) 24 Weeks Ended July 24, 2004 and July 19, 2003	5

		Notes to Interim Condensed Consolidated Financial Statements (Unaudited)	7

	Item 2.	Management’s Discussions and Analysis of Financial Condition and Results of Operations	16

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28

	Item 4.	Disclosure Controls and Procedures	28

PART II. OTHER INFORMATION

	Item 4.	Results of Votes of Security Holders	29

	Item 6.	Exhibits and Reports on Form 8-K	30

Signatures			31

Exhibit Index			32

CPI CORP.
Interim Condensed Consolidated Balance Sheets – Assets

PART I. FINANCIAL INFORMATION

Item 1 Financial Statements

*thousands*			July 24, 2004 (Unaudited)			February 7, 2004


ASSETS
Current assets:
	Cash and cash equivalents			$	14,826		$	51,011
	Accounts receivable:
		Due from licensor stores			8,103			7,447
		Other			182			59
	Inventories				10,050			11,858
	Prepaid expenses and other current assets				6,795			7,488
	Refundable income taxes				7,741			2,166
	Deferred tax assets				7,896			11,947


	Total current assets				55,593			91,976


Property and equipment:
	Land				2,765			2,765
	Building improvements				26,519			26,520
	Leasehold improvements				7,560			6,571
	Photographic, sales and manufacturing equipment				205,377			210,745

		Total			242,221			246,601
	Less accumulated depreciation and amortization				197,975			193,866

		Property and equipment, net			44,246			52,735
Assets of business transferred under contractual arrangements:
	Preferred Security				7,000			7,000
	Accrued dividends on Preferred Security				350			60
	Loan receivable				3,539			1,915
Assets of supplemental retirement plan:
	Cash surrender value of life insurance policies (net of borrowings of $1,548 at February 7, 2004)				—			11,396
	Other investments				11,542			95
Other assets, net of amortization of $1,359 at both July 24, 2004 and February 7, 2004					9,514			2,052


		TOTAL ASSETS		$	131,784		$	167,229

See accompanying notes.

CPI CORP.
Interim Condensed Consolidated Balance Sheets – Liabilities and Stockholders’ Equity

*thousands, except share and per share data*							July 24, 2004 (Unaudited)				February 7, 2004


LIABILITIES
Current liabilities:
						Current maturities of long-term debt		$	8,580			$	8,580
						Accounts payable			10,949				15,294
						Accrued employment costs			15,359				12,297
						Customer deposit liability			24,766				24,897
					Sales taxes payable				1,190				2,524
					Accrued advertising expenses				2,389				1,803
				Accrued expenses and other liabilities					2,808				3,024


				Total current liabilities					66,041				68,419


Long-term debt, less current maturities									17,030				25,589
Accrued pension obligations									10,364				10,364
Supplemental retirement plan obligations									7,313				3,547
Customer deposit liability									4,096				4,769
Other liabilities									360				2,715


			Total liabilities						105,204				115,403


STOCKHOLDERS’ EQUITY
Preferred stock, no par value. 1,000,000 shares authorized; no shares outstanding									—				—
Preferred stock, Series A, no par value, 200,000 shares authorized; no shares outstanding									—				—
Common stock, $0.40 par value. 50,000,000 shares authorized; 18,422,434 and 18,360,238 shares issued at July 24, 2004 and February 7, 2004, respectively									7,369				7,344
Additional paid in capital									53,167				52,272
Retained earnings									209,896				230,394
Accumulated other comprehensive loss									(9,818	)			(9,599	)

									260,614				280,411
Treasury stock - at cost, 10,672,236 and 10,292,503 shares at July 24, 2004 and February 7, 2004, respectively									(234,031	)			(228,577	)
Unamortized deferred compensation- restricted stock									(3	)			(8	)

		Total stockholders’ equity							26,580				51,826

	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY							$	131,784			$	167,229

See accompanying notes.

CPI CORP.
Interim Condensed Consolidated Statements of Operations
(Unaudited)

		12 Weeks Ended					24 Weeks Ended

*thousands, except share and per share data*		July 24, 2004			July 19, 2003		July 24, 2004			July 19, 2003

Net sales		$	48,621		$	60,896	$	103,546		$	117,076

Cost and expenses:
	Cost of sales (exclusive of depreciation and amortization shown below)		6,579			7,822		14,229			15,583
	Selling, general and administrative expenses		42,650			49,218		88,365			96,989
	Depreciation and amortization		3,681			3,763		7,546			7,771
	Other charges and impairments		3,941			—		13,504			—

			56,851			60,803		123,644			120,343

Income (loss) from continuing operations			(8,230	)		93		(20,098	)		(3,267	)

Interest expense			532			715		1,131			1,484