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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended February 5, 1994
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 Avenue
St. Louis, Missouri 63103-1790
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 231-1575
-------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------ -----------------------
Common Stock $.40 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes _____ No __X__.
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 (or
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 _____.
Aggregate market value of the Registrant's voting stock held by
non-affiliates, based upon the closing price of said stock on the
New York Stock Exchange - Composite Transaction Listing on
May 2, 1994 ($14.625 per share): $203,705,775.
As of May 2, 1994, 14,443,702 shares of the Common Stock,
$0.40 par value, of the Registrant were outstanding.
Documents Incorporated by Reference:
Portions of the Annual Report to Shareholders for the year ended
February 5, 1994, are incorporated by reference into Parts I and II
of this Report.
Portions of the Proxy Statement relating to the Annual Meeting
of Shareholders to be held June 7, 1994, are incorporated by
reference into Part III of this Report.
PAGE 1 OF 184
PAGES 13-19 OF THIS TRANSMISSION FILING CONTAINS THE EXHIBIT INDEX
PAGE
TABLE OF CONTENTS
Page
----
Part I
- ------
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of
Security Holders 8
Part II
- -------
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Disagreements on Accounting and
Financial Disclosure 9
Part III
- --------
Item 10. Directors and Executive Officers of the Registrant 10
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners
and Management 12
Item 13. Certain Relationships and Related Transactions 12
Part IV
- -------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 13
Signatures 21
2
PAGE
PART I
ITEM I. BUSINESS
The Company
- -----------
CPI Corp. is a holding company engaged, through its
subsidiaries, in developing and marketing consumer services and
related products through a network of centrally-managed, small
retail locations. The Company operates professional portrait
studios, photographic finishing laboratories, electronic publishing
stores and wall decor locations.
The Company started up its photo finishing business in 1982.
On August 19, 1991, the Company acquired Fox Photo, Inc., and on
December 1, 1992, the Company purchased the operational assets of
Pemtom, Inc., a Minneapolis-based company operating under the name
Proex. At February 5, 1994, the Company operated 670
photo-finishing locations under the names of CPI Photo Finish, Fox
Photo and Proex.
On May 30, 1993, CPI Corp. entered the wall decor business
with the acquisition of Prints Plus, Inc. from the Melville
Corporation. Prints Plus is a poster, print and custom framing
retail chain with 103 stores located in malls throughout the United
States.
For the fiscal year ended February 5, 1994, approximately
49.90% of net sales and 76.92% of operating earnings (before
deduction of general corporate expenses, interest expense and
provision for income taxes) were derived from the Sears Portrait
Studio business. The Company has operated portrait studios as a
Sears licensee since 1961, when it was one of more than 15 Sears
portrait photography licensees. Today, the Company is the only
operator of Sears Portrait Studios in the United States. The
Company is materially dependent upon the continued goodwill of
Sears and the integrity of the Sears name in the retail
marketplace. The Company believes that its relationship with Sears
is excellent and that it has been beneficial to both companies.
See "Business-Relationship With Sears."
The executive office is located at 1706 Washington Avenue,
St. Louis, Missouri, 63103-1790, and its telephone number is (314)
231-1575. Unless the context otherwise requires, references herein
to the "Company" or "CPI Corp." mean CPI Corp., its consolidated
subsidiaries and their predecessor companies.
3
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Relationship With Sears
- -----------------------
The Company operates its Sears Portrait Studio business under
a license agreement. The agreement is terminable by either the
Company or Sears with respect to any or all studios upon 90-days
notice. Early in 1993, Sears announced plans to close 113 stores,
which included 38 Sears stores with portrait studios. The Company
has relocated some of these studios to new sites in the same market
areas. Except in connection with store closings, Sears has never
terminated the operation of any Company studio under any license
agreement. The relationship with Sears is long-standing and the
Company has no reason to believe that Sears will exercise its
rights under the agreement to reduce materially the scope of the
Company's business with Sears.
The Company and Sears entered into its current license
agreement for fixed location studios as of January 1, 1994. This
agreement expires on December 31, 1998. The agreement provides
that the Company pay Sears a license fee of 15% of total annual net
sales per studio. Net sales are defined as gross sales less
customer returns, allowances and sales taxes. The total commission
paid is subject to adjustment to reflect the mutual commitments of
Sears and the Company to cooperate in implementation of their
respective strategic plans for expansion, renovation, technological
innovation and marketing over the five year term of the Agreement.
The Company provides all studio furniture, equipment and fixtures
and conducts advertising at its own expense. The Company is
responsible for hiring, training and compensating the Company
employees and must indemnify Sears against all said employee
claims.
The Company's freestanding studios in retail malls that
operate under the Sears name pay a license fee of 7.5% of total
annual net sales per studio and benefit from advertising under the
Sears name. Customers may use their Sears credit cards at these
studios as well.
All of the Company's Canadian studios operate under an April
6, 1977, nonexclusive license agreement with Sears Canada, Inc.,
which is a subsidiary of Sears. The agreement renews automatically
on a year-to-year basis but is terminable by either party on 60
days' notice. The license fee is 15% of net sales. The Company
provides all studio furniture, equipment and fixtures and conducts
all advertising at its own expense.
As a Sears licensee, the Company enjoys the benefits of its
use of the Sears name, Sears' daily cashiering and bookkeeping
system, store security services and customers' ability to use their
Sears credit cards to purchase the Company's products or services,
for which Sears bears the credit risk of authorized credit card
use. The Company is also able to place its portrait studio print
media advertising under the Sears name at rates lower than those
4
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the Company could otherwise obtain.
Competition
- -----------
The Company competes in the portrait photography business
with a number of companies that operate fixed location, traveling
and freestanding photography studios. Independent professional
photographers also compete with the Company in various locations.
The Company believes that its portrait photography products are
competitive in terms of price, quality and convenience of purchase
with comparable products of its competitors.
Other national, regional and local companies operate rapid
photographic finishing laboratories that compete in local markets
with the laboratories that the Company is operating. The Company
has identified two principal kinds of competitors - independent
entrepreneur/franchisees who own their minilabs and other major
photofinishers. The Company believes that the quality of its
products enables it to compete successfully and that its marketing
strategy permits effective competition with the other major
photofinishers. The Company enhances the quality of its products
by carefully training and supervising minilab technicians and by
using quality control checks during the photo development and
printing process. While it is felt that the Company competes
successfully in terms of quality, photofinishers who use the
services of a mass production lab are able to finish photographs in
large volume which enables them to sell their photofinishing
services at a lower price. To compete with the other major
photofinishers, the Company has developed a marketing strategy of
locating minilabs in regional retail malls and strip shopping
centers convenient to their target customers, quality conscious
35mm camera users. In addition, by locating these minilabs in a
number of locations in selected metropolitan areas, the Company
also benefits from area-wide marketing and supervision.
The Company's primary competition in the electronic
publishing business is highly fragmented among franchise locations
and numerous individual, owner-operated locations which provide
printing and copy services throughout the United States. The
Company feels it provides efficient, personal service because of
more convenient access to its full range of state-of-the-art
copying equipment.
The Company competes with numerous national, regional and
local framing retailers serving the wall decor segment of the home
furnishings market. The primary competitors in this business are
franchise locations, small regional chains and many individual
stores which focus on custom framing. Other competitors in this
segment include mass merchants and other specialty home furnishings
stores which offer a fixed selection of pre-framed prints. The
Company believes it competes successfully in this segment by
offering a large selection of prints and frames, fast custom
5
PAGE
framing service and very competitive pricing.
Supplier Relationships
- ----------------------
The Company purchases photographic paper and film for its
studio and minilab operations primarily from one major
manufacturer. The Company purchases camera, printing, minilab,
reprographic and other equipment and supplies from a number of
suppliers and is not dependent upon any supplier for any specific
kind of equipment. The Company has had no difficulty in the past
obtaining sufficient material to conduct its businesses. The
Company believes that its relations with its suppliers are good.
Seasonality
- -----------
The Company's professional portrait photography business is
seasonal, with the largest volume of sales occurring in the third
and fourth fiscal quarters during the periods preceding and
including the Thanksgiving/Christmas season. The photofinishing
business seasonality is reflected in sales increases in the second
quarter of the fiscal year, in the Thanksgiving/Christmas season
and in sales decreases in the first quarter of the fiscal year.
The seasonality of the wall decor business is exhibited by
increased sales in the third and fourth fiscal quarters as well.
Employees
- ---------
At February 5, 1994, the Company had approximately 10,700
employees, of whom approximately 5,200 were part-time. The
Company's employees significantly increase in number during peak
periods and, at December 18, 1993, the Company had approximately
15,500 employees. The Company's employees are not members of any
union and the Company has experienced no work stoppages. The
Company believes that its relations with its employees are good.
Additional information required under this Item is contained in the
Registrant's 1993 Annual Report to Shareholders, pages 107 through
118 of this document.
6
PAGE
ITEM 2. PROPERTIES
The following table sets forth certain information concerning
the Company's principal facilities:
Principal Facilities
Approximate
area in Primary Ownership
Location square feet Uses or lease
- ------------------- ------------ ------------------ ----------
St. Louis, Missouri 312,600 Administration and Owned
Photoprocessing
St. Louis, Missouri 79,000 Warehousing Leased (1)
St. Louis, Missouri 45,000 Warehousing Leased (2)
Brampton, Ontario 40,000 Administration and Owned
Photoprocessing
Las Vegas, Nevada 12,200 Photoprocessing Leased (3)
Thomaston, Connecticut 25,000 Administration and Owned
Photoprocessing
Edina, Minnesota 29,000 Administration, Leased (4)
Warehousing and
Photoprocessing
Concord, California 43,000 Administration, Leased (5)
Warehousing and
Manufacturing
(1) Lease term expires on June 30, 1997.
(2) Lease term expires on February 28, 1997.
(3) Lease term expires on July 31, 1996.
(4) Lease term expires on March 30, 1999.
(5) Lease term expires on March 31, 2002.
The Company operates its portrait studios in Sears stores
pursuant to the license agreement with Sears. See "Relationship
with Sears." The Company's other portrait studios, which are
located in shopping centers, are generally leased for at least
three years with some having renewal options. The Company's
minilab locations generally are leased for terms of three to seven
years and some have one or more renewal options. The electronic
publishing locations are generally leased for terms of five to
seven years with one or more renewal options and are commonly
situated in office buildings, multi-use complexes or downtown
7
PAGE
locations. The wall decor locations are generally in enclosed
regional malls with lease terms of ten years without renewal
options.
On an ongoing basis, the Company analyzes the use of its
facilities to assure operating economies, effective servicing of
its customers and necessary flexibility to meet present and future
demands of its businesses.
ITEM 3. LEGAL PROCEEDINGS
There are various suits pending against the Company, none of
which is material in nature. It is the opinion of management that
the ultimate liability, if any, resulting from such suits will not
materially affect the consolidated financial position or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders for a vote during
the fourth quarter of fiscal year 1993.
8
PAGE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information required under this Item is contained in the
Registrant's 1993 Annual Report to Shareholders, pages 174-177 of
this document, and will be contained in the Registrant's 1994 Proxy
Statement, to be dated within 120 days of the end of the
Registrant's fiscal year 1993, and incorporated herein by
reference.
As of April 15, 1994, the market price of the Registrant's
common stock was $14.875 per share with 14,433,704 shares
outstanding and approximately 2,645 holders of record.
ITEM 6. SELECTED FINANCIAL DATA
Information required under this Item is contained in the
Registrant's 1993 Annual Report to Shareholders, pages 127-134 of
this document, and incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information required under this Item is contained in the
Registrant's 1993 Annual Report to Shareholders, pages 135 through
144 of this document, and incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required under this Item is contained in the
Registrant's 1993 Annual Report to Shareholders, pages 145 through
177 of this document, and incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
9
PAGE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
- ---------
Information required under this Item will be contained in the
Registrant's 1994 Proxy Statement, to be dated within 120 days of
the end of the Registrant's fiscal year 1993, and is incorporated
herein by reference.
Executive and Other Principal Officers
- --------------------------------------
David E. April (51) Senior Executive Vice President.
Mr. April joined the Company in 1963
as a supervisor trainee and
subsequently became Vice President of
Laboratory Operations. In 1981, he
became Vice President and General
Manager of Laboratory Operations, in
February 1984, he became President of
the Laboratory Operations, and in
February 1987, he was named President
of Manufacturing. Effective February
1992, Mr. April was appointed Senior
Executive Vice President and is a
member of the Office of the President
and of the Executive Committee.
Patrick J. Morris (54) Senior Executive Vice President. Mr.
Morris joined the Company in May 1985
as its Executive Vice President -
Marketing. Effective February 1992,
he was appointed Senior Executive
Vice President, and is a member of
the Office of the President and of
the Executive Committee.
Barry C. Arthur (51) Executive Vice President - Finance
and Chief Financial Officer. Mr.
Arthur joined the Company in 1965
as an accountant and subsequently
became Controller. In 1981, he was
appointed Treasurer, and in July
1983, he was named Vice President -
Finance. He was appointed to his
current position effective February
1992 and is a member of the Executive
Committee.
10
PAGE
Jane E. Nelson (44)* Secretary and General Counsel. Ms.
Nelson joined the Company in 1988 as
Assistant General Counsel and served
as Associate General Counsel and
Assistant Secretary. She was promoted
to her current position in February
1993 and is a member of the Corporate
Development Council. Prior to coming
to CPI, Ms. Nelson was an associate
with the St. Louis law firm of Husch
and Eppenberger.
Fran Scheper (48) Executive Vice President - Human
Resources. Ms. Scheper joined the
Company in 1967 as Personnel
Assistant. She was promoted to
Assistant Personnel Director in 1982
and in January 1987 became Vice
President - Human Resources. She was
appointed to her current position in
February 1992 and is a member of the
Executive Committee.
The Company's officers serve at the pleasure of the Board of
Directors. There are no family relationships among the Company's
directors and executive and other principal officers.
* Pursuant to becoming an insider of the Company as of February
6, 1993, Jane E. Nelson timely filed a Form 3, however,
through clerical error the Form 3 failed to disclose 79 shares
of stock held indirectly in the Company's Profit Sharing Plan.
The omission was included in an Amendment to Form 3 filed ten
days late on February 26, 1994. No other incidents of late
filing occurred during the fiscal year to the best of the
Company's knowledge.
11
PAGE
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item will be contained in the
Registrant's 1993 Proxy Statement, to be dated within 120 days of
the end of the Registrant's fiscal year 1993, and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required under this Item will be contained in the
Registrant's 1994 Proxy Statement, to be dated within 120 days of
the end of the Registrant's fiscal year 1993, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
12
PAGE
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Index to Certain Documents
Index to Certain Documents
Document
Page Number
-------------
Annual Report
To
Shareholders*
-------------
(1) Independent Auditor's Report 178**
(2) Financial Statements:
(a) Consolidated Balance Sheets 145-146
as of February 5, 1994 and
February 6, 1993
(b) Consolidated Statements of 147
Earnings for the fiscal years
ended February 5, 1994,
February 6, 1993 and
February 1, 1992
(c) Consolidated Statements of 148-150
Changes in Stockholder's Equity
for the fiscal years ended
February 5, 1994,
February 6, 1993 and
February 1, 1992
(d) Consolidated Statements of 151-152
Cash Flows for the fiscal
years ended February 5, 1994,
February 6, 1993 and
February 1, 1992
(3) Notes to Consolidated Financial Statements 153-173
* Which pages are incorporated herein by reference.
** Also on Page 20 of this Form 10-K.
13
PAGE
Index to Certain Documents
Page Number
Form 10-K
-----------
(4) Financial Statement Schedules ***
I. Consolidated Short-Term
Investments 22-28
V. Consolidated Property and
Equipment 29-30
VI. Consolidated Accumulated
Depreciation of Property
and Equipment 31-32
VIII. Consolidated Allowance for
Uncollectible Receivables 33
X. Supplementary Consolidated
Earnings Statement Information 34
*** All other schedules and notes under Regulation S-X are
omitted because they are either not applicable, not
required, or the information called for therein appears in
the consolidated financial statements of notes thereto.
(b) Reports on Form 8-K
On December 23, 1993, the Company filed a Report on Form 8-K
with an attached press release announcing: a third quarter
decrease in earnings per share; a third quarter increase in
sales mainly due to acquisitions; expected fourth quarter
results below last year's and a $50 million investment in new
portrait studio technology and renovation.
14
PAGE
(c) Index to Exhibits
Index to Exhibits
Page Number
Form 10-K
-----------
3) Articles of Incorporation and Bylaws.
-------------------------------------
(a) Articles of Incorporation
Incorporated by reference to Exhibit 3
to the Company's Annual Report on
Form 10-K, dated April 27, 1990
(Commission File No. 1-10204)
(b) Bylaws
Incorporated by reference to Exhibit 3
to the Company's Annual Report on
Form 10-K, dated April 27, 1990
(Commission File No. 1-10204)
Amendment to Bylaws dated 35
February 3, 1994
4) Instruments Defining the Rights of
----------------------------------
Security Holders, Including Debentures.
---------------------------------------
(a) Articles of Incorporation and Bylaws.
Incorporated by reference to
Exhibit 3 to the Company's Annual
Report on Form 10-K, dated
April 27, 1990
(Commission File No. 1-10204)
(b) Note Agreement for Series A
Senior Notes Due August 31, 2000
($33,000,000) and Series B
Senior Notes due August 31, 2000
($27,000,000). Incorporated by
reference to Exhibit 4 to Form 10-Q,
filed September 3, 1993.
(Commission File No. 1-10204)
15
PAGE
Index to Exhibits
Page Number
Form 10-K
-----------
(c) Pledge Agreement. Incorporated by
reference to Exhibit 4 to Form 10-Q,
filed September 3, 1993.
(Commission File No. 1-10204)
(d) Collateral Agency and Intercreditor
Agreement. Incorporated by reference
to Exhibit 4 to Form 10-Q, filed
September 3, 1993.
(Commission File No. 1-10204)
(e) Series A Senior Note Due
August 31, 2000. No. R-A1 $33,000,000.
Incorporated by reference to Exhibit 4
to Form 10-Q, filed September 3, 1993.
(Commission File No. 1-10204)
(f) Series B Senior Note Due
August 31, 2000. No. R-B1 $22,500,000.
Incorporated by reference to Exhibit 4
to Form 10-Q, filed September 3, 1993.
(Commission File No. 1-10204)
(g) Series B Senior Note Due
August 31, 2000. No. R-B2 $4,500,000.
Incorporated by reference to Exhibit 4
to Form 10-Q, filed September 3, 1993.
(Commission File No. 1-10204)
(h) Revolving Credit Agreement. Incorporated
by reference to Exhibit 4 to Form 10-Q,
filed September 3, 1993.
(Commission File No. 1-10204)
(i) Revolving Credit Note. Incorporated
by reference to Exhibit 4 to Form 10-Q,
filed September 3, 1993.
(Commission File No. 1-10204)
16
PAGE
Index to Exhibits
Page Number
Form 10-K
-----------
(j) First Amendment to Rights Agreement.
Incorporated by reference to Exhibit 4
to Form 10-Q, filed September 3, 1993.
(Commission File No. 1-10204)
(k) CPI Corp. Shareholder Rights Plan.
Incorporated by reference to
Exhibit 8 to Form 8-A, filed
May 2, 1989.
(l) Amendment to CPI Corp. Shareholder 36-37
Rights Plan
10) Material Contracts
------------------
(a) Contract With Sears, Roebuck and Co. 38-87
17
PAGE
Index to Exhibits
Additional information required by this Item 10 is
incorporated by reference to the below listed documents with
corresponding filing date and registration or Commission file
numbers where applicable.
Registration/
Information Incorporated Document Filing Commission
by Reference Referred to Date File Numbers
- --------------------------- ------------- -------- ------------
(b) Employment Agreements- Annual Report 5/5/93 1-10204
A. Essman, R. Isaak, on Form 10-K
D. April, P. Morris, dated 4/30/93
B. Arthur
(c) CPI Corp. 1981 Stock Annual Report 5/5/93 1-10204
Bonus Plan (As Amended on Form 10-K,
and Restated on 2/3/91) dated 4/30/93
(d) Deferred Compensation Annual Report 5/1/92 1-10204
and Stock Appreciation on Form 10-K,
Rights dated 4/24/92
(e) Employment Termination Annual Report 5/1/92 1-10204
Agreement - S. Coovert on Form 10-K,
dated 4/24/92
(f) CPI Corp. Restricted Annual Report 5/1/92 1-10204
Stock Plan on Form 10-K,
dated 4/24/92
(g) Deferred Compensation Annual Report 5/1/92 1-10204
and Retirement Plan on Form 10-K,
for Non-Management dated 4/24/92
Directors
(h) Stock Purchase Form 8-K 3/25/91 -
Agreement - M. Bohm
(i) CPI Corp. Stock Option Form S-8 7/28/92 33-50082
Plan (As Amended and
Restated
effective 2/2/92)
(j) Registration of Form 8-A 3/21/89 -
Securities on the New
York Stock Exchange
(k) CPI Corp. Shareholder Exhibit to 5/2/89 -
Rights Plan Form 8-A
(l) CPI Voluntary Stock Form D 3/31/93 -
Option Plan
18
PAGE
Index to Exhibits
Page Number
Form 10-K
-----------
11) Computation of Earnings
Per Common Share 88
13) 1992 Annual Report to Shareholders 89-181
21) Subsidiaries of the Registrant 182-183
23) Accountants' Consent 184
19
PAGE
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
CPI Corp.:
Under date of April 6, 1994, we reported on the consolidated
balance sheets of CPI Corp. and subsidiaries as of February 5, 1994
and February 6, 1993, and the related consolidated statements of
earnings, changes in stockholders' equity, and cash flows for each
of the fiscal years in the three-year period ended February 5,
1994, as contained in the 1993 annual report to stockholders.
These consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K of CPI
Corp. for the 1993 fiscal year. In connection with our audits of
the aforementioned consolidated financial statements, we have also
audited the related financial statement schedules as listed in the
accompanying index. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statement schedules based
on our audits.
In our opinion, such financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the information
set forth therein.
/s/ KPMG PEAT MARWICK
St. Louis, Missouri
April 6, 1994
20
PAGE
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
BY: /s/ Alyn V. Essman
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated.
Signatures of Directors and Principal Officers
Signature Title Date
- ------------------- ------------------------ -------------
/s/ Alyn V. Essman Chairman of the Board, April 6, 1994
Chief Executive Officer
and Director (Principal
Executive Officer)
/s/ Milford Bohm Director April 6, 1994
/s/ Lee Liberman Director April 6, 1994
/s/ Nicholas L. Reding Director April 6, 1994
/s/ Robert L. Virgil Director April 6, 1994
/s/ Russell Isaak President April 6, 1994
/s/ Patrick J. Morris Senior Executive April 6, 1994
Vice President
/s/ David E. April Senior Executive April 6, 1994
Vice President
/s/ Barry C. Arthur Vice President and April 6, 1994
Treasurer (Principal
Financial and
Accounting Officer)
21
PAGE
Schedule I
CPI CORP. CONSOLIDATED SHORT-TERM INVESTMENTS FEBRUARY 5, 1994
CPI Corp. Consolidated Short-Term Investments February 5, 1994
Balance
Principal Market Sheet
Title of Issue Amount Cost Value Value
- ------------------ ----------- ----------- ----------- -----------
Barclays De Zoete $ 8,277,173 $ 8,277,173 $ 8,277,173 $ 8,277,173
Wedd Repurchase
Agreements due
February 7, 1994
3.11%
Barclays De Zoete 2,786,685 2,786,685 2,786,685 2,786,685
Wedd Repurchase
Agreements due
February 7, 1994
3.11%
United States 2,050,000 2,050,000 2,050,000 2,050,000
Government Agency
Repurchase
Agreement due
February 7, 1994
3.25%
United States 110,000 110,000 110,000 110,000
Government Agency
Repurchase
Agreement due
February 7, 1994
3.25%
Trust for Federal 7 7 7 7
Securities Fed
Fund due
February 7,1994
2.57%
Associates 3,500,000 3,500,000 3,500,000 3,500,000
Commercial Paper
due
February 7, 1994
3.17%
22
PAGE
CPI Corp. Consolidated Short-Term Investments February 5, 1994
Balance
Principal Market Sheet
Title of Issue Amount Cost Value Value
- ------------------ ----------- ----------- ----------- -----------
Government of 522,060 519,194 521,804 521,804
Canada
Treasury Bills
due
February 10, 1994
3.58%
Government of 149,160 147,815 148,982 148,982
Canada
Treasury Bills
due
February 17, 1994
3.62%
Royal Bank of 149,160 149,160 149,160 149,160
Canada Term
Deposit due
February 17, 1994
3.00%
Smith Barney 1,000,000 1,000,000 1,000,000 1,000,000
Commercial Paper
due
February 22, 1994
3.25%
American Express 850,000 850,000 850,000 850,000
Commercial Paper
due
February 24, 1994
3.09%
Government of 298,320 296,247 297,780 297,780
Canada Treasury
Bills due
February 24, 1994
3.48%
Bank of Montreal 745,800 740,095 744,258 744,258
Bankers'
Acceptance due
February 25, 1994
3.77%
23
PAGE
CPI Corp. Consolidated Short-Term Investments February 5, 1994
Balance
Principal Market Sheet
Title of Issue Amount Cost Value Value
- ------------------ ----------- ----------- ----------- -----------
Federal National 1,500,000 1,483,046 1,496,846 1,496,846
Mortgage
Association
Discount Notes
due March 1, 1994
3.13%
Government of 745,800 740,684 743,900 743,900
Canada Treasury
Bills due
March 3, 1994
3.58%
Government of 745,800 742,481 743,518 743,518
Canada Treasury
Bills due
March 10, 1994
3.38%
Bank of Nova 745,800 741,668 743,022 743,022
Scotia Bankers'
Acceptance due
March 14, 1994
3.68%
Federal Home 2,000,000 1,968,973 1,993,173 1,993,173
Loan Bank
Discount Notes
due
March 15, 1994
3.12%
Smith Barney 3,000,000 3,000,000 3,000,000 3,000,000
Commercial Paper
due
March 16, 1994
3.07%
Government of 5,388,405 5,339,155 5,366,757 5,366,757
Canada Treasury
Bills due
March 17, 1994
3.67%
24
PAGE
CPI Corp. Consolidated Short-Term Investments February 5, 1994
Principal Market Balance Sheet
Title of Issue Amount Cost Value Value
- ------------------ ----------- ----------- ----------- -----------
Government of 1,006,830 997,748 1,002,139 1,002,139
Canada Treasury
Bills due
March 24, 1994
3.62%
Associates 850,000 850,000 850,000 850,000
Corporation
Commercial Paper
due March 28, 1994
3.05%
Federal National 1,500,000 1,476,357 1,493,057 1,493,057
Mortgage
Association
Discount Notes
due
March 29, 1994
3.13%
Government of 820,380 814,752 816,159 816,159
Canada Treasury
Bills due
March 31, 1994
3.48%
Government of 596,640 593,311 593,786 593,786
Canada Treasury
Bills due
March 31, 1994
3.23%
Federal National 500,000 493,918 495,438 495,438
Mortgage
Association
Discount Notes
due
April 1, 1994
3.22%
American Express 250,000 250,000 250,000 250,000
Commercial Paper
due April 4, 1994
3.30%
25
PAGE
CPI Corp. Consolidated Short-Term Investments February 5, 1994
Balance
Principal Market Sheet
Title of Issue Amount Cost Value Value
- ------------------ ----------- ----------- ----------- -----------
Government of 820,380 815,663 815,813 815,813
Canada Treasury
Bills due
April 7, 1994
3.33%
Federal National 1,000,000 980,276 992,076 992,076
Mortgage
Discount Notes
due May 4, 1994
3.17%
American Express 3,500,000 3,500,000 3,500,000 3,500,000
Commercial Paper
May 16, 1994
3.29%
Federal Home Loan 1,000,000 978,999 990,099 990,099
Bank Discount
Notes due
May 25, 1994
3.18%
General Electric 250,000 250,000 250,000 250,000
Commercial Paper
due June 1, 1994
3.30%
Federal National 500,000 489,533 494,033 494,033
Mortgage
Association
Discount Notes
due June 1, 1994
3.18%
Federal National 850,000 836,761 839,661 839,661
Mortgage
Association
Discount Notes
due June 20, 1994
3.26%
26
CPI Corp. Consolidated Short-Term Investments February 5, 1994
Balance
Principal Market Sheet
Title of Issue Amount Cost Value Value
- ------------------ ----------- ----------- ----------- -----------
Federal National 1,000,000 977,320 982,260 982,260
Mortgage
Association
Discount Notes
due August 16, 1994
3.36%
Federal National 1,000,000 972,387 982,067 982,067
Mortgage
Association
Discount Notes
due August 25, 1994
3.27%
Federal National 2,000,000 1,944,773 1,963,773 1,963,773
Mortgage
Association
Discount Notes
due August 25, 1994
3.27%
Federal National 2,000,000 1,937,154 1,957,754 1,957,754
Mortgage
Association
Discount Notes due
September 19, 1994
3.29%
Federal National 1,000,000 968,577 978,877 978,877
Mortgage
Association
Discount Notes due
September 19, 1994
3.26%
Federal National 1,000,000 975,871 978,871 978,871
Mortgage
Association
Discount Notes due
September 19, 1994
3.38%
27
PAGE
CPI Corp. Consolidated Short-Term Investments February 5, 1994
Balance
Principal Market Sheet
Title of Issue Amount Cost Value Value
- ------------------ ----------- ----------- ----------- -----------
Federal National 750,000 734,235 734,535 734,535
Mortgage
Association
Discount Notes due
September 20, 1994
3.29%
General Electric 4,000,000 4,000,000 4,000,000 4,000,000
Commercial Paper
due
October 5, 1994
3.32%
General Electric 600,000 600,000 600,000 600,000
Commercial Paper
due
October 11, 1994
3.37%
Government of the 1,000,000 967,378 968,278 968,278
United States
Treasury Bills
due
January 12, 1995
3.37%
----------- ----------- ----------- -----------
$62,358,400 $61,847,396 $62,051,741 $62,051,741
=========== =========== =========== ===========
28
PAGE
Schedule V
CPI CORP. CONSOLIDATED PROPERTY AND EQUIPMENT
FISCAL YEARS ENDED FEBRUARY 5, 1994, FEBRUARY 6, 1993 AND FEBRUARY 1, 1992
CPI Corp. Consolidated Property and Equipment for Fiscal Years Ended
February 5, 1994 and February 6, 1993
Balance at Balance at
Beginning Additions End of
of Year at Cost Retirements Year
------------ ------------ ------------ ------------
52 Weeks Ended
February 5, 1994:
- -----------------
Land $ 2,856,197 $ 216,241 $ - $ 3,072,438
Building and improvements 46,042,870 17,047,480 2,866,544 60,223,806
Machinery and equipment 112,226,654 20,150,881 3,802,114 128,575,421
Furniture and fixtures 50,305,468 7,944,825 2,681,896 55,568,397
------------ ------------ ------------ ------------
$211,431,189 $ 45,359,427 $ 9,350,554 $247,440,062
============ ============ ============ ============
53 Weeks Ended
February 6, 1993:
- -----------------
Land $ 2,830,345 $ 25,852 $ - $ 2,856,197
Building and improvements 51,537,312 3,444,315 8,938,757 46,042,870
Machinery and equipment 107,630,093 6,683,528 2,086,967 112,226,654
Furniture and fixtures 34,410,630 17,111,959 1,217,121 50,305,468
------------ ------------ ------------ ------------
$196,408,380 $ 27,265,654 $ 12,242,845 $211,431,189
============ ============ ============ ============
29
PAGE
CPI Corp. Consolidated Property and Equipment for Fiscal Year Ended
February 1, 1992
Balance at Balance at
Beginning Additions End of
of Year at Cost Retirements Year
------------ ------------ ------------ ------------
52 Weeks Ended
February 1, 1992:
- -----------------
Land $ 2,349,126 $ 481,219 $ - $ 2,830,345
Building and improvements 37,358,599 16,220,659 2,041,946 51,537,312
Machinery and equipment 94,122,130 17,463,844 3,955,881 107,630,093
Furniture and fixtures 29,285,109 6,432,218 1,306,697 34,410,630
------------ ------------ ------------ ------------
$163,114,964 $ 40,597,940 $ 7,304,524 $196,408,380
============ ============ ============ ============
30
PAGE
Schedule VI
CPI CORP. CONSOLIDATED ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
FISCAL YEAR ENDED FEBRUARY 5, 1994, FEBRUARY 6, 1993 AND FEBRUARY 1, 1992
CPI Corp. Consolidated Accumulated Depreciation of Property and Equipment
Fiscal Year Ended February 5, 1994 and February 6, 1993
Additions
Balance at Charged Balance at
Beginning to Costs End of
of Year and Expenses Retirements Year
------------ ------------ ------------ -------------
52 Weeks Ended
February 5, 1994:
- -----------------
Building and improvements $ 12,885,629 $ 12,021,374 $ 2,327,846 $ 22,579,157
Machinery and equipment 76,640,403 8,737,439 3,505,930 81,871,912
Furniture and fixtures 24,332,226 6,478,003 2,150,009 28,660,220
------------ ------------ ------------ ------------
$113,858,258 $ 27,236,816 $ 7,983,785 $133,111,289
============ ============ ============ ============
53 Weeks Ended
February 6, 1993:
- -----------------
Building and improvements $ 16,452,311 $ 4,542,460 $ 8,109,142 $ 12,885,629
Machinery and equipment 63,658,503 13,734,605 752,705 76,640,403
Furniture and fixtures 18,624,648 6,154,095 446,517 24,332,226
------------ ------------ ------------ ------------
$ 98,735,462 $ 24,431,160 $ 9,308,364 $113,858,258
============ ============ ============ ============
31
PAGE
CPI Corp. Consolidated Accumulated Depreciation of Property and Equipment
Fiscal Year Ended February 1, 1992
Additions
Balance at Charged Balance at
Beginning to Costs End of
of Year and Expenses Retirements Year
------------ ------------ ------------ -------------
52 Weeks Ended
February 1, 1992:
- -----------------
Building and improvements $ 15,892,193 $ 4,046,634 $ 3,486,516 $ 16,452,311
Machinery and equipment 51,548,670 13,946,524 1,836,691 63,658,503
Furniture and fixtures 15,016,257 4,664,335 1,055,944 18,624,648
------------ ------------ ------------ ------------
$ 82,457,120 $ 22,657,493 $ 6,379,151 $ 98,735,462
============ ============ ============ ============
32
PAGE
Schedule VIII
CPI CORP. CONSOLIDATED ALLOWANCE FOR UNCOLLECTIBLE RECEIVABLES
FISCAL YEARS ENDED FEBRUARY 5, 1994, FEBRUARY 6, 1993
and FEBRUARY 1, 1992
CPI Corp. Consolidated Allowance for Uncollectible Receivables
Fiscal Years Ended February 5, 1994, February 6, 1993
and February 1, 1992
February 5, February 6, February 1,
1994 1993 1992
------------ ------------ ------------
Balance at beginning
of year $ 1,042,101 $ 1,070,092 $ 1,055,268
============ ============ ============
Balance at end
of year $ 918,346 $ 1,042,101 $ 1,070,092
============ ============ ============
The majority of receivable amounts are due from Sears, Roebuck
and Co. for amounts collected or to be collected by it, for which
Sears assumes all credit risks.
The receivable balances for which an allowance for
uncollectible receivables is established relate primarily to sales
recorded through use of Company commercial charge accounts for
photofinishing and copy services.
The majority of the allowance for uncollectible receivables is
computed and adjusted every four weeks based on a predetermined
percentage of the related receivable balances. These percentages
are determined using historical results adjusted for current
economic conditions. As a result, the Company does not record
separate additions or deductions to the allowance for individual
accounts but rather adjusts every four weeks for the net change in
the computed allowance based on gross receivable balances.
33
PAGE
Schedule X
CPI CORP. SUPPLEMENTARY CONSOLIDATED EARNINGS STATEMENT
INFORMATION
FISCAL YEARS ENDED FEBRUARY 5, 1994, FEBRUARY 6, 1993
AND FEBRUARY 1, 1992
CPI Corp. Supplementary Consolidated Earnings Statement Information
(In Thousands)
Fiscal Years Ended February 5, 1994, February 6, 1993
and February 1, 1992
Fiscal Year
------------------------------------
1993 1992 1991
--------- --------- ---------
Advertising Costs $ 50,993 $ 53,654 $ 47,528
========= ========= =========
Maintenance and Repairs $ 5,754 $ 5,452 $ 4,459
========= ========= =========
34
PAGE
Exhibit (3)b
ARTICLES OF INCORPORATION AND BYLAWS
On February 3, 1994, the Board of Directors of CPI Corp. amended
the corporate bylaws as follows:
RESOLUTION
----------
RESOLVED, that the first sentence of Section
3.2 of the By-Laws of the Corporation be, and hereby
is, amended to read as follows:
"SECTION 3.2. NUMBER, TERM AND ELECTION. The
number of directors constituting the full Board of
Directors of the corporation shall be no more than
eight (8), or such other number not less than three
(3), as may from time to time be established by
amendment of these By-Laws."
35
PAGE
Exhibit (4)l
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING DEBENTURES
AMENDMENT TO CPI CORP. SHAREHOLDER RIGHTS PLAN
The following Amendment to CPI Corp.'s Shareholder Rights Plan was
adopted August 26, 1993:
FIRST AMENDMENT TO RIGHTS AGREEMENT
FIRST AMENDMENT (The "Amendment"), dated as of August 26,
1993, to the Rights Agreement, dated as of May 1, 1989 (the "Rights
Agreement"), between CPI CORP., a Delaware corporation (the
"Company"), and CONTINENTAL STOCK TRANSFER AND TRUST COMPANY, a New
York corporation (the "Rights Agent").
W I T N E S S E T H
WHEREAS, the Company and Ameritrust Company, National
Association, as the predecessor to the Rights Agent, entered into
the Rights Agreement specifying the terms of the Rights (as defined
in the Rights Agreement);
WHEREAS, the rights and obligations of the Rights Agent
as such were assigned by Ameritrust Company, National Association
to Continental Stock Transfer and Trust Company, as successor
Rights Agent;
WHEREAS, pursuant to Section 27 of the Rights Agreement
the Company and the Rights Agent may from time to time supplement
or amend the Rights Agreement in accordance with the provisions
of such Section 27;
WHEREAS, the Company and the Rights Agent desire to amend
the Rights Agreement as set forth herein;
WHEREAS, all actions necessary to make this First
Amendment a valid agreement, enforceable according to its terms,
have been taken, and the execution and delivery of this First
Amendment by the Company and the Rights Agent have been in all
respects duly authorized by the Company and the Rights Agent; and
WHEREAS, no person has become an Acquiring Person (as
defined in the Rights Agreement) as of the date hereof;
36
PAGE
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the Company and the Rights
Agent hereby amend the Rights Agreement as follows:
1. The definition of "Acquiring Person" in Section 1(a)
is hereby amended by deleting the number "20" therein
and inserting in lieu thereof the number "15".
2. Section 11(a) (ii) is hereby amended by deleting each
occurrence of the term "20%" therein and inserting in
lieu thereof the term "15%" in each such instance.
This Amendment shall be effective as of the date hereof
and, except as set forth herein, the Rights Agreement shall remain
in full force and effect and shall be otherwise unaffected hereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year
first above written.
ATTEST: CPI CORP.
By: /s/ Jane E. Nelson By: /s/ Alyn V. Essman
--------------------- -------------------------
Secretary and Chairman of the Board
General Counsel and Chief Executive
Officer
ATTEST: CONTINENTAL STOCK TRANSFER AND
TRUST COMPANY
By: /s/ Thomas Jennings By: /s/ Steven G. Nelson
----------------------- -------------------------
Assistant Secretary Chairman of the Board
and Secretary
37
PAGE
Exhibit (10)a
MATERIAL CONTRACT
The following pages reflect the contract the Company has with
Sears, Roebuck and Co.
38
PAGE
LICENSE AGREEMENT
PORTRAIT STUDIO
FINITE 195-020
THIS LICENSE AGREEMENT (hereinafter referred to as
"Agreement") is entered into as of the 1st day of January,
1994, by SEARS, ROEBUCK AND CO., a New York corporation
("Sears") and CONSUMER PROGRAMS INCORPORATED a Missouri
corporation, ("Licensee").
Sears and Licensee hereby agree as follows:
LICENSE
1. Licensee is in the business described in this
paragraph, and has expertise in that business and has a
marketing plan for that business. Sears hereby grants
Licensee the non-exclusive privilege of conducting and
operating, and Licensee shall conduct and operate, pursuant to
the terms, provisions and conditions contained in this
Agreement, a licensed business for the purpose of producing
photographic portraits, passport photographs, photographic
copy, video transfers and restoration work (hereinafter
referred to as "Licensed Business"), at the Sears locations
designated below or in Location Riders: ("Designated Sears
Store(s)").
Dst. AcCtr. Store/Location
---- ------ --------------
To be provided
LISTED ON THE ATTACHED LOCATION RIDER DATED JANUARY l, 1994.
TERM
2. The term ("Term") of this Agreement shall be for a
period beginning on January 1, 1994 and ending at the close of
business on December 31, 1998 unless sooner terminated under
any of the provisions of this Agreement.
REPRESENTATION TO LICENSEE
3. Sears makes no promises or representations whatsoever
as to the potential amount of business Licensee can expect at
any time during operation of the Licensed Business. Licensee
is solely responsible for any expenses it incurs related to
this Agreement, including any increase in the number of
Licensee's employees or any expenditures for additional
facilities or equipment.
39
UNAUTHORIZED SALES
4. Licensee shall use the Licensed Business area only
for the purpose authorized in this Agreement, and will offer
for sale only those services and merchandise expressly
authorized by this Agreement.
SEARS COMMISSION
5. (a) Licensee shall pay to Sears a commission ("Sears
Commission") which shall be a sum equal to ten percent (10%)
of total annual net sales if less than $50,000 and fifteen
percent (15%) of total annual net sales if annual net sales
are equal to or over $50,000 - retroactive to the first
dollar. Accounting Centers are to deduct commission rate at
fifteen percent (15%). Licensee will bill Sears annually for
any excess commissions taken from any units with annual net
sales of less than $50,000.
NET SALES
(b) "Net Sales" means gross sales from operation of
the Licensed Business, less sales taxes, returns and
allowances.
GROSS SALES
(c) "Gross Sales" means all of Licensee's direct or
indirect sales of services and merchandise from the Licensed
Business including, but not limited to, sales arising out of
referrals, contacts, or recommendations obtained through the
operation of the Licensed Business.
[DELETED PURSUANT TO REQUEST FOR CONFIDENTIALITY TREATMENT]
40
[DELETED PURSUANT TO REQUEST FOR CONFIDENTIALITY TREATMENT]
USE OF SEARS NAME
7. (a) Licensee shall operate the Licensed Business
under the name SEARS PORTRAIT STUDIOS. Licensee shall use the
name of Sears only in connection with the operation of the
Licensed Business. Licensee shall not begin any business
activity under this Agreement without Sears prior written
approval of any and all names that Licensee intends to use in
conjunction with the Licensed Business.
(b) Licensee shall only use the name of Sears, or any
Sears trademark, service mark or trade name (Sears Marks),
when communicating with customers or potential customers of
the Licensed Business. Licensee shall not use Sears Marks
either orally or in writing, including, but not limited to,
use of any letterhead, checks, business cards, or contracts,
when communicating with persons or entities other than
customers or potential customers of the Licensed Business.
All such communications shall be done solely in Licensee's own
name.
(c) Licensee shall not question, contest or
challenge, either during or after the Term of this Agreement,
Sears ownership of any Sears Marks Sears may license Licensee
to use in connection with the Licensed Business. Licensee
will claim no right, title or interest in any Sears Mark or
41
Sears Information (mailing lists/names), except the right to
use the same pursuant to the terms and conditions of this
Agreement, and will not register or attempt to register any
Sears Mark.
(d) Licensee recognizes and acknowledges that the
use of any Sears Mark shall not confer upon Licensee any
proprietary rights to any Sears Mark. Upon termination of
this Agreement, Licensee shall immediately stop using any
licensed Sears Mark, and will execute all necessary or
appropriate documents to confirm Sears ownership, or to
transfer to Sears any rights Licensee may have acquired from
Sears in any Sears Mark.
(e) Nothing in this Agreement shall be construed to
bar Sears, after expiration or termination of this Agreement,
from protecting its right to the exclusive use of its
trademarks, service marks or trade names against infringement
by any party or parties, including Licensee.
(f) Sears may register in its own name any and all of
the trademarks, service marks or trade names used in operation
of the Licensed Business, and Licensee's use of such names and
marks shall inure to the benefit of Sears for such purposes as
well as for all other purposes and such marks shall be
included in the term "Sears Marks." Licensee shall cooperate
in any such registration or application for registration by
Sears.
(g) Sears Marks and Sears Information licensed under
this Agreement possess a special, unique and extraordinary
character which makes it difficult to assess the monetary
damage Sears would sustain in the event of unauthorized use.
Irreparable injury would be caused to Sears by such
unauthorized use, and Licensee agrees that preliminary or
permanent injunctive relief would be appropriate in the event
of breach of this Paragraph 7 by Licensee.
(h) If Licensee learns of any manufacture or sale by
any third party of products and/or services similar to those
offered by Licensee that would be confusingly similar to those
sold by Licensee in the minds of the public and which bear or
are promoted in association with Sears Marks or any names,
symbols, emblems, or designs or colors which would be
confusingly similar in the minds of the public to Sears Marks,
Licensee will promptly notify Sears. Sears shall, at its sole
expense, take such action as it determines, in its sole
discretion, is appropriate. Licensee will cooperate and assist
in such protest or legal action at Sears expense. If demanded
42
by Sears, Licensee shall join in such protest or legal action
at Sears expense. Licensee shall not undertake any protest or
legal action on its own behalf without first securing Sears
written permission to do so. If Sears permits Licensee to
undertake such protest or legal action, such protest or legal
action shall be at Licensee's sole expense. Sears shall
cooperate and assist Licensee at Licensee's expense. For the
purposes of this paragraph, expenses shall include reasonable
attorneys' fees. All recovery in the form of legal damages or
settlement shall belong to the party bearing the expense of
such protest or legal action.
(i) Licensee shall not file suit using Sears name or
undertake any legal proceeding against any customer without
Sears prior written approval.
ADVERTISING
8. (a) Licensee shall advertise and actively promote the
Licensed Business authorized by this Agreement. It is
expressly understood and agreed that all signs, advertising
copy including but not limited to sales brochures, newspaper
advertisements, radio and television commercials, and all
sales promotional plans and devices, and all customer contract
forms, guarantee certificates and other forms and materials
which may be utilized with respect to said Licensed Business,
shall be first submitted for approval to Sears Marketing
Manager Licensed Businesses in Hoffman Estates, Illinois and
Licensee further agrees that it will not issue any such
advertising material or conduct any such sales promotional
plan or device without such prior approval. Sears shall have
the right to disapprove all the aforesaid advertising forms
and other materials insofar as it does not properly use Sears
trademarks, service marks or trade names; may subject Sears to
liability, loss of good will, damage to Sears reputation or
Sears customer relations; may fail to adhere to the
requirements or any Federal, State or Local governmental
rules, regulations and laws; or may fail to conform to
community or Sears standards of good taste and honest dealing.
At Licensee's option and request, Sears may purchase newspaper
advertising and/or electronic media time for Licensee at
Licensee's expense for said concession, provided that Licensee
provides Sears with all necessary information for any
requested advertising at least seven days prior to the date
such advertising is to be run.
43
REIMBURSEMENT
(b) Licensee hereby agrees to reimburse Sears for all
expenses, including but not limited to advertising, incurred
by Sears on behalf of Licensee and requested by Licensee,
within thirty (30) days after the invoice for said expense(s)
is sent by Sears to Licensee. If Sears does not receive
reimbursement prior to the expiration of said thirty (30)
days, then Sears shall have the right, but not the obligation,
to retain out of Licensee's sales receipts described in
Paragraph 29 the amount of said expense(s) with interest, if
any, due to Sears.
PUBLICITY
9. Licensee will not issue any publicity or press
release regarding its contractual relations with Sears or
regarding the Portrait Business in Sears stores, and will
refrain from making any reference to this Agreement or to
Sears in any prospectus, annual report or other filing
required by Federal or state law, or in the solicitation of
business, without obtaining Sears prior written approval of
such action.
RELATIONSHIP
10. Licensee is an independent contractor. Nothing
contained in or done pursuant to this Agreement shall be
construed as creating a partnership, agency or joint venture;
and neither party shall become bound by any representation,
act or omission of the other party.
PRICES
11. Sears has no right or power to establish or control
the prices at which Licensee offers service and/or merchandise
in the Licensed Business. Such right and power is retained by
Licensee.
LICENSEE'S OBLIGATIONS
12. (a) Licensee will not make purchases or incur any
obligation or expense of any kind in the name of Sears. Prior
to any purchases involving the Licensed Business, Licensee
shall inform its vendors that Sears is not responsible for any
obligations incurred by Licensee. At Sears request, Licensee
shall furnish to Sears the names of all parties from whom
Licensee purchases merchandise or with whom Licensee may have
any business or contractual relations in connection with the
Licensed Business.
44
(b) Licensee shall promptly pay all its obligations,
including those for labor and material, and will not allow any
liens to attach to any Sears or customer's property as a
result of Licensee's failure to pay such sums.
LICENSEE'S EMPLOYEES
13. (a) Licensee shall employ all management and other
personnel necessary for the efficient operation of the
Licensed Business. The Licensed Business shall be operated
solely by Licensee's employees, and not by independent
contractors, sub-contractors, sub-licensees or by any other
such arrangement.
(b) Licensee has no authority to employ persons on
behalf of Sears and no employees of Licensee shall be deemed
to be employees or agents of Sears. Licensee has sole and
exclusive control over its labor and employee relations
policies, and its policies relating to wages, hours, working
conditions, or conditions of its employees. Licensee has the
sole and exclusive right to hire, transfer, suspend, lay off,
recall, promote, assign, discipline, adjust grievances and
discharge its employees, provided, however, that at any time
Sears so requests, Licensee will consider transferring from
the Licensed Business any employee who is objectionable to
Sears because of risk of harm to the health, safety and/or
security of Sears customers, employees or merchandise and/or
whose manner impairs Sears customer relations. If Sears
objects to any of Licensee's employees, and Licensee refuses
to remove such employee and the conditions which caused Sears
to object continue, Sears may terminate any affected location
by giving thirty (30) days notice to Licensee.
(c) Licensee is solely responsible for all salaries
and other compensation of its employees and will make all
necessary salary deductions and withholdings from its
employees' salaries and other compensation. Licensee is
solely responsible for so paying any and all contributions,
taxes and assessments and all other requirements of the
Federal Social Security, Federal and state unemployment
compensation and Federal, state and local withholding of
income tax laws on all salary and other compensation of its
employees.
(d) Licensee will comply with any other contract,
Federal, state or local law, ordinance, rule, or regulation
regarding its employees, including Federal or state laws or
regulations regarding minimum compensation, overtime and equal
opportunities for employment, and, in particular, Licensee
45
will comply with the terms of the Federal Civil Rights Acts,
Age Discrimination in Employment Act, Occupational Safety and
Health Act, and the Federal Fair Labor Standards Act, whether
or not Licensee may otherwise be exempt from such acts because
of its size or the nature of its business or for any other
reason whatsoever.
LICENSEE'S EQUIPMENT
14. (a) Entirely at its own expense, Licensee shall
install furniture, fixtures, and equipment, including cash
registers as necessary for the efficient operation of the
Licensed Business ("Licensee's Equipment"). Licensee's
Equipment, and its size, design and location, shall at all
times be subject to Sears approval.
PROHIBITED LIENS
(b) Licensee shall not allow any liens, claims or
encumbrances to attach to Sears premises. In the event any
lien, claim or encumbrance attaches to Sears premises,
Licensee shall immediately take all necessary action to cause
such lien, claim or encumbrance to be released, or Sears, at
its option, may take such action and charge Licensee or
withhold from sales receipts all expenses, including
attorneys' fees, incurred by Sears in removing such liens.
MERCHANDISE STOCK
15. Licensee shall maintain a stock of good quality
merchandise as necessary to assure efficient operation of the
Licensed Business.
STANDARDS
16. Licensee shall provide Sears with copies of its
written procedures and policies establishing minimum standards
of quality and/or performance. Licensee shall immediately
advise Sears of any changes in its standards. Without
limiting Paragraph 26, Licensee shall observe no less than
such minimum standards of quality and/or performance. Sears
may visit Licensee's offices, work sites and/or other place of
business at any reasonable time for the purpose of verifying
Licensee's compliance with its standards of quality and/or
performance.
CONDITION OF LICENSED BUSINESS AREA
17. (a) Licensee shall be primarily responsible for any
preparations necessary for the operation of the Licensed
Business.
46
(b) Licensee shall, at its expense, keep the Licensed
Business area in a thoroughly clean and neat condition and
shall maintain Licensee's Equipment in good order and repair.
Sears shall provide routine janitorial service in the Licensed
Business area, consistent with the janitorial services
regularly performed in the Designated Sears Store.
HOURS, RULES
18. (a) The Licensed Business shall be kept open for
business and operated during the same business hours that the
Designated Sears Store is open for business, or by specific
agreement with store management, except to the extent
prevented by circumstances beyond the control of Sears or
Licensee.
(b) Licensee shall conduct its operations in an
honest, courteous and efficient manner and abide by safety and
security rules and regulations of Sears in effect from time to
time.
ACCESS TO LICENSED BUSINESS AREA
19. Licensee shall have access to the Licensed Business
area at all times that the Designated Sears Store is open to
customers for business and at all other times as the
appropriate Store Manager approves. Sears shall be furnished
with keys to the Licensed Business area and shall have access
to the Licensed Business area at all times.
PHYSICAL INVENTORY
20. Sears may, solely at Sears discretion, not open any
Designated Sears Store at any time to take a physical
inventory of Sears property. Licensee waives any claim it may
have against Sears for damages resulting from such closing.
CHANGES OF LOCATION
21. (a) Sears shall have the right to change the
location, dimensions and square footage of the Licensed
Business from time to time during the Term of this Agreement
in accordance with Sears judgment as to what arrangements will
be most satisfactory for the general good of the Designated
Sears Store(s). Consistent with the parties strategic
development plans set forth in Paragraph 6, Licensee shall
bear all expenses involved in moving Licensee's Equipment and
all expenses for preparing the new space for occupancy by
Licensee. Such expenses shall be allocated by Sears to
47
Licensee based on the average cost per square foot each year
as set forth in the Means Building Construction Costs Data -
Annual Edition.
(b) Notwithstanding the above, if Sears at its sole
discretion decides that the Licensed Business' location should
be changed, Sears will move Licensee's Equipment to the new
location and prepare the new space for occupancy by Licensee.
Sears shall bear all expense involved in such change of the
Licensed Business' location, including the reasonable cost of
new fixtures if the Licensed Business' then existing fixtures
reasonably adapted to the new location. The provision of this
Paragraph shall be applicable only to a second move of the
Licensed Business' location and/or any subsequent move(s)
during the term of this Agreement.
UTILITIES
22. (a) Sears shall furnish, at reasonable hours, and
except as otherwise provided, without expense to Licensee, a
reasonable amount of heat, light and electric power for the
operation of the Licensed Business, except when prevented by
strikes, accidents, breakdowns, improvements and repairs to
the heating, lighting and electric power systems or other
causes beyond the control of Sears. Sears shall not be liable
for any injury or damage whatsoever which may arise by reason
of Sears failure to furnish such heat, light and electric
power, regardless of the cause of such failure, all claims for
such injury or damage are expressly waived by Licensee.
(b) The expense of installing light and power lines
which may be required in order to bring such utilities up to
the Licensed Business area shall paid by Licensee. The
expense of purchasing and installing all fixtures and
equipment within the area occupied by the Licensed Business,
including all necessary electrical connections for the
Licensed Business, and also including the subsequent
maintenance of fixtures and equipment, shall be paid by
Licensee.
TELEPHONE
23. (a) If requested by Licensee, Sears will arrange for
telephone service for the Licensed Business, and Licensee
shall pay the entire cost of the installation of the telephone
equipment necessary to provide such service. Licensee shall
also pay the entire cost of the telephone service furnished to
the Licensed Business, including the pro rata cost of the
operation, maintenance, expense, property taxes, insurance
48
expense, corporate interest expense, and/or payment charges of
the switchboard or telephone communication system at the
Designated Sears Store(s). Such charges shall be consistent
with Sears charges to its own merchandising departments for
similar service.
(b) All telephone numbers used in connection with the
Licensed Business shall be separate from phone numbers used by
Licensee in its other business operations and such numbers
shall be deemed to be the property of Sears. Upon expiration
or termination of this Agreement, Licensee shall immediately
cease to use such numbers and shall transfer such numbers to
Sears or to any party Sears designates, and Licensee shall
immediately notify the telephone company of any such transfer.
(c) Sears shall have the right to approve, before
placement, all yellow and white page telephone listings for
the Licensed Business. Sears may, at its sole option, require
that any telephone number listed in any telephone directory
using Sears name be billed through a Sears store or office.
BILLING OF CUSTOMERS
24. Customers will not be billed, and no settlement will
be made between the parties with respect to any cash or credit
transaction until Licensee has completed the sale or service
for the customer, or until Licensee and the customer have
executed an agreement whereby Licensee will provide future
services for the customer.
QUOTATIONS, ORDERS
25. All quotations for Licensee's service made to
customer by Licensee shall be in writing, or by telephone
authorization from the customer, and such service shall be
performed only upon receipt of a written order signed by such
customer. The content of the forms used for making quotations
and for taking orders shall be satisfactory to both parties.
Licensee shall not charge customers for estimates or
proposals.
CUSTOMER ADJUSTMENT
26. All of the work and services performed by Licensee in
connection with the Licensed Business shall be of a high
standard of workmanship, and all of the merchandise sold in
the Licensed Business shall be of high quality. Licensee
shall at all times maintain a general policy of "Satisfaction
Guaranteed" to customers and shall adjust all complaints of
and controversies with customers arising out of the operation
49
of the Licensed Business. In any case in which an adjustment
is unsatisfactory to the customer, Sears shall have the right,
at Licensee's expense, to make such further adjustment as
Sears deems necessary under the circumstances, and any
adjustment made by Sears shall be conclusive and binding upon
Licensee.
Licensee shall maintain files pertaining to customer
complaints and their adjustment and make such files available
to Sears. Sears may deduct the amounts of any such
adjustments from the sales receipts held by Sears as described
in Paragraph 29.
CHECKS
27. (a) All checks or money orders which Licensee accepts
from customers shall be made payable to Sears, Roebuck and
Co.. Licensee shall make certain that all checks are filled
out correctly, having the customer's signature, date, and the
correct amount (in both locations), and be verified in
accordance with Sears policies in effect from time to time.
Checks which are deficient in any of the above areas may be
charged back to Licensee, and Licensee shall reimburse Sears
for any of Sears Commission lost as a result of Licensee's
failure to obtain a properly filled out and verified check.
(b) Sears shall not be entitled to Sears Commission
for those checks that have all of the above information but
which are not paid upon presentment. Any and all losses which
may be sustained by reason of nonpayment of any checks upon
presentment shall be borne by Licensee, and Sears shall have
no liability with respect to such checks, provided that Sears
will make whatever effort it deems reasonable to collect all
such checks prior to charging back such checks to Licensee.
BAD CHECKS
(c) After Sears has made at least one attempt to
collect any bad or returned checks a photocopy of the check
will be made and kept on file in each Sears store. On a
monthly basis, each Sears store will return the checks to
Licensee in the pre-addressed, postage paid envelopes provided
by Licensee. Attached to the checks will be a tape total, to
include the store number, the charge back month, and the total
being deducted from the settlement. Licensee assumes
responsibility for checks lost in the mail. Each Sears store
will maintain a file of duplicate copies for ninety (90) days
and Sears will assume liability for the duplicate totals that
do not balance to the deductions on the monthly settlement
report. Such liability ceases in ninety (90) days.
50
CREDIT SALES
28. (a) With the approval of the Credit Central
designated by Sears, sales may be made by Licensee on such of
Sears regularly established credit plans, including Discover
Card, Visa, Mastercard and American Express, as may be first
approved by such Credit Central. The approval of such Credit
Central is required for each individual credit sale, and
approval shall be granted in the sole discretion of the Credit
Central. No part of the finance charge which may be earned by
Sears in connection with any credit sale shall be payable to
or credited in any way to Licensee. All losses sustained by
Sears as a result of non-payment of a Sears credit account
shall be borne by Sears, provided that Licensee has complied
with Sears credit policies and procedures. Except for non-
payment of a Sears credit account, Sears shall have no
liability whatsoever to Licensee for Sears failure to properly
accept or reject a customer's charge.
(b) Licensee will comply with all provisions of
Federal and state laws governing credit sales, and their
solicitation, including but not limited to provisions dealing
with disclosures to customers and finance charges. Licensee
shall not modify, in any way, the terms and conditions of
Sears credit plans.
SALES RECEIPTS
29. At the close of each business day, Licensee shall
submit an accounting of the gross sales and the returns,
allowances and customer adjustments made during such day by
Licensee to the cashier office of the Sears unit designated by
Sears, together with the gross amount, in cash, of all cash
sales, and all credit sales documents for transactions
completed that day. An account shall be kept by both Licensee
and Sears. Sears may retain out of such receipts the proper
amount of the Sears Commission payable under this Agreement
together with any other sums due Sears from Licensee. The
remaining balance shall be payable to Licensee at the regular
settlement. Sears shall maintain in each location, complete
register tapes of Licensee's transactions for a sixty (60) day
period.
SETTLEMENT
30. (a) A settlement between the parties shall be made
promptly each month for all cash and credit transactions of
Licensee during such period, in accordance with Sears
51
customary accounting procedures. Such settlement will be done
through the Sears Accounting Center designated by Sears.
Sears will advance Licensee eighty-five percent (85%) of net
sales weekly.
(b) Licensee shall reimburse Sears at each settlement
for all invoiced expenses, including any advertising expense,
incurred by Sears at Licensee's request, outstanding at the
time of such settlement. If Sears is not reimbursed at such
settlement, then Sears shall have the right, but not the
obligation, to retain out of Licensee's sales receipts the
amount of such expenses with interest, if any, due Sears.
AUDIT
31. Licensee shall keep and maintain books and records
which accurately reflect the sales made by Licensee under this
License Agreement and the expenses which Licensee incurs in
performing under this License Agreement. Sears shall have the
right at any reasonable time to review and audit the books and
records of Licensee regarding this License Agreement. Such
books and records shall be kept and maintained according to
generally accepted accounting principles.
REPORTS
32. (a) Licensee shall provide to Sears a monthly report
of sales and income in the manner and form prescribed by
Sears, together with any other information Sears may require
for its records or auditing purposes.
(b) Licensee shall submit its financial report to
Sears annually within ninety (90) days after the close of
Licensee's fiscal year. Such report shall be certified by an
accountant, or by an officer of Licensee in the event that no
audit is performed. Such report shall include, but shall not
be limited to, Licensee's profit and loss statement and
balance sheet, and shall be prepared in accordance with
generally accepted accounting principles. This requirement
may be fulfilled by submission of Licensee's Annual Report.
Sears shall not disclose any such information which is not
available to the public to any third parties without
Licensee's prior consent.
52
WAIVER
33. Licensee waives any and all claims it may have
against Sears for damage to Licensee, for the safekeeping or
safe delivery or damage to any property whatsoever of Licensee
or of any customer of Licensee in or about the Licensed
Business area, because of the actual or alleged negligence,
act or omission of any tenant, licensee or occupant of the
premises at which the Licensed Business may be located; or
because of any damage caused by any casualty from any cause
whatsoever, excluding Sears sole negligence, including but not
limited to, fire, water, snow, steam, gas or odors in or from
such store or store premises, or because of the leaking of any
plumbing, or because of any accident or event which may occur
in such store or upon store premises; or because of the actual
or alleged acts or omissions of any janitors or other persons
in or about such store or store premises or from any other
such cause whatsoever beyond Sears Control.
INDEMNITY BY LICENSEE
34. Licensee covenants that it will protect, defend, hold
harmless and indemnify Sears, its directors, officers and
employees, from and against any and all expenses, claims,
actions, liabilities, penalties, attorneys' fees, damages and
losses of any kind whatsoever (including, without limitation
of the foregoing, death of or injury to persons and damage to
property), actually or allegedly resulting from or connected
with the operation of the Licensed Business (including,
without limitation of the foregoing, goods sold, work done,
services rendered, or products utilized in therein, lack of
repair in or about the area occupied by the Licensed Business,
operation of or defects in any machinery, motor vehicles, or
equipment used in connection with the Licensed Business, or
located in or about the Licensed Business area; or arising out
of any actual or alleged infringement of any patent or claim
of patent, copyright or non-Sears trademark, service mark, or
trade name); or from the omission or commission of any act,
lawful or unlawful by Licensee or its agents or employees,
whether or not such act is within the scope of the employment
of such agents or employees. This indemnity shall not apply
to the extent any injury or damage is caused solely by Sears
negligence. Licensee's indemnity shall survive the
termination of this Agreement.
53
INSURANCE
35. (a) Licensee shall, at its sole expense, obtain and
maintain during the Term of this Agreement the following
policies of insurance from companies satisfactory to Sears and
containing provisions satisfactory to Sears and adequate to
fully protect Sears as well as Licensee from and against all
expenses, claims, actions, liabilities and losses related to
the subjects covered by the policies of insurance below:
(1) Worker's Compensation Insurance containing a
waiver of subrogation in favor of Sears (where permitted by
state law) executed by the insurance company and covering all
costs, benefits and liability under state Worker's
Compensation and similar laws which may accrue in favor of any
person employed by Licensee; and Employer's Liability
Insurance with limits of not less than $100,000.
(2) Commercial General Liability Insurance,
including but not limited to coverage for product liability
and completed operations insurance, and containing a
Contractual Liability Endorsement specifically covering the
indemnity provisions in this Agreement, with limits of not
less than $500,000 for bodily injury per occurrence and
$100,000 for property damage per occurrence.
(3) Motor Vehicle Liability insurance with an
Employer's Non-Ownership Liability Endorsement in Licensee's
name covering all vehicles used by Licensee in connection with
the Licensed Business, with limits of not less than $500,000
combined single limit for bodily injury and property damage
per occurrence.
(4) Fire and Extended Coverage Insurance upon
Licensee's property, equipment and merchandise used in the
Licensed Business for the full insurable value thereof and
containing a waiver of subrogation in favor of Sears executed
by the insurance company.
(b) In order to avoid conflicts between insurance
companies, Licensee shall use its best efforts to have all
policies of insurance required by this Paragraph issued by one
(l) insurance company. Each policy shall name Sears as an
additional insured and shall contain a severability of
interest/cross liability endorsement.
(c) Licensee's policies of insurance shall expressly
provide that they shall not be subject to material change or
cancellation without at least thirty (30) days' prior notice
to Sears.
54
(d) Licensee shall furnish Sears with certificates of
insurance or, at Sears request, copies of policies, prior to
execution of this Agreement. If, in Sears opinion, such
policies do not afford adequate protection for Sears, Sears
will so advise Licensee, and if Licensee does not furnish
evidence of acceptable coverage within fifteen (15) days,
Sears shall have the right, at its option, to obtain
additional insurance at the expense of Licensee and deduct the
cost of such insurance from the sales receipts held by Sears
as described in Paragraph 29 of this Agreement.
(e) Any approval by Sears of any of Licensee's
insurance policies or additional insurance obtained by Sears
shall not relieve Licensee of any responsibility under this
Agreement, including liability for claims in excess of
described limits.
MUTUAL RIGHT OF TERMINATION
36. Either party may terminate this Agreement, or any
location, without cause, without penalty, and without
liability for any damages as a result of such termination, at
any time hereafter by giving the other party at least ninety
(90) days' prior notice. The notice shall specify the
termination date.
ASSIGNMENT BY LICENSEE
37. Notwithstanding any other provision contained in this
Agreement, this Agreement is not transferable by Licensee in
whole or in part without Sears prior written consent. Any
transfer or attempt to transfer by Licensee whether expressly
or by operation of law, and without Sears prior written
consent, shall, at the option of Sears, without notice,
immediately terminate this Agreement. The sale of Licensee's
business or any other transaction (including sales of stock)
which shifts the rights or liabilities of Licensee to another
controlling interest shall be such a transfer.
RIGHT TO TERMINATION ON DEFAULT BY LICENSEE
38. If any property of Licensee passes into the hands of
any receiver, assignee, officer of the law or creditor, or if
Licensee vacates, abandons, or ceases to operate under this
Agreement, or if Licensee fails to comply with any material
provision or condition of this Agreement, then Sears may
terminate this Agreement immediately by giving notice to
Licensee.
55
RIGHT TO TERMINATION ON CLOSING OF STORE
39. Sears may, solely at Sears discretion, terminate this
Agreement in any affected Licensed Business location without
notice, due to the closing of the Designated Sears Store.
Licensee shall not be entitled to any notice of such store
closing prior to a public announcement of such closing.
Licensee waives any claim it may have against Sears for
damages, if any, incurred as a result of such closing.
RIGHT OF TERMINATION AFTER FIRE
40. If any Designated Sears Store is damaged by fire or
any other casualty so that the Licensed Business area becomes
untenantable, this Agreement may be terminated with respect to
such Licensed Business location, effective as of the date of
such casualty, by either party giving the other party written
notice of such termination within twenty (20) days after the
occurrence of such casualty. If such notice is not given,
then this Agreement shall not terminate, but shall remain in
full force and effect and the parties shall cooperate with
each other so that Licensee may resume the conduct of business
as soon as possible.
SUBJECT TO STORE LEASES
41. If any Designated Sears Store is leased to Sears this
Agreement shall be subject to all of the terms, agreements and
conditions contained in such lease. In the event of the
termination of any such lease by expiration of time or
otherwise, this Agreement shall immediately terminate with
respect to affected Licensed Business locations.
FUTURE OBLIGATIONS
42. After the termination of this Agreement by expiration
of time or otherwise, Licensee shall have no right or interest
in future contracts with Sears relating to any operation
similar to that under this Agreement, and Sears may, without
incurring any liability to Licensee:
(1) enter into an agreement for the operation of
a similar business with any person or organization Sears
chooses, including, but not limited to, Licensee or any of
Licensee's counterparts, or
(2) directly operate a similar business itself.
56
GOODWILL
43. Licensee acknowledges that the commission rate
established by this Agreement takes into consideration that
all good will generated by the operation of the Licensed
Business inures completely to the benefit of Sears and that
Licensee has no right or interest in such good will. "Good
will" includes all ownership rights in any information
regarding the customers of the Licensed Business.
DATA
44. Any customer list developed by Licensee, its
employees or agents from the operation of, or from records
generated as a result of the operation of the Licensed
Business, are deemed exclusively owned by Sears. Licensee
shall not use or permit use of such customer information for
any purpose except the performance of this Agreement.
Licensee shall at all times maintain any such customer
information, including lists, physically separate and distinct
from any customer information Licensee may maintain that is
unrelated to the Licensed Business. Licensee shall not
reproduce, release or in any way make available or furnish,
either directly or indirectly, to any person, firm,
corporation, association or organization at any time, any such
customer information which will or may be used to solicit
sales or business from such customers, including but not
limited to the type of sales or business covered by this
License Agreement. Upon termination of this Agreement for any
reason, Licensee shall immediately deliver all copies of lists
of customers and copies of all other such customer information
to Sears; and Licensee, its officers, employees, successors
and assigns, shall not use any such customer information to
solicit any of such customers. Licensee shall protect all
such customer information from destruction, loss or theft
during the term of this Agreement, and until all copies of
customer lists and copies of all other customer information
are turned over to Sears.
SEARS OPTION TO PURCHASE LICENSEE'S EQUIPMENT
45. In the event of the termination of this Agreement by
expiration of time or otherwise, Sears shall have the right,
but not the obligation, to purchase from Licensee, and
Licensee shall convey and sell to Sears, such items of
Licensee's Equipment excluding Licensee's software as Sears
may designate in a written notice given to Licensee at least
twenty (20) days prior to the effective date of such
57
termination. Sears shall pay Licensee the fair market value
of such items as of the effective date of such termination.
In the event that Licensee and Sears are unable to agree upon
such fair market value, Sears may waive its right to purchase
and have no obligation to Licensee, or, at Sears option, such
fair market value shall be ascertained by an independent
appraiser mutually acceptable to Licensee and Sears. Any fee
of such appraiser shall be borne equally by Licensee and
Sears.
REMOVAL OF LICENSEE'S EQUIPMENT
46. Upon the termination of this Agreement by expiration
of time or otherwise, Licensee shall, at its expense,
immediately remove all of Licensee's Equipment (except such of
Licensee's Equipment as may be purchased by Sears as provided
in Paragraph 45) from Sears premises and shall, without delay
and at Licensee's expense, repair any damage to Sears premises
caused by such removal.
SURVIVAL OF OBLIGATIONS
47. No termination of this Agreement, by expiration of
time or otherwise, shall relieve the parties of liability for
obligations arising out of the operation of the Licensed
Business before termination.
LICENSES, LAWS, ORDINANCES
48. Licensee shall, at its expense, obtain all permits
and licenses which may be required under any applicable
Federal, state, or local law, ordinance, rule or regulation by
virtue of any act performed in connection with the operation
of the Licensed Business. Licensee shall comply fully with
all applicable Federal, state and local laws, ordinances,
rules and regulations, including all rules and regulations of
the Federal Trade Commission.
FEES, TAXES
49. Licensee shall, at its expense, pay and discharge all
license fees, business, use, sales, gross receipts, income,
property or other applicable taxes or assessments which may be
charged or levied by reason of any act performed in connect
ion with the operation of the Licensed Business, excluding,
however, all taxes and assessments applicable to Sears income
from Sears Commission or applicable to Sears property.
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REMEDIES CUMULATIVE
50. The remedies provided in this Agreement are
cumulative, and shall not affect in any manner any other
remedies that either party may have for any default or breach
by the other party. The exercise of any right or remedy shall
not constitute a waiver of any other right or remedy under
this Agreement or provided by law or equity. No waiver of any
such right or remedy shall be implied from failure to enforce
any such right or remedy other than that to which the waiver
is applicable, and only for that occurrence.
ASSIGNS
51. The provisions of this Agreement shall be binding
upon Licensee and upon Licensee's successors and assigns and
shall be binding upon and inure to the benefit of Sears, its
successors and assigns.
NOTICES
52. All notices provided for or which may be given in
connection with this Agreement shall be in writing and given
by personal delivery or certified or registered mail with
postage prepaid and return receipt requested or its
equivalent, such as private express courier. Notices given by
Licensee to Sears shall be addressed to:
SEARS, ROEBUCK AND CO.
Attention:Divisional Vice-President,
Sears, Roebuck and Co.
3333 Beverly Road
Hoffman Estates, Illinois 60179
with a copy to:
SEARS, ROEBUCK AND CO., D/725
Attention:Portrait Studio Licensing Manager
addressed to:
CONSUMER PROGRAMS INCORPORATED
1706 Washington Ave
St. Louis, MO 63103
Attention:C.E.O. and President
Telephone:(314) 231-1575
Notices if so sent by mail shall be deemed to have been given
when deposited in the mail or with the private courier.
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ILLEGAL PROVISION
53. If any provision in this Agreement is held to be
invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or
unenforceable provision had never been included.
GOVERNING LAWS
54. This Agreement shall be interpreted and governed by
laws of the State of Illinois.
ENTIRE AGREEMENT
55. This Agreement sets forth the entire agreement and
understanding between the parties with respect to the Licensed
Business. This Agreement shall not be supplemented, modified
or amended except by a written instrument signed by Licensee
(or duly authorized officer if Licensee is a corporation) and
by a duly authorized-officer or agent of Sears, and no person
has or shall have the authority to supplement, modify or amend
this Agreement in any other manner.
PARAGRAPH TITLES
56. The paragraph titles in this Agreement are for the
mere convenience of the parties, and shall not be considered
in any construction or interpretation of this Agreement.
AGREEMENT SUPERSEDED
57. This Agreement supersedes the License Agreement made
and entered into as of January l, 1991, by and between Sears
and CONSUMER PROGRAMS INCORPORATED (Superseded Agreement).
Such Superseded Agreement shall be deemed terminated
as of the close of business on December 31, 1993, provided,
however, that Licensee shall be responsible for any and all
obligations of the licensee under the Superseded Agreement
arising out of the operation of the Licensed Business prior to
the termination of the Superseded Agreement.
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IN WITNESS WHEREOF, the parties hereto have this day
set their hands, the corporate party or parties by its or
their duly authorized officers or agents.
SEARS, ROEBUCK AND CO.
By: /s/ Kenneth E. Hux
-----------------------------
Divisional Vice-President,
Licensed Businesses
CONSUMER PROGRAMS INCORPORATED
By: /s/ Russell Isaak
-----------------------------
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DESIGNATED SEARS STORES AS OF JANUARY 1, 1994
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
C-02 BAYSHORE NY 01 1324
C-03 WHITE PLAINS NY 01 1444
C-04 LIVINGSTON NJ 01 1614
C-05 BROOKLYN NY 01 1114
C-06 HICKSVILLE NY 01 1264
C-07 E. NORTHPORT NY 01 1794
C-08 STATEN ISLAND NY 01 1624
C-09 NEW BRUNSWICK NJ 01 1314
C-10 WAYNE NJ 01 1434
C-11 ARLINGTON TX 01/SSD 1177
C-12 CHULA VISTA CA 11 1358
C-13 EL CAJON CA 11 1438
C-16 BUENA PARK CA 11 1268
C-17 TORRANCE CA 11 1278
C-18 SAN BRUNO CA 11 1478
C-19 CUPERTINO CA 11 1468
C-20 ESCONDIDO CA 11 1758
C-21 FAIRVIEW HEIGHTS IL 11/SSD 1640
C-23 HAMPTON VA 01 1575
C-27 STERLING HEIGHTS MI 11 1720
C-28 COSTA MESA CA 11 1388
C-29 DEARBORN MI 11 1700
C-30 HOUSTON TX 01 1237
C-31 TULSA OK 01 1151
C-32 CHESTERFIELD MO 11/SSD 1690
C-33 PASADENA CA 11 1048
C-34 ORANGE CA 11 1378
C-36 NORTHRIDGE CA 11 1508
C-37 SAN BERNARDINO CA 11 1398
C-38 RIVERSIDE CA 11 1298
C-39 ORLANDO FL 01 1225
C-40 COLUMBUS GA 01 1145
C-41 AURORA CO 11 1141
C-42 DENVER CO 11 1031
** Deleted Pursuant to Request for Confidentiality Treatment.
62
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
C-43 DENVER CO 11 1291
C-44 LAKEWOOD CO 11 1071
C-45 LITTLETON CO 11 1131
C-46 WATERFORD MI 11 1180
C-47 HONOLULU HI 11 1158
C-48 AIEA OAHU HI 11 1578
C-50 INDIO CA 11 2058
C-51 EL CENTRO CA 11 2228
C-52 HACKENSACK NJ 01 1094
C-53 MIDDLETOWN NJ 01 1574
C-54 WATCHUNG NJ 01 1294
C-55 JERSEY CITY NJ 01 1044
C-56 LAKE GROVE NY 01 1364
C-57 MASSAPEQUA NY 01 1724
C-58 NANUET NY 01 1414
C-59 GLEN BRUNIE MD 01 1394
C-60 BRONX NY 01 2764
C-61 PARAMUS NJ 01 1664
C-62 LUBBOCK TX 01 1247
C-64 MODESTO CA 11 1618
C-65 SAN JOSE CA 11 1488
C-67 ORLAND PARK IL 11 1750
C-70 SAN ANTONIO TX 01 1047
C-71 WICHITA KS 11 1161
C-72 FT. WORTH TX 01/SSD 1267
C-74 ANCHORAGE AK 11 1089
C-77 CHESAPEAKE VA 01 1615
C-78 TEXAS CITY TX 01 2197
C-81 LAWRENCEVILLE NJ 01 1734
C-83 CORPUS CHRISTI TX 01 1217
C-84 ANN ARBOR MI 11 1390
C-85 BALTIMORE MD 01 1634
C-86 CALUMET CITY IL 11 1510
C-87 BURLINGTON NJ 01 1874
C-88 COVINA CA 11 1418
** Deleted Pursuant to Request for Confidentiality Treatment.
63
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
C-89 LOS ANGELES CA 11 1008
C-92 FRESNO CA 11 1208
C-93 SACRAMENTO CA 11 1228
C-94 CARSON CA 11 1568
C-95 BAKERSFIELD CA 11 1318
C-96 HAYWARD CA 11 1248
C-97 CONCORD CA 11 1368
C-98 GLENDALE CA 11 1088
C-99 SANTA FE SPRINGS CA 11 1428
D-47 W. BURLINGTON IA 12 *2760
D-48 ALTON IL 12/SSD *6340
D-49 ST. LOUIS MO 12/SSD *1500
EA-1 SALT LAKE CITY UT 11 1118
EA-2 MURRAY UT 11 1558
EA-3 OGDEN UT 11 1718
EA-5 PROVO UT 11 2118
EA-6 POCATELLO ID 11 3139
EA-7 IDAHO FALLS ID 11 2278
EA-8 TWIN FALLS ID 11 2109
EA-9 BOISE ID 11 1229
EB-2 MIAMI(AVENTURA) FL 01 1655
EB-3 MIAMI FL 01 1365
EB-4 POMPANO BEACH FL 01 1205
EB-5 HIALEAH FL 01 1345
EB-6 PEMBROKE PINES FL 01 1775
EB-7 WEST PALM BEACH FL 01 1705
EB-8 JACKSONVILLE FL 01 1635
EB-9 ABILENE TX 01 1307
EC-1 CHARLESTON WV 01 1954
EC-2 YUBA CITY CA 11 2238
EC-3 LAWTON OK 01 2381
EC-4 TALLAHASSEE FL 01 1585
EC-5 SAN ANGELO TX 01 2517
EC-7 OMAHA NE 11 1041
EC-8 CINCINNATI OH 11 1810
** Deleted Pursuant to Request for Confidentiality Treatment.
* Remote Studios
64
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
EC-9 CINCINNATI OH 11 1610
ED-2 DAYTON OH 11 1560
ED-3 DAYTON OH 11 2060
ED-5 SPRINGDALE OH 11 1280
ED-6 CLARKSVILLE IN 11 2160
ED-7 FRANKFORT KY 11 2090
ED-8 LEXINGTON KY 11 1580
ED-9 FRANKLIN OH 11 2940
EE-1 MERIDIAN MS 01 2096
EE-2 LAKE CHARLES LA 01 2217
EE-3 GREENWOOD IN 11 1470
EE-5 INDIANAPOLIS IN 11 1540
EE-6 INDIANAPOLIS IN 11 1600
EE-7 INDIANAPOLIS IN 11 1680
EE-8 ALBANY OR 11 2419
EE-9 TOPEKA KS 11/SS 1642
EF-1 ST. JOSEPH MO 11/SSD 2713
EF-2 LAS VEGAS NV 11 1668
EF-5 MILWAUKKE WI 11 1102
EF-6 MILWAUKEE WI 11 2272
EF-7 BROOKFIELD WI 11 1062
EF-8 GREENDALE WI 11 1082
EF-9 KENOSHA WI 11 2342
EG-1 RACINE WI 11 2200
EG-2 ST. PAUL MN 11 1052
EG-3 BROOKLYN CENTER MN 11 1032
EG-4 MINNEAPOLIS MN 11 1002
EG-5 MINNETONKA MN 11 1112
EG-6 MAPLEWOOD MN 11 1122
EG-7 BURNSVILLE MN 11 1132
EG-8 EDEN PRAIRIE MN 11 1142
EG-9 LAS VEGAS NV 11 1328
EH-2 FLORENCE AL 01 2316
EH-3 AUGUSTA GA 01 1035
EH-4 HAMMOND LA 01 2016
EH-5 BILOXI MS 01 2256
** Deleted Pursuant to Request for Confidentiality Treatment.
65
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
EH-7 HOUMA LA 01 2696
EH-8 TOLEDO OH 11 1220
EH-9 TOLEDO OH 11 2020
EJ-1 SARASOTA FL 01 1625
EJ-2 WATERLOO IA 11 1072
EJ-3 RAPID CITY SD 11 2412
EJ-4 REDDING CA 11 2338
EJ-5 WICHITA FALLS TX 01 2177
EJ-6 LAKEWOOD NY 01 2584
EJ-7 NEWARK OH 11 2830
EJ-8 CARLSBAD CA 11 1678
EJ-9 RENO NV 11 2098
EK-1 MEDFORD OR 11 2179
EK-2 ANTIOCH CA 11 2288
EK-3 PALMDALE CA 11 1068
EK-4 STOCKTON CA 11 1288
EK-6 THOUSAND OAKS CA 11 2318
EK-7 PARKERSBURG WV 01 2354
EK-8 FORT GRATIOT MI 11 2482
EK-9 SAGINAW MI 11 1590
EL-2 EVANSVILLE IN 11 1330
EL-3 OWENSBORO KY 11 2950
EL-4 MANSFIELD OH 11 2010
EL-5 LIMA OH 11 2450
EL-6 MISHAWAKA IN 11 1800
EL-7 BENTON HARBOR MI 11 2960
EL-8 ODESSA TX 01 1397
EL-9 SANTA MARIA CA 11 2088
E-01 BRYAN COLLEGE STATION TX 01 2547
E-04 HOLLYWOOD CA 11 1028
E-05 CERRITOS CA 11 1518
E-07 SANTA MONICA CA 11 1178
E-08 BREA CA 11 1638
E-09 CITY OF INDUSTRY CA 11 1598
E-10 GAITHERSBURG MD 01 1754
** Deleted Pursuant to Request for Confidentiality Treatment.
66
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
E-11 FREINDSWOOD TX 01 1257
E-12 SAN ANTONIO TX 01 1277
E-13 TEXARKANA TX 01 2567
E-14 HURST TX 01/SSD 1297
E-15 ROCKAWAY NJ 01 1764
E-16 OKOLONA KY 11 1790
E-17 ANTIOCH TN 01 1316
E-18 PLANTATION FL 01 1535
E-19 MEMPHIS TN 01 1216
E-21 MEMPHIS TN 01 1186
E-22 MEMPHIS TN 01 1026
E-23 UNIONTOWN PA 01 2614
E-24 ALEXANDRIA VA 01 1284
E-25 FT. MYERS FL 01 1495
E-27 RICHMOND VA 01 1135
E-28 RICHMOND VA 01 1445
E-29 RICHMOND VA 01 2285
E-31 JOLIET IL 11 1740
E-32 SAN RAFAEL CA 11 1528
E-36 GADSDEN AL 01 2306
E-37 BAYTOWN TX 01 1327
E-38 ERIE PA 01 1694
E-39 BELLINGHAM WA 11 2149
E-41 ALTOONA PA 01 2494
E-43 LAKE JACKSON TX 01 2227
E-44 CHEHALIS WA 11 2089
E-45 BURLINGTON WA 11 2389
E-46 JOHNSON CITY NY 01 1784
E-48 VISALIA CA 11 2068
E-49 MERCED CA 11 2298
E-50 OXNARD CA 11 1448
E-51 SANTA BARBARA CA 11 2138
E-52 SANTA CRUZ CA 11 2308
E-53 VICTORVILLE CA 11 2829
E-54 ABERDEEN WA 11 2299
** Deleted Pursuant to Request for Confidentiality Treatment.
67
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
E-55 E. WENATCHEE WA 11 2069
E-56 KELSO WA 11 2319
E-57 LACEY WA 11 2219
E-58 KENNEWICK WA 11 2329
E-59 GREENSBORO NC 01 1335
E-60 BELOIT WI 11 2322
E-61 SPRINGFIELD OR 11 2339
E-62 JOHNSTOWN PA 01 1863
E-63 CLARKSVILLE TN 01 2335
E-64 SHARON PA 01 2544
E-65 WICHITA KS 11 1401
E-66 HUTCHINSON KS 11 2590
E-67 BROWNSVILLE TX 01 2497
E-68 LAFAYETTE LA 01 1347
E-69 CHARLOTTE NC 01 1515
E-70 WILMINGTON NC 01 1455
E-71 LONGVIEW TX 01 2557
E-72 ROCK HILL SC 01 2807
E-73 HICKORY NC 01 2515
E-74 GASTONIA NC 01 2465
E-75 SPARTANBURG SC 01 1545
E-76 CHARLOTTE NC 01 1245
E-77 CONCORD NC 01 2075
E-78 PINE BLUFF AR 01 2216
E-79 LINCOLN NE 11 2191
E-80 LANSING MI 11 1170
E-81 DURHAM NC 01 1045
E-82 RALEIGH NC 01 1425
E-83 BURLINGTON NC 01 2105
E-84 ASHEVILLE NC 01 1185
E-85 FAYETTEVILLE NC 01 1405
E-86 WINSTON-SALEM NC 01 1375
E-87 DANVILLE VA 01 2625
E-88 LYNCHBURG VA 01 2835
E-89 ROANOKE VA 01 1974
** Deleted Pursuant to Request for Confidentiality Treatment.
68
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
E-90 CEDAR RAPIDS IA 11 2212
E-91 YUMA AZ 11 2078
E-92 PANAMA CITY FL 01 2805
E-93 ORANGE PARK FL 01 1485
E-94 MACON GA 01 1435
E-95 CHARLESTON HEIGHTS SC 01 1325
E-96 ST. CLAIRSVILLE OH 01 2104
E-97 HARLINGEN TX 01 2537
E-98 MC ALLEN TX 01 2507
E-99 BELLEVUE NE 11 2051
KA-1 ORANGE TX 02 *1407
KA-2 CARLISLE PA 02 *2224
KA-3 HYATTSVILLE MD 02 *1604
KA-4 COUNCIL BLUFFS IA 12 *1041
KA-5 ATLANTA GA 02 *2865
KA-6 EDWARDSVILLE IL 12/SSD *1640
KA-7 WOODLAND CA 12 *1228
KA-8 STEVENS POINT WI 12 *3022
KA-9 PANORAMA CITY CA 12 *1168
KB-1 HARRISONBURG VA 02 *
KB-2 OSHKOSH WI 12 *
KB-3 ST. LOUIS MO 12/SSD *1270
KB-4 FREEPORT IL 12 *
KB-5 NEW ORLEANS LA 02 *
KB-6 LEMON GROVE CA 12 *
KB-7 NORTH RIVERSIDE IL 12 *
KB-8 BARSTOW CA 12 *
KB-9 KANSAS CITY KS 12/SSD *
KC-1 FONTANA CA 12 *
KC-2 HAMDEN CT 02 *
KC-3 ALHAMBRA CA 12 *
KC-4 SIMI VALLEY CA 12 *
KC-5 REDLANDS CA 12 *
KC-6 PHOENIX AZ 12/SSD *
KC-7 LANCASTER CA 12 *
** Deleted Pursuant to Request for Confidentiality Treatment.
* Remote Studios
69
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
KC-8 CINCINNATI OH 12 *
KC-9 TUSTIN CA 12 *
KD-1 ROLLING HILLS ESTATES CA 12 *
KD-2 DOWNER'S GROVE IL 12 *
KD-3 LIVERMORE CA 12 *
KD-4 BRISTOL CT 02 *
KD-5 REDWOOD CITY CA 12 *
KD-6 LA MIRADA CA 12 *
KD-7 E. PROVIDENCE RI 02 *
KD-8 LOUISVILLE KY 12 *
KD-9 PITTSBURGH PA 02 *
KE-1 GARDEN CITY KS 12 *
KE-2 LONG BEACH CA 12 *
KE-3 LAS VEGAS NV 12 *
KE-5 BAKERSFIELD CA 12 *
K-02 LAUREL MD 02 *1304
K-04 KANSAS CITY MO 12/SSD *2301
K-06 LIVONIA MI 12 *1460
K-07 ST. LOUIS MO 12/SSD *1500
K-08 WESTMINSTER CO 12 *1291
K-10 TULSA OK 02 *1021
K-11 LOCKPORT NY 02 *1514
K-12 TOLEDO OH 12 *1220
K-13 ALLENTOWN PA 02 *1154
K-14 LEESBURG FL 02 *2745
K-15 ENFIELD CT 02 *1093
K-16 CLOVIS CA 12 *8516
K-17 MATTESON IL 12 *1750
K-19 TOWSON MD 02 *1814
K-20 BALTIMORE MD 02 *1634
K-21 READING PA 02 *1484
K-22 ST. LOUIS MO 12/SSD *1500
K-23 PORTLAND OR 12 *1079
K-24 LAKEWOOD WA 12 *1129
K-26 PERU IL 12 *1740
** Deleted Pursuant to Request for Confidentiality Treatment.
* Remote Studios
70
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
K-27 HAZELTON PA 02 *2684
K-29 FERGUSON MO 12/SSD *1500
K-30 ORLANDO FL 02 *1225
K-31 OTTUMWA IA 12 *2392
K-32 LANSING MI 12 *1170
K-33 CLIFTON PARK NY 02 *1103
K-34 MUSCATINE IA 12 *2760
K-35 HAWTHORNE CA 12 *1278
K-36 DOWNEY CA 12 *1518
K-37 MOUNT PROSPECT IL 12 *1570
K-38 TAMPA FL 02 *1465
K-39 LEXINGTON KY 12 *1580
K-40 YONKER NY 02 *1114
K-41 NASHVILLE TN 02 *1316
K-42 PHILADELPHIA PA 02 *1084
K-422 CHICAGO IL 12 *1840
K-428 KALAMAZOO MI 12 *1380
K-43 NEWPORT NEWS VA 02 *1575
K-433 WAUKEGAN IL 12 *1290
K-436 PEORIA IL 12 *1480
K-44 BEL AIR MD 02 *1854
K-446 WYOMING MI 12 *1140
K-45 PHOENIX AZ 12/SSD *1588
K-46 SPRINGFIELD MO 02 *1171
K-460 JOPLIN MO 02 *2141
K-47 HAMILTON OH 12 *1280
K-48 BURTON MI 12 *1100
K-49 EL PASO TX 12 *1317
M-01 ATHENS GA 01 2845
M-02 MIAMI FL 01 1125
M-03 FT. LAUDERDALE FL 01 1195
M-04 KILLEEN TX 01 2487
M-05 FREDRICK MD 01 2664
M-06 S.E. PORTLAND OR 11 1119
M-07 ZANESVILLE OH 11 2550
** Deleted Pursuant to Request for Confidentiality Treatment.
* Remote Studios
71
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
M-08 MARION IL 11/SSD 2220
M-09 GRAND FORKS ND 11 2332
M-10 MINOT ND 11 2152
M-11 GALESBURG IL 11 2910
M-12 PIQUA OH 11 2610
M-13 FINDLAY OH 11 2790
M-14 MARION OH 11 2420
M-15 RICHMOND IN 11 2800
M-16 GREAT FALLS MT 11 2808
M-17 MELBOURNE FL 01 2245
M-18 FLAGSTAFF AZ 11/SSD 2358
M-19 HANFORD CA 11 2198
M-20 SANDUSKY OH 11 2510
M-21 BILLINGS MT 11 2242
M-22 GRAND JUNCTION CO 11 2361
M-23 CHILLICOTHE OH 11 2850
M-24 BRISTOL VA 01 2425
M-25 W. LAFAYETTE IN 11 2000
M-26 WINTER HAVEN FL 01 2325
M-28 ANDERSON IN 11 2140
M-29 MUNCIE IN 11 2570
M-30 DANVILLE IL 11 2362
M-31 JOPLIN MO 01 2141
M-32 PLANO TX 01/SSD 1337
M-33 CHARLESTON SC 01 2855
M-34 AUSTIN TX 01 1357
M-35 CHICAGO RIDGE IL 11 1840
M-36 COLUMBIA MD 01 1844
M-37 MEMPHIS TN 01 2806
M-38 DAVENPORT IA 11 2760
M-39 PARKSVILLE MD 01 1854
M-40 OXFORD AL 01 2186
M-41 OCALA FL 01 1006
M-42 SAVANNAH GA 01 1305
M-43 MERRITT ISLAND FL 01 1175
** Deleted Pursuant to Request for Confidentiality Treatment.
72
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
M-44 GAINESVILLE FL 01 1665
M-45 HATTIESBURG MS 01 2116
M-46 HOUSTON TX 01 1377
M-47 COCKEYSVILLE MD 01 1864
M-48 BUTLER PA 01 2724
M-49 TUCSON AZ 11 1728
M-50 MOUNT HOPE WV 01 2704
M-51 BLUEFIELD WV 01 2714
M-52 LAREDO TX 01 2247
M-53 PHOENIX AZ 11/SSD 1708
M-54 PHOENIX AZ 11/SSD 1588
M-55 SCOTTSDALE AZ 11/SSD 1458
M-56 PHOENIX AZ 11/SSD 1768
M-57 MESA AZ 11/SSD 1628
M-58 BRADENTON FL 01 2565
M-59 NAPLES FL 01 2695
M-60 CRANBERRY PA 01 2734
M-61 COLORADO SPRINGS CO 11 1221
M-62 KANEOHE OAHU HI 11 1738
M-63 WAUSAU WI 11 2470
M-64 FREDRICKSBURG VA 01 2694
M-65 COLUMBUS IN 11 2070
M-66 ADRIAN MI 11 2150
M-67 LOGANSPORT IN 11 2460
M-68 LAS CRUCES NM 11 2527
M-69 PORT RICHEY FL 01 2885
M-70 TUPELO MS 01 2786
M-71 STATE COLLEGE PA 01 2344
M-72 INDIANA PA 01 2674
M-73 CHARLOTTESVILLE VA 01 2435
M-74 GOLDSBORO NC 01 2225
M-75 JACKSONVILLE NC 01 2755
M-76 FLORENCE SC 01 2705
M-77 FARMINGTON NM 11 2597
M-78 KINGSPORT TN 01 2825
** Deleted Pursuant to Request for Confidentiality Treatment.
73
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
M-79 STAMFORD CT 01 3154
M-80 DOTHAN AL 01 2025
M-82 JOHNSON CITY TN 01 2265
M-83 HOT SPRINGS AR 01 2126
M-84 CUMBERLAND MD 01 2774
M-85 HAGERSTOWN MD 01 2414
M-86 LITTLETON CO 11 1271
M-87 MARYVILLE TN 01 2156
M-88 VALDOSTA GA 01 2125
M-89 ENID OK 01 2291
M-90 BRUNSWICK GA 01 2065
M-91 DECATUR AL 01 2236
M-92 ROCKY MOUNT NC 01 2635
M-93 LAUREL MS 01 2566
M-94 SHEBOYGAN WI 11 2372
M-95 GREENVILLE MS 01 2326
M-96 MIAMI FL 01 1715
M-97 KEY WEST FL 01 2215
N-01 SIOUX CITY IA 11 2422
N-02 DAYTONA BEACH FL 01 1075
N-03 JACKSON TN 01 2036
N-04 JONESBORO AR 01 2046
N-05 GAUTIER MS 01 2196
N-06 JACKSON MI 11 2050
N-07 PORTAGE MI 11 1110
N-08 BAY CITY MI 11 2380
N-09 ST. CLOUD MN 11 2352
N-10 CANTON OH 01 1410
N-11 ROCHESTER MN 11 2602
N-12 APPLETON WI 11 2092
N-13 GREEN BAY WI 11 2112
N-14 MADISON WI 11 2382
N-15 MADISON WI 11 2232
N-16 SANTA ROSA CA 11 1658
N-17 GRAND RAPIDS MI 11 1140
** Deleted Pursuant to Request for Confidentiality Treatment.
74
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
N-18 ELKHART IN 11 2130
N-19 MISSOULA MT 11 2259
N-20 BISMARCK ND 11 2402
N-21 ANNAPOLIS MD 01 2024
N-22 TUSCALOOSA AL 01 2796
N-23 VICTOR NY 01 1584
N-24 BUFFALO NY 01 1984
N-25 NIAGARA FALLS NY 01 1514
N-26 ROCHESTER NY 01 1894
N-27 ROCHESTER NY 01 1524
N-28 WILLIAMSVILLE NY 01 1504
N-29 HORSEHEADS NY 01 2744
N-30 BRIDGEPORT WV 01 2826
N-31 FAIRFAX VA 01 1814
N-32 GREENVILLE SC 01 1595
N-33 LYNNWOOD WA 11 1109
N-34 LA CROSSE WI 11 2432
N-35 SALINAS CA 11 1688
N-36 NEW CASTLE PA 01 2274
N-37 YOUNGSTOWN OH 01 1474
N-38 NILES OH 01 1564
N-39 STEUBENVILLE OH 01 2324
N-40 WASHINGTON PA 01 2114
N-42 ATLANTA GA 01 1275
N-43 ATLANTA GA 01 1385
N-46 MORROW GA 01 1565
N-47 IOWA CITY IA 11 2282
N-48 DUBUQUE IA 11 2122
N-49 FT. DODGE IA 11 2052
N-50 MASON CITY IA 11 2252
N-51 SIOUX FALLS SD 11 2872
N-52 MOLINE IL 11 1050
N-53 MIDLAND TX 01 2657
N-54 VICTORIA TX 01 2617
N-55 SAN LUIS OBISPO CA 11 2258
** Deleted Pursuant to Request for Confidentiality Treatment.
75
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
N-56 KOKOMO IN 11 2710
N-57 FT. WAYNE IN 11 2730
N-58 FT. WAYNE IN 11 1830
N-60 ROCKFORD IL 11 2990
N-61 SPRINGFIELD IL 11 1780
N-62 COLORADO SPRINGS CO 11 1111
N-63 PUEBLO CO 11 2281
N-64 EUREKA CA 11 2628
N-65 BOURBONNAIS (KANKAKEE) IL 11 2802
N-66 BLOOMINGTON IL 11 2840
N-67 PEORIA IL 11 1480
N-68 EAU CLAIRE WI 11 2002
N-69 DECATUR IL 11 1320
N-70 CHAMPAIGN IL 11 2920
N-71 TERRE HAUTE IN 11 2600
N-72 BLOOMINGTON IN 11 2820
N-73 MICHIGAN CITY IN 11 2290
N-74 BATTLE CREEK MI 11 2040
N-75 MUSKEGAN MI 11 2930
N-76 SPRINGFIELD OH 11 2390
N-77 SHERMAN TX 01/SSD 2627
N-78 ANDERSON SC 01 2305
N-79 W. DUNDEE IL 11 1820
N-80 NEWARK CA 11 1698
N-81 ALBANY GA 01 2815
N-82 QUINCY IL 11 2360
N-83 LAKELAND FL 01 1955
N-84 CHATTANOOGA TN 01 1315
N-85 UNION CITY GA 01 2865
N-86 FT. COLLINS CO 11 2271
N-87 FAYETTEVILLE AR 01 2241
N-88 BARBOURSVILLE WV 01 1804
N-89 NORTH WALES PA 01 1834
N-90 ROSEBURG OR 11 2289
N-91 OKLAHOMA CITY OK 01 1211
** Deleted Pursuant to Request for Confidentiality Treatment.
76
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
N-92 BOCA RATON FL 01 1645
N-93 HEMET CA 11 2248
N-94 GREELEY CO 11 2451
N-95 COLONIAL HEIGHTS VA 01 2064
N-96 KNOXVILLE TN 01 1675
N-97 KNOXVILLE TN 01 1395
N-98 SPRINGFIELD MO 01 1171
N-99 BEND OR 11 2279
P-02 CAPE GIRARDEAU MO 11/SSD 2146
P-03 PADUCAH KY 11/SSD 2176
P-04 FT. SMITH AR 01 2231
P-05 WACO TX 01 1367
P-06 COLUMBUS MS 01 2086
P-07 JEFFERSON MO 11/SSD 2331
P-08 SALINA KS 11 2131
P-09 CASPER WY 11 2341
P-10 FARGO ND 11 2082
P-11 AUBURN AL 01 2595
P-12 CHEYENNE WY 11 2371
P-13 MYRTLE BEACH SC 01 2785
P-14 COLUMBIA MO 11/SSD 2480
P-15 GRAND ISLAND NE 11 2421
P-16 KANSAS CITY MO 11/SSD 1181
P-18 MANHATTAN KS 11/SSD 2430
Q-01 COEUR D'ALENE ID 11 2349
Q-02 ATTLEBORO MA 01 1033
Q-03 KINGSTON MA 01 2043
Q-04 PHILLIPSBURG NJ 01 2574
Q-05 TITUSVILLE FL 01 2195
Q-06 PARIS TX 01/SSD 2097
Q-07 CHESAPEAKE VA 01 2454
Q-08 COLUMBIA TN 01 2375
Q-09 BOWIE MD 01 2004
Q-10 JENSEN BEACH FL 01 2315
Q-11 MOREHEAD CITY NC 01 2165
** Deleted Pursuant to Request for Confidentiality Treatment.
77
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
Q-12 LANGHORNE PA 01 1064
Q-13 BOULDER CO 11 2108
Q-14 SUMTER SC 01 2365
Q-15 MARTINSVILLE VA 01 2094
Q-16 CORAL SPRINGS FL 01 1055
Q-17 MIAMI FL 01 2155
Q-18 AIKEN SC 01 2095
R-01 HIGH POINT NC 01 2545
R-02 DALTON GA 01 2615
R-03 KING OF PRUSSIA PA 01 1884
R-05 ROME GA 01 2895
R-07 GREENVILLE NC 01 2175
R-08 VALLEY STREAM NY 01 1924
R-09 PRESCOTT AZ 11/SSD 2348
R-10 YORKTOWN HEIGHTS NY 01 1944
R-11 CLOVIS NM 11 2888
R-12 ROSWELL NM 11 2207
R-13 SIERRA VISTA AZ 11 2328
R-15 SANTA FE NM 11 2208
R-16 DULUTH GA 01 1685
R-17 FT. PIERCE FL 01 2005
R-18 LUFKIN TX 01 2577
R-19 MANKATO MN 11 2142
R-20 WINCHESTER VA 01 2784
R-21 ASHLAND KY 01 2854
R-23 HUMBLE TX 01 1417
R-25 WALLA WALLA WA 11 2599
R-27 HILO HI 11 2388
R-30 HUNTSVILLE AL 01 2166
R-31 CINCINNATI OH 12 *1610
R-32 KAHULUI MAUI HI 11 2148
R-33 BARTLESVILLE OK 01 2221
R-34 MARION IN 11 2072
R-35 FAIRFIELD CA 11 2378
R-37 SLIDELL LA 01 2026
** Deleted Pursuant to Request for Confidentiality Treatment.
* Remote Studios
78
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
R-38 MONTCLAIR CA 11 1748
R-40 KENNESAW GA 01 1155
R-41 ORLANDO FL 01 1285
R-43 WATERTOWN NY 01 2683
R-44 LEAVENWORTH KS 11/SSD 2650
R-46 LONGMONT CO 11 2398
R-47 PALM BEACH GARDENS FL 01 1765
R-48 PLATTSBURG NY 01 2533
R-49 MUSKOGEE OK 01 2045
R-50 DULUTH MN 11 2500
R-51 BOWLING GREEN KY 01 2546
R-52 GAINESVILLE GA 01 2505
R-53 PITTSBURGH PA 01 1034
R-54 FLUSHING NY 01 3244
R-56 LEWISTON ID 11 2209
R-57 WESTMINSTER MD 01 2963
R-59 LIHUE HI 11 2368
R-60 MORRISTOWN TN 01 2055
R-61 ARLINGTON TX 01/SSD 1437
R-63 TRAVERSE CITY MI 11 2180
R-66 MONROE MI 11 2012
R-67 CHATTANOOGA TN 01 1105
R-70 MANASSAS VA 01 2044
R-71 HATO REY PR 03 1905
R-72 CAROLINA PR 03 1925
R-73 BAYAMON PR 03 1915
R-75 PONCE PR 03 1945
R-76 MAYAGUEZ PR 03 2925
R-77 CAGUAS PR 03 2915
R-80 SAN ANTONIO TX 01 1427
R-81 HOLLAND MI 11 2032
R-82 CHICO CA 11 2048
R-84 CHRISTIANBURG VA 01 2985
R-85 SCHENECTADY NY 01 2113
R-86 NEW PHILADELPHIA OH 01 2080
** Deleted Pursuant to Request for Confidentiality Treatment.
79
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
R-87 BLOOMSBURG PA 01 2284
R-88 AMES IA 11 2092
R-89 LOS ANGELES CA 11 1018
R-91 ASHEBORO NC 01 2645
R-92 DU BOIS PA 01 2124
R-94 CHEEKTOWAGA NY 01 2134
R-95 CHICAGO IL 11 2980
R-96 SHAWNEE OK 01 2057
R-97 ITHACA NY 01 2564
R-98 PORT CHARLOTTE FL 01 2145
R-99 LEWISVILLE TX 01/SSD 1076
S-414 ST. ANN MO 11/SSD 1500
S-426 VIRGINIA BEACH VA 01 1265
S-427 DALLAS TX 01/SSD 1057
S-467 OVERLAND PARK KS 11/SSD 1101
S-475 HOUSTON TX 01 1197
S-477 MESQUITE TX 01/SSD 1187
S-480 FT. WORTH TX 01/SSD 1117
S-482 HOUSTON TX 01 1017
S-483 HOUSTON TX 01 1067
S-484 HOUSTON TX 01 1127
S-487 PHILADELPHIA PA 01 1084
S-492 PASADENA TX 01 1107
S-493 CRESTWOOD MO 11/SSD 1270
S-494 SILVER SPRINGS MD 01 1304
S-495 BETHESDA MD 01 1424
S-752 UPPER DARBY PA 01 1174
S-756 DALLAS TX 01/SSD 1227
S-758 ALBUQUERQUE NM 11 1287
S-760 TULSA OK 01 1021
S-761 AUSTIN TX 01 1137
S-762 SAN ANTONIO TX 01 1167
S-767 LANDOVER MD 01 1604
S-768 WILLOW GROVE PA 01 1354
S-769 TAMPA FL 01 1505
** Deleted Pursuant to Request for Confidentiality Treatment.
80
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
S-771 LIVONIA MI 11 1460
S-772 TROY MI 11 1490
S-773 FLINT MI 11 1100
S-774 ROSEVILLE MI 11 1450
S-778 LOUISVILLE KY 11 1850
S-779 COLUMBUS OH 11 1370
S-781 COLUBUS OH 11 1440
S-784 FRANKLIN TN 01 2875
S-785 GOODLETTSVILLE TN 01 1386
S-786 MEDIA PA 01 1654
S-787 FLORISSANT MO 11/SSD 1630
S-788 RICHARDSON TX 01/SSD 1207
S-790 TIGARD OR 11 1079
S-791 MOBILE AL 01 1056
S-792 ALTAMONTE SPRINGS FL 01 1355
S-793 TUCSON AZ 11 1338
S-794 SPOKANE WA 11 1029
S-795 METAIRIE LA 01 1226
S-797 GRETNA LA 01 1286
S-798 INDEPENDENCE MO 11/SSD 1121
S-799 KANSAS CITY MO 11/SSD 2301
S-800 WESTMINISTER CA 11 1608
S-801 LAGUNA HNILLS CA 11 1548
S-802 LINCOLN PARK MI 11 1250
S-803 COLUMBUS OH 11 1150
S-804 AURORA IL 11 1660
S-805 IRVING TX 01/SSD 2147
S-806 SACRAMENTO CA 11 1408
S-807 CITRUS HEIGHTS CA 11 1538
S-808 BIRMINGHAM AL 01 1266
S-810 BIRMINGHAM AL 01 2746
S-812 CORNWELL HEIGHTS PA 01 1454
S-814 WILMINGTON DE 01 1853
S-815 WILMINGTON DE 01 1254
S-816 DEPTFORD NJ 01 1464
** Deleted Pursuant to Request for Confidentiality Treatment.
81
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
S-817 MOORESTOWN NJ 01 1494
S-818 LITTLE ROCK AR 01 1016
S-819 N. LITTLE ROCK AR 01 2066
S-820 COLUMBIA SC 01 1525
S-821 N. SAN DIEGO CA 11 1648
S-822 NOVI MI 11 1760
S-823 NORMAN OK 01 2311
S-825 OKLAHOMA CITY OK 01 1091
S-826 MT. VIEW CA 11 1238
S-827 EL PASO TX 11 1317
S-829 AMARILLO TX 01 1387
S-830 PARK FOREST IL 11 1420
S-832 SCHAUMBURG IL 11 1570
S-833 MERRILLVILLE IN 11 1650
S-836 DES MOINES IA 11 1012
S-837 N. HOLLYWOOD CA 11 1168
S-838 CLEARWATER FL 01 1415
S-839 TAMPA FL 01 1465
S-840 MONACA PA 01 1594
S-842 PITTSBURGH PA 01 1334
S-844 PITTSBURGH PA 01 1344
S-845 WEST MIFFLIN PA 01 1824
S-846 GREENSBURG PA 01 1714
S-847 SEATTLE WA 11 1009
S-848 TACOMA WA 11 1129
S-849 TUKWILA WA 11 1139
S-850 SEATTLE WA 11 1059
S-851 REDMOND WA 11 1069
S-852 FEDERAL WAY WA 11 1099
S-853 SILVERDALE WA 11 2309
S-855 EVERETT WA 11 2049
S-856 ST. PETERSBURG FL 01 1295
S-857 VANCOUVER WA 11 2239
S-858 SALEM OR 11 2119
S-859 CHICAGO IL 11 1010
** Deleted Pursuant to Request for Confidentiality Treatment.
82
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
S-860 JACKSON MS 01 1106
S-861 MIDWEST CITY OK 01 1261
S-862 BATON ROUGE LA 01 1086
S-863 MONROE LA 01 1116
S-864 BOSSIER CITY LA 01 2677
S-865 MONTGOMERY AL 01 1126
S-866 PENSACOLA FL 01 1096
S-867 FLORENCE KY 11 1730
S-868 CHICAGO IL 11 1020
S-869 CHICAGO IL 11 1030
S-870 CHICAGO IL 11 1090
S-872 CHICAGO IL 11 1380
S-874 NILES IL 11 1290
S-876 OAK BROOK IL 11 1300
S-877 VERNON HILLS IL 11 1620
S-879 SHREVEPORT LA 01 1077
S-880 DES MOINES IA 11 2392
S-881 UNION GAP WA 11 2029
S-883 BEAUMONT TX 01 1407
S-884 PORT ARTHUR TX 01 2637
S-887 AKRON OH 01 1520
S-888 AKRON OH 01 1670
S-889 DENTON TX 01/SSD 2587
S-892 CLEVELAND OH 01 1430
S-893 ELYRIA OH 01 1310
S-894 MENTOR OH 01 1350
S-895 NORTH RANDALL OH 01 1770
S-896 RICHMOND HEIGHTS OH 01 1530
S-897 NORTH OLMSTEAD OH 01 1710
S-898 ALEXANDRIA LA 01 2087
S-899 MARY ESTHER FL 01 2056
V-12 W. HARTFORD CT 01 1063
V-13 ALBANY NY 01 1103
V-14 FAYETTEVILLE NY 01 2223
V-15 CLAY NY 01 1623
** Deleted Pursuant to Request for Confidentiality Treatment.
83
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
V-16 NEW HARTFORD NY 01 2603
V-18 WATERBURY CT 01 1183
V-19 GLEN FALLS NY 01 2453
V-20 LEWISTON ME 01 2463
V-21 ALLENTOWN PA 01 1154
V-22 MAY'S LANDING NJ 01 1554
V-23 BANGOR ME 01 2583
V-24 WILKES-BARRE PA 01 2604
V-25 LANCASTER PA 01 1644
V-26 BURLINGTON VT 01 2053
V-27 CAMP HILL PA 01 2624
V-29 WARWICK RI 01 1083
V-30 SWANSEA MA 01 2283
V-31 TOM'S RIVER NJ 01 2524
V-32 N. DARTMOUTH MA 01 2373
V-33 S. PORTLAND ME 01 2183
V-34 READING PA 01 1484
V-35 HOLYOKE MA 01 1273
V-36 MANCHESTER NH 01 2443
V-37 WATERFORD CT 01 1193
V-39 HARRISBURG PA 01 1224
V-40 POTTSTOWN PA 01 2484
V-41 DEDHAM MA 01 1123
V-42 ORANGE CT 01 1113
V-43 BROCKTON MA 01 2233
V-44 NEWBURGH NY 01 2593
V-45 POUGHKEEPSIE NY 01 1333
V-46 KINGSTON NY 01 2353
V-47 MIDDLETOWN NY 01 1323
V-48 SALISBURY MD 01 1773
V-49 HANOVER PA 01 2244
V-50 SCRANTON PA 01 1534
V-51 SPRINGFIELD MA 01 1093
V-53 MUNCY PA 01 2644
V-54 FRACKVILLE PA 01 2684
** Deleted Pursuant to Request for Confidentiality Treatment.
84
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
V-55 BRAINTREE MA 01 1283
V-56 CAMILLUS NY 01 2164
V-57 YORK PA 01 1244
V-58 AUGUSTA ME 01 2293
V-59 LEBANON PA 01 2254
V-60 BRUNSWICK ME 01 2203
V-61 PRESQUE ISLE ME 01 2143
V-62 DOVER DE 01 2654
V-63 WOONSOCKET RI 01 2073
V-64 LANESBOROUGH MA 01 2343
V-65 MERIDEN CT 01 1043
V-67 VINELAND NJ 01 2374
V-68 MANCHESTER CT 01 1443
V-69 DANBURY CT 01 1303
V-70 HYANNIS MA 01 2323
V-71 NEWINGTON NH 01 2663
V-72 NATICK MA 01 1403
V-74 CONCORD NH 01 2023
V-75 AUBURN NY 01 2473
V-76 NASHUA NH 01 1313
V-77 HANOVER MA 01 1243
V-78 PEABODY MA 01 1253
V-79 AUBURN MA 01 1213
V-80 OCEAN NJ 01 1744
V-81 SAUGUS MA 01 1053
V-82 LEOMINSTER MA 01 1133
V-83 BURLINGTON MA 01 1163
Y-02 LANCASTER OH 11 2750
Y-03 ELIZABETHTOWN KY 11 2030
Y-04 MERAUX LA 01 2385
Y-06 CHAMBERSBURG PA 01 2224
Y-08 IRONDEQUOIT NY 01 2003
** Deleted Pursuant to Request for Confidentiality Treatment.
85
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
Y-09 NEW HYDE PARK NY 01 2933
Y-12 SOUTH WALDORF MD 01 1074
Y-13 MURFREESBORO TN 01 2226
Y-17 FAIRFIELD AL 01 2206
Y-18 SARATOGA SPRINGS NY 01 2173
Y-19 COLUMBIA SC 01 2035
Y-21 FREEHOLD NJ 01 1204
Y-22 MASSENA NY 01 2033
Y-23 HOUSTON TX 01 5011
Y-24 ST. PETERS MO 11/SSD 1182
Y-25 JACKSONVILLE FL 01 1066
Y-26 WESTOVE WV 01 2304
Y-27 COON RAPIDS MN 11 2902
Y-28 GUAYAMA PR 03 2675
Y-29 CRYSTAL RIVER FL 01 2555
Y-30 CAMBRIDGE MA 01 1343
Y-31 OAKRIDGE TN 01 2376
Y-36 ST. CHARLES IL 11 2041
Y-37 MESA AZ 11/SSD 1078
Y-38 BURBANK CA 11 1838
Y-39 RICHMOND CA 11 1788
Y-40 PINEVILLE NC 01 1646
Y-41 BLOOMINGDALE IL 11 1172
Y-43 CARY NC 01 2824
Y-44 MARTINSBURG WV 01 2814
Y-46 BALTIMORE MD 01 2823
Y-47 MIDLAND MI 11 2642
Y-48 FAIRBANKS AK 11 2819
Y-50 SALEM NH 01 1003
Y-51 TAUNTON MA 01 2934
Y-52 MONTEBELLO CA 11 1998
Y-53 CLEVELAND TN 01 2345
Y-54 ASHTABULA OH 01 2932
Y-55 BLOOMINGTON MN 11 1722
Y-56 BOYNTON BEACH FL 01 1755
** Deleted Pursuant to Request for Confidentiality Treatment.
86
Schedule Of Locations
STUDIO STORE SQUARE
NO. CITY STATE DIV NO. FOOTAGE**
- ----- ---------------- ----- ------- ----- ---------
Y-57 VALENCIA CA 11 1999
Y-58 MORENO VALLEY CA 11 1868
Y-61 HOMESTEAD FL 01 2235
Y-62 ALPHARETTA GA 01 1695
Y-63 BEAVER CREEK OH 11 1202
Y-64 PUYALLUP WA 11 2330
** Deleted Pursuant to Request for Confidentiality Treatment.
1. [Deleted Pursuant to Request for Confidentiality Treatment.]
2. [Deleted Pursuant to Request for Confidentiality Treatment.]
3. [Deleted Pursuant to Request for Confidentiality Treatment.]
87
PAGE
Exhibit (11)
CPI CORP. COMPUTATION OF EARNINGS PER COMMON SHARE
FISCAL YEARS ENDED FEBRUARY 5, 1994, FEBRUARY 6, 1993
AND FEBRUARY 1, 1992
Computation of Earnings Per Common Share
Fiscal Years Ended February 5, 1994, February 6, 1993
and February 1, 1992
1993 1992 1991
---------- ---------- ----------
Common shares outstanding
at beginning of
fiscal period 16,955,730 16,929,102 16,859,600
Shares issued during
the period -
weighted average 18,624 23,338 53,139
Shares issuable under
employee stock plans -
weighted average 26,670 26,403 28,609
Dilutive effect of
exercise of certain
stock options 0 5,858 19,903
Less: Treasury stock -
weighted average (2,335,070) (2,308,918) (1,854,079)
------------ ------------ ------------
Weighted average number
of common and common
equivalent shares 14,665,954 14,675,783 15,107,172
============ ============ ============
Net earnings applicable
to common shares $13,236,456 $22,614,861 $27,134,744
============ ============ ============
Earnings per common
share $ .90 $ 1.54 $ 1.80
============ ============ ============
88
PAGE
Exhibit (13)
1993 ANNUAL REPORT TO SHAREHOLDERS
On the following pages is CPI Corp. 1993 Annual Report to
Shareholders.
89
PAGE
(Front cover of Annual Report to Shareholders)
"Growth becomes most apparent when viewed over the long term."
CPI Corp.
1993 Annual Report to Shareholders
(Pictures: five pictures of a boy from birth to early teens)
90
PAGE
CPI AT A GLANCE
CPI Corp.'s cash flow has remained strong, even as profits have
declined over the past three years. The profit decline is primarily
the result of significantly increased competition in the portrait
photography industry, causing margin deterioration. While this
competitive environment has not abated, management believes that
the next few years will show improved performance in operating
earnings because of marketing innovations and expansion of the
Company's various divisions.
CPI primarily operates businesses that provide reasonably priced,
professionally performed consumer services-portrait photography,
photofinishing and electronic publishing-throughout the U.S. and
Canada through over 1,800 retail locations, including a newly
entered fourth business-posters, prints and framing retailing. A
brief review of the divisions follows:
Leading position in the highly competitive preschool
portrait photography market
- -As the exclusive Sears Portrait Studios operator, CPI continues a
33-year partnership, with 900 studios in all major Sears stores in
the U.S. and Canada, and 92 studios in non-Sears shopping centers.
- -Despite a dramatic increase in competition in the last three
years, the Company has maintained its market position while
concurrently developing new marketing programs employing digital
imaging technology to significantly enhance products and services.
In the next two years CPI will install this technology in all
studios as the first phase of a 5-year, $75 million development
program, in which studio capability to serve customers will be
elevated to a new level.
Leading position in the competitive, fragmented
photofinishing market
- -From a start-up venture in 1982, this business has developed into
CPI's second major segment.
- -Through a combination of new store openings and acquisitions, the
most significant of which was over 300 Fox Photo labs in 1991, the
division has expanded to its present 670 locations, the largest
such operation in the U.S.
- -While photofinishing is the primary customer service, significant
revenues are generated from additional services and products
provided to those customers. Full service to serious photographers
is the hallmark of this enterprise.
91
- -The segment recorded significant operating earnings in 1993
despite increased competition from supermarkets, drug stores and
mass merchants, and continues to generate consistently strong cash
flow.
Entry into new industry with acquisition of profitable
retail chain
- -Prints Plus is the leading non-franchise posters, prints and
framing retailer in the U.S., offering unparalleled product
selection tailored to each market's tastes, and "while-you-wait"
framing service.
- -Acquired in late May, the new business contributed significantly
to CPI's 1993 operating earnings.
- -Plans call for the addition of 15 locations per year to the
chain's 1993 year-end 103 stores in prime mall locations.
Conceptual development in digital graphics industry
- -Applying its skill in managing remote retail locations, CPI is
developing a chain of high-tech copy stores.
- -Two experimental concept stores are exploring digital graphics
technology that could have ongoing impact on CPI's present
businesses.
Growth Resources
Capital for the expansion and upgrading of CPI's various businesses
will come from operating cash flow, which has averaged $47.9
million over the past five years, with supplemental funding
provided by the 1993 $60 million private note placement.
92
ACCOMPLISHMENTS AND HIGHLIGHTS
1993 Accomplishments
- -Maintained Portrait Studio market position through aggressive
promotional campaign, despite continuing increase in competition.
- -Developed highly attractive new portrait studio products that
utilize new digital imaging technology. Complete rollout expected
by end of 1995.
- -Entered into new five-year license agreement with Sears, Roebuck
and Co.
- -Continued expansion of Photofinishing segment, with increased
sales and healthy cash flow, although earnings declined in the face
of growing competition.
- -Acquired Prints Plus, the nation's leading non-franchised prints,
poster and framing service retailer.
- -Secured $60 million in long-term capital for development of
businesses, both technologically and geographically.
93
PAGE
Financial Highlights--Continuing Operations: In millions of
dollars, except percents and per share data
One Year Five Year
1993 1992 %Change 1988 %Change*
Sales
Portrait
Studios $237.9 $264.4 (10.0) $241.2
Photofinishing 187.2 169.2 10.6% 69.3
Other Products
and Services 50.4 15.8 218.3% 7.6
Total $475.5 $449.4 5.8% $318.1 8.4%
Operating Income**
Portrait
Studios $ 30.0 $ 48.4 (38.1)% $ 63.1
Photofinishing 7.0 9.6 (27.4)% 0.6
Other Products
and Services 1.1 (4.1) 127.6% (2.2)
Earnings After
Taxes*** $ 11.1 $ 22.6 (50.8)% $ 31.9 (19.0)%
Average Shares
Outstanding
(millions) 14.7 14.7 (0.1)% 16.7
Per Share
Earnings from
Continuing
Operations $ 0.76 $ 1.54 (50.6)% $ 1.91 (16.8)%
Dividends 0.56 0.56 - 0.25
Tangible Book
Value 7.84 7.33 7.0% 7.68
Price
High $ 20.75 $ 26.38 - $ 22.25
Low 13.88 15.00 - 17.25
* compound annual rate 1988-1993
** 1992 and prior results restated: see explanation on page 139 of
this document (Management's Discussion and Analysis of
Financial Condition and Results of Operation--Operating
Income).
*** Excluding $2.1 million credit from accounting change in 1993
94
PAGE
Financial Highlights: Segment Results in Millions of Dollars
Portrait
Studios Photofinishing Other
1993 Sales 238 187 50
1992 Sales 264 169 16
1988 Sales 241 69 8
1993 Operating Income** 30.0 7.0 1.1
1992 Operating Income** 48.4 9.6 -4.1
1988 Operating Income** 63.1 0.6 -2.2
** 1992 and prior results restated: see explanation on page 139 of
this document (Management's Discussion and Analysis of
Financial Condition and Results of Operation--Operating
Income).
Financial Highlights: Cash Flow in Millions of Dollars
(See tables on pages 127-134 of this document.)
Cash from
Operations OCECE*
1993 39 9
1992 37 24
1988 50 31
* OCECE: Operating Cash in Excess of Capital Expenditures
(Excluding Acquisitions)
Tables: Although portrait studio sales declined in 1993 because of
competitive and economic conditions, photofinishing and other sales
increased, primarily due to revenues from recent acquisitions.
Portrait studio earnings were significantly lower. A decline in
photofinishing results was more than offset by other gains. Cash
flow from operations was relatively strong, despite a significant
drop in total operating earnings.
95
PAGE
OVERVIEW
A Management Company
CPI is a retail management company, not a collection of separate
enterprises. How they are run and what is required to run them is
more important than what they do.
Over CPI's history of more than 50 years, a particular management
method has evolved to encompass:
- - functional organizational structure
- - highly quantitative marketing techniques
- - effective hiring, training and motivation programs
- - specialized statistical and accounting controls
These tools are all employed with relative comfort by a pool of
professionals who are able to transfer their special skills to new,
but related venues of service retailing.
Business Philosophy
The depth of experience and leadership skills of senior management
have helped develop CPI's philosophy of concentration on long-term
progress, rather than focusing on short-term achievements or
setbacks. Results over the past three years have tested this
principle. Although the Company has experienced profit erosion over
this period, its philosophy has been validated over the long-term
by solid earnings per share, the traditional measure of
performance. Furthermore, strong cash flow, even in the recent
period, has enabled CPI to protect shareholder value through
expansion, acquisitions, dividends and repurchase of shares.
Distinct Differences
CPI differs from typical retailers in several significant aspects:
- --Whereas most retailers focus on the display and resale of
products, CPI's businesses focus more on providing high value-added
services. These services employ state-of-the-art technology and
yield gross margins significantly above industry norms. That
technology has required a significant investment in production
equipment, much of it developed internally on a proprietary basis.
- --The management of inventory is a continuing challenge for most
retailers. The three typical problems in this area are onerous
working capital requirements, obsolescence and shrinkage. Three of
CPI's businesses have significant freedom from each of these.
Inventory consists primarily of production materials related to
work in progress and is relatively small compared to that of
typical retailers. Therefore it is less burdensome on working
capital. Obsolescence is not a factor because CPI's services take
the form of personalized products, i.e., a customer's vacation
pictures, or portraits of a customer's baby. Finally, shrinkage is
non-existent because the pictures are valuable only to the
purchaser.
96
PAGE
- --While CPI's recent performance has been hampered by intensified
competition, particularly in the preschool portrait market, the
economic climate of the last few years was also an adverse
influence. However, the Company's two major businesses are
probably less negatively affected by general economic downturns
than are many retailers. This is because much of the Company's
activity is driven by time-specific personal events, such as
birthdays, graduations, vacations or holidays. Customers do not
casually defer such purchases.
The Company, however, has an open mind to investment in more
traditional retail businesses if they offer high profit potential
and can employ complementary management abilities. In May 1993, CPI
made such an investment with the acquisition of the Prints Plus
chain of wall decor stores that offer prints, posters and custom
framing. While inventory is more of a factor, the business still
offers high value-added margin potential.
Much of CPI's success has been the result of identifying
high-growth, high-margin consumer businesses that are:
- - responsive to promotional marketing
- - easily taught to employees
- - controllable through data monitoring
- - repeatable through small-scale operating units
- - expandable geographically on a broad scale
By adding these proven CPI skills to the existing management
expertise in other more traditional retail organizations, the
Company can continue to build on its existing solid base and extend
itself more broadly.
Ten Years of Sales From Continuing Operations
(in millions of dollars)
Dollars
1983 131
1984 169
1985 198
1986 254
1987 283
1988 318
1989 351
1990 374
1991 415
1992 449
1993 476
97
PAGE
Ten Years of Earnings From Continuing Operations and Dividends
(in dollars per share)
Earnings Dividends
1983 0.69 0.000
1984 0.67 0.000
1985 0.90 0.050
1986 1.18 0.085
1987 1.54 0.165
1988 1.91 0.250
1989 1.97 0.420
1990 2.19 0.500
1991 1.80 0.560
1992 1.54 0.560
1993 0.76 0.560
Tables: Since 1983, the compound annual sales growth rate has
averaged 13.7% through 1993, although earnings per share from
continuing operations have declined in the past three years.
98
PAGE
FINANCIAL HIGHLIGHTS
(Pictures: a chart showing Stock Trading Price and Volume provided
by Standard and Poor's as of April 15, 1994 is shown on this page)
Symbol/Market: CPY (NYSE)
Market Price: 14 7/8 (4/15/94)
Price Range: 18 1/4-13 7/8
(12 months ended 4/15/94)
Market Capitalization: $214.7 million (4/15/94)
Shares Outstanding: 14,433,704 (4/15/94)
12 Months Net Earnings Per Share: $0.90 (FY '93)
Dividend Rate: $0.56 per share
Current P/E: 16.5 (4/15/94)
Financial Ratios For Year-End
2/5/94 2/6/93
Income from Operations 4.0% 7.8%
Tax Rate 40.0% 38.1%
Net Earnings 2.8% 5.0%
Return on Assets 5.6% 9.5%
Return on Equity 7.7% 14.1%
Sales and Earnings
From the initial public offering in 1982 through fiscal 1990, CPI
averaged a compound annual growth in sales of 16.2% and in earnings
per share from continuing operations of 19.1%. Net earnings as a
percentage of sales averaged 8.1% during this period, and the
average return on equity was 30.2%. The growth was due primarily to
the aggressive expansion of the Sears Portrait Studios operation
and, secondarily, to the 1982 launch and subsequent development of
the CPI Photo Finish division. Although sales have continued to
increase to the present, primarily due to acquisitions, earnings
have declined each of the past three years as a result of an
increasingly competitive retail environment and, to a lesser
degree, the nation's continuing economic malaise.
Fiscal 1993
CPI's net sales for the 52-week period increased 5.8% to $475.5
million from $449.4 million for the 53 weeks of 1992, primarily due
to expansion of the photofinishing segment, plus revenues from the
Prints Plus acquisition. On a comparable 52-week basis, sales
increased 7.4%. Earnings from continuing operations were $11.1
million versus the prior year's $22.6 million, while net earnings,
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including a $2.1 million credit from an accounting change, were
$13.2 million. Net earnings per share, including a $0.14 credit
from the accounting change, declined to $0.90 from $1.54 in 1992.
Portrait Studios sales in 1993 were down 10.0% to $237.9 million
from $264.4 million, while operating earnings declined to $30.0
million from $48.4 million (1992 and prior results restated: see
explanation on page 139 of this document (Management's Discussion
and Analysis of Financial Condition and Results of Operation--
Operating Income)). Management believes the segment managed to
maintain its leading position in the preschool portrait market,
although total sittings declined slightly due to the previously
mentioned competitive and economic conditions. Even with these
decreases, the Portrait Studio segment still delivered 12.6%
operating margin on sales.
Photofinishing sales increased by 10.6%, to $187.2 million from
$169.2 million, with most of the gain due to the full-year
contribution of the Proex labs, which were acquired in late 1992,
combined with marginal growth in the CPI and Fox Photo labs.
Operating earnings declined to $7.0 million from $9.6 million (1992
and prior results restated: see explanation on page 139 of this
document (Management's Discussion and Analysis of Financial
condition and Results of Operation--Operating Income)), partly due
to a shift in sales mix from photofinishing services to lower
margin products.
Sales in the Other Products and Services segment were $50.4
million, up from $15.8 million. Most of the increase was the result
of sales growth in the Prints Plus acquisition, although more
recently opened electronic publishing markets recorded small gains.
The segment recorded operating earnings of $1.1 million, mainly due
to the Prints Plus contribution, versus a 1992 loss of $4.1 million
(1992 and prior results restated: see explanation on page 139 of
this document (Management's Discussion and Analysis of Financial
Condition and Results of Operation--Operating Income)).
Financial Strength
Cash and cash equivalents on February 5, 1994 stood at $66.4
million, bolstered primarily by a mid-year $60 million private note
placement, compared to $21.0 million at the prior year's end. Cash
disbursements in 1993 included $14.7 million in acquisitions, $30.4
million in capital expenditures, $8.2 million paid out in dividends
and $0.7 million in stock repurchases. Cash reserves at year end
represented 37.8% of shareholders' equity and long-term debt was
34.1%.
Shareholders' Equity
From $22.8 million at the end of fiscal 1982, shareholders' equity
reached $175.5 million in 1993, primarily through retained
earnings. Cash returned to shareholders consisted of cumulative
dividends of $48.1 million since the initiation of a regular
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quarterly payment in December 1985, and $58.6 million used to
purchase Company stock since the stock repurchase plan was
authorized in September 1988.
Corporate Cash and Equity Compared to Cash Flow
(in millions of dollars)
Cash Flow Cash+Equity Cash only Equity
1983 17 34 13 21
1984 18 45 2 43
1985 33 61 15 46
1986 33 94 30 64
1987 48 117 60 57
1988 50 137 66 71
1989 56 133 70 63
1990 53 152 88 64
1991 54 160 31 129
1992 37 172 21 151
1993 39 176 66 110
Table: At the end of fiscal 1993, the Company's equity totaled
$175.5 million, and cash and cash equivalents totaled $66.4
million. Cash flow from operations in 1993 was $39.4 million (See
Consolidated Statements of Cash Flows on page 151-152 of this
document), or 8.3% of sales and 22.9% of beginning equity.
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(Pictures: on this page are two pictures, one a line drawing
showing a photographer using the Company's VideoVision equipment in
1982 and the second, an inset with calligraphy stating: Trust is
the coin of the realm . . .)
TO OUR SHAREHOLDERS
Having just sent to all shareholders a comprehensive letter, the
text of which is printed on page 119-121 of this report, it would
be redundant to spend our time describing 1993 and 1994 operations.
Instead, if you'll bear with my stepping outside of the Chairman's
role, I'd like to tell you how I, as a long-term shareholder, view
our company.
I believe CPI's current stock price is less than the underlying
values of the operating businesses, even considering their
less-than-satisfactory performance of the last three years. This
leads to the logical conclusion that the additional qualities of
trust and confidence are not being valued-an understandable result
of normal shareholder turnover. During the last four years
management has drawn on a reserve of shareholder confidence that
should naturally arise from clear historical perspective, but since
many of our shareholders are relatively new, that reserve may need
to be supplemented. Let me offer some perspective through a short
review of past annual reports in light of promises made and goals
achieved:
Goal Setting
This management has been candid in establishing goals and, from
time to time, defining expected achievements. They've successfully
developed a profitable chain of almost a thousand Sears Portrait
Studios and a high quality national photofinishing business with
strong cash flows. Their failures include the Tender Sender
experiment and the venture into department store portrait studios,
both discontinued because of the difficulty in working through the
turbulent department store channel. Management also took a shot at
the business telephone industry which never quite got off the
ground. So one might say that CPI has more failures than successes
unless, of course, you tally the dollar values, which are very
significantly on the positive side. In such analysis, one has to
think twice about the classification of Sears Carpet Cleaning,
which never turned into a successful operating business, but
yielded almost $6 million pre-tax profit when sold.
In an operating context, management promised improvements with the
introduction of the Sears Studio VideoVision System and then
successfully proved that the system could increase productivity
beyond expectations. VideoVision has not only served well for
almost twelve years, but some of what was learned has opened new
technological avenues. It was also about 1982 when management
suggested that a successful photofinishing business would grow out
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(Pictures: on this page are two pictures, one, a picture of the
Company's 1986 Annual Report to Shareholders and the second, an
inset with calligraphy stating: . . . and price is its valuation)
of the small existing nucleus. Early expectations for profit growth
were more optimistic than realized. The 20% operating profit goal
was achieved in many of the older locations, but with tighter
competition and recessions to deal with, operating earnings on over
450 established stores (before goodwill and intangible write-offs)
have been closer to the 13-16% range. In 1983 management projected
200 operating labs by 1988, but actually reached 276, and by 1993
year end numbered 670.
The Company has repeatedly called attention to the strong cash flow
generated by the Photofinishing segment, explaining that the growth
through acquisition and first-time installation of new retail units
causes much larger reserves for depreciation and amortization than
is necessary to replace and refurbish existing units. For example,
the 1993 levels of depreciation and amortization are more than
three times the expected maintenance capital for refurbishment and
replacement, and even though 1993 was one of the most difficult in
recent years, divisional results would indicate an excess of $12.7
million in net cash available. (Segment operating income plus
segment depreciation and amortization, less allocated corporate
overhead and appropriate income taxes, less reserve for replacement
of photofinishing equipment at $10,000 a unit per year equals net
cash available.) This represents over 10% of identifiable assets.
Even in a good year most of us would probably be satisfied with
those results.
Planning for Growth
As cash balances started to grow in the 1980s, many were fearful
of diversionary investments. Management promised a soundly based
acquisition policy following established principles and consistent
with announced business philosophies. We should judge those
commitments now by considering the acquisition of Fox Photo in
1991, Proex in 1992, and Prints Plus-the newest forward-looking
adventure-in 1993. Looks like a pretty good record.
When accumulating cash exceeded management's needs for investment,
the board authorized a stock repurchase program in 1988 of 2.5
million shares which was virtually completed by 1992, and then
expanded by another 2 million shares. We can criticize those
repurchases in terms of today's stock pricing, but the goal was not
to beat the market. Management's objective was to return excess
cash to shareholders who chose to sell their holdings.
In a 1986 essay, management told us that "growth should be
carefully controlled in a well-defined, rational atmosphere, and
managed in proportion to existing businesses and to overall size
and capabilities." At the same time, they built a model on the
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(Pictures: on this page are two pictures, one, a picture of the
Company's 1988 Annual Report to Shareholders and the second, an
inset stating: ". . . we might envision a return to double-digit
compound growth.")
premise of 20% compound growth over a five-year time frame. That
model essentially maintained its integrity through 1990, but the
three years ending in 1993 have followed a different pattern.
Although we've analyzed that three-year period as it happened,
let's look at it in hindsight.
Redefining Sears Portrait Studios
In 1991, as the competition was ramping up in the portrait
photography business, management announced a two-phase program for
assuring long-term viability of its Sears Portrait Studios. They
described phase one as an aggressive market share battle until
structural changes were possible. Shareholders recognized the
potential costs of such activity, knowing that the question was not
one of choice, but rather of execution. During that phase the
Company shed its department store studios and its Wal-Mart
relationship to concentrate fully on the health of Sears Portrait
Studios. They told us of the valuable Sears relationship and how
important it was to focus single-mindedly on the tasks at hand.
Phase two is based on the fundamental concept advanced in 1988's
Annual Report-that "premium margins could be achieved through
premium services." We were advised during 1993 that testing was in
process for the purpose of introducing a new operating mode by the
end of the year. True to its promises, the Company announced full
commitment to that "new mode" (phase two) in the form of specially
designed systems which will allow CPI to serve its customers
better. That commitment of $50 million for new technology and
another $25 million for studio enhancement and enlargement
represents the core of the program that will occupy most of
management's attention during 1994.
They are now telling us that the portrait photography segment is
expected to show improvement in 1994, despite the huge costs of
installation, training and additional depreciation. Coupling that
with an expected rebound in the photofinishing segment and
continuing growth and development of Prints Plus, management
advises us to expect a 12% to 38% improvement in 1994 earnings per
share from continuing operations-in spite of expected first half
decreases. On that basis we might envision a return to double-digit
compound growth. Dare we again expect a 20% growth rate?
New Developments
The answer derives from an evaluation of the way management uses
its resources. An interesting example, though certainly not
significant in short-term dollar returns, is the merger of two
approaches to the imaging business. For the last four years CPI has
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(Picture: on this page is an insert stating: "This is an
imperfect world and not all goals have been met, but we can use
history to gauge the integrity of future promises.")
been developing pioneering applications in digital imaging through
a partnership with Canon. The research project is now over and it's
time for each to go its own way. This presents an opportunity to
incorporate digital imaging techniques learned through Imageland
into the copy service stores in an effort to turn these
unprofitable operations into successful income producers. In 1988
and 1989, management described copy services as a venture that
would not quickly pay off. We were advised that, depending on the
rate of future expansion, we should not expect break-even operation
until at least late 1991. Through 1993, progress has been
excruciatingly slow. However, we must pay some credence to the
economic disruption experienced through much of this period. It
remains to be seen how successful that business might become in a
healthy economic environment.
Summary
This catalogue of promises gleaned from previous annual reports may
be viewed as a wandering discussion of various disconnected events,
or as a testament to the integrity of a management that is prepared
to make promises, establish principles and live within its
guidelines. This is an imperfect world, and not all goals have been
met, but we can use history to gauge the integrity of future
promises. We are telling you now that the long-cultivated
relationship with Sears will support the creation of a completely
new image to portrait customers and a high-value reputation for an
increasingly profitable enterprise. Our time horizon is still
long-term. The new acquisitions are performing very well and will
continue to offer excellent returns on capital invested. Earnings
for 1994 are currently projected in a range of $0.85 to $1.05 per
share. With known depreciation and amortization, cash flows would
exceed $50 million for 1994. If these programs are successful,
significant future growth should result.
How much confidence and trust should shareholders place in these
promises? Looking at historical performance, I, as a substantial
shareholder and key member of the management team, set aside in
each of the past two years 25% of my salary to invest in stock
options. In years past, I've been happy also to invest 50% of my
bonus dollars through the deferred compensation plan, but when the
shareholders are not doing well we don't pay bonuses to top
management-witness the past three years. I guess that's the way it
ought to be, but you should be the judge.
You'll find a lot of additional information in the accompanying
report; we hope you find it informative and helpful. On behalf of
management, I can tell you that we appreciate the support of our
loyal shareholders and are dedicated to performance that engenders
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trust and confidence translatable into enhanced shareholder value.
I'm proud to be a member of both classes. Thanks for listening.
April 15, 1994
Alyn V. Essman
Chairman, Chief Executive Officer
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(Pictures: on this page is a picture of a young child with the
caption "CPI's major business is professional portrait photography
of babies, children, adults and family groups in 992 permanent
studios, which CPI operates in the U.S., Puerto Rico and Canada as
Sears' exclusive portrait photography concessionaire.")
SEARS PORTRAIT STUDIOS
The Preschool Portrait Market
The Company believes it is the largest participant in the over $1
billion portrait market of children under six years old. Although
earlier U.S. Census Bureau population projections predicted a
decline in the preschool population through the year 2000, recent
increases in the birth rate indicate that the market over the next
several years should remain strong. The Company gains access to
this market through the children's mothers, who usually make the
decision to purchase portraits. The typical customer is a mother
under 35 years old, with one or two preschool children, and is a
member of a middle-income family. Research indicates that she
values photographers who are friendly and work well with children,
taking the time to make sure each photograph is of high quality.
CPI-Sears Relationship
CPI is Sears' exclusive portrait service and its leading
concessionaire, with the over 30-year relationship benefiting both
companies. Throughout this long period, CPI and Sears have worked
together in creating the mass portrait market, progressing from
traveling photographers to permanent studios, developing
pre-printed full-color portrait packages, and introducing technical
innovations such as Video Vision. In recognition of its
contributions and importance to Sears, CPI has received the
prestigious "Partners in Progress" award from Sears for nine of the
past eleven years.
The trust and integrity that the Sears name confers is a powerful
asset in CPI's dealings with customers. Also, using Sears' daily
cash management and accounting systems offers CPI valuable control
mechanisms, and the Sears and Discover credit cards, along with
other national credit cards, are convenient to studio customers.
Through its relationship with CPI, Sears enjoys substantial license
fees and significant advertising exposure of the Sears name, with
only minimal investment of its own capital and management
resources. Sears provides floor space and basic services, while CPI
recruits, trains and manages its own personnel, develops and
executes its own advertising and marketing plans and provides all
studio furniture, equipment and fixtures. In 1993, CPI spent $41.5
million, representing 17.5% of sales, in advertising the Sears name
in connection with the portrait studios, primarily directed to
women with young children, a highly valued customer base for Sears.
CPI's marketing staff places much of the advertising under the same
low media rates that Sears pays.
107
(Pictures: on this page is a picture of two of the Company's
advertising coupon offers.)
Recent Developments
With CPI's Sears program as a model, competition in the U.S.
preschool photography market started to increase dramatically in
1990. Concessionaires to other large chain retailers began
converting their traveling photography operations to permanent
studios, while also installing studios in new stores being opened
by the retailers. The competitive proliferation continued unabated
through 1993, resulting in an increase in the number of permanent
directly competing studios of almost 1,700 locations, from just
over 600 to about 2,300 studios. During the same 1990 through 1993
period, the number of Sears studios in the U.S. only increased from
840 to 872, including studios added in malls without a Sears store.
The competitive expansion has been supported by increasingly
aggressive price promotions offering more and more portraits at
very low prices, with the large advertised packages decreasing the
probability that a customer would purchase additional portraits,
thereby significantly capping the profit potential from additional
sales. These "high content/low price" promotions take little
account of the customer's actual desires for service and product
selection, and have resulted in reduced profit margins throughout
the industry. In the face of such competition, CPI chose to respond
with aggressive promotional campaigns to maintain its leading
position in the preschool photography market.
1993 Operating Results
Sales in the Sears Portrait Studios declined 7.3%, to $237.2
million from $255.9 million, due primarily to the increasingly
competitive environment, combined with the continuing economic
uncertainty. Portrait sittings were somewhat lower than the record
level of 1992, and the Company's aggressive promotion and pricing
in defense of its market position caused a drop in the average
customer sale, lower division earnings, and a decline in operating
margins to 12.3% from 18.9% (1992 and prior results restated: see
explanation on page 139 of this document (Management's Discussion
and Analysis of Financial Condition and Results of Operation--
Operating Income)) in the prior year.
Outlook
In mid-1992, CPI formed a Studio Strategic Development (SSD) Task
Force and gave it the assignment of developing new strategies to
allow the Sears Portrait Studios to better respond to customers'
desires for quality products at a fair value, delivered in the
friendliest possible environment, in order to provide a lasting
competitive advantage. The SSD group, drawing on CPI's 5-year
experience in digital imaging, embarked on an extensive series of
marketing tests using new tools and processes to provide customers
with a better, more rewarding studio experience.
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Based on positive results of these tests, conducted throughout
1993, the Company has made the decision to install new digital
imaging technology in all studios as the first phase in a 5-year
upgrade program of the studios. Through 1994, CPI expects to have
spent about $50 million on the project; by the end of the decade
the investment including studio renovation should total $75
million, funded from the August 1993 $60 million private placement
and continuing cash flow from operations.
The new digital technology provides ultimate flexibility that
enables the photographer to get the customer involved in the
selection of her favorite poses and expressions. After the sitting
she can make an immediate selection from the video screen or take
home a set of full-color proofs of the selected poses. This allows
the customer to exercise her own opinion and choices, clearly
understand her options in a comfortable environment and to share
her experiences with her friends and family.
To further enhance the total portrait experience, the Company plans
to significantly improve the environment by remodeling the studios,
increasing their size and installing new custom fixtures and
furniture. The decor will feature softer, warmer colors and
dramatic lighting that highlights the new studio atmosphere.
Recognizing the importance of this endeavor, Sears and CPI have
entered into a new 5-year licensing agreement and are working
together to coordinate the studio remodeling with Sears' previously
announced $4 billion capital expenditure program in which the
retailer is upgrading and remerchandising its stores.
The upgraded design will also be incorporated in new studios
located in five to ten new Sears stores scheduled to open in 1994,
and in 25 to 30 new studios in malls without a Sears store. The
division's capability will be further expanded by the installation
of 50 to 60 additional camera rooms in existing studios, primarily
those that are being remodeled.
Although competition in the industry may very well continue at an
intense level in the foreseeable future, CPI management believes
that the Company's marketing innovation, supported by its financial
strength, technological capability and emphasis on enhanced
customer service, will enable it to endure and overcome the current
difficulties.
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Comparative Growth in Permanent Studio Locations from 1989 to 1993
K-Mart JCPenney Wal-Mart Sears
Locations Locations Locations Location
1989 344 270 4 840
1990 461 350 10 867
1991 669 470 26 877
1992 1040 500 190 885
1993 1262 517 440 872
Cumulative Portrait Studio Growth-Others vs. Sears
Combined K-Mart, JCPenney Sears
and Wal-Mart Locations Locations
1989 618 840
1990 821 867
1991 1165 877
1992 1730 885
1993 2219 872
Tables above: In the four years from the end of 1989 through 1993,
the number of Sears Portrait Studios increased by about 5%, while
the number of competitive permanent locations almost quadrupled,
primarily due to the conversion of traveling photography operations
to permanent studios.
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Revenue Growth (in millions of dollars)
Dollars
1983 112
1984 127
1985 142
1986 178
1987 195
1988 219
1989 235
1990 253
1991 251
1992 256
1993 237
Operating Earnings as a percent of sales
(1992 and prior results restated: see explanation on page 139 of
this document (Management's Discussion and Analysis of Financial
Condition and Results of Operation--Operating Income)
Percent of Sales
1983 25.3
1984 24.0
1985 26.7
1986 27.1
1987 27.7
1988 28.2
1989 26.7
1990 25.1
1991 23.1
1992 18.9
1993 12.3
The Sears Portrait Studios have recorded a long history of growth
in total revenues as a result of added locations combined with
increases in average sales per location. Over the past three years,
however, revenues have been hampered by an increasingly competitive
environment and the sluggish economy. Those negative factors,
combined with management's aggressive promotional response to them,
have caused operating margins to slip from the mid-to-upper 20%
range to 12.3% in 1993.
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(Pictures: on this page are four pictures showing the picture
taking process with the caption "The new digital technology
provides ultimate flexibility that enables the photographer to get
the customer involved in the selection of her favorite poses and
expressions. After the sitting, the customer can make an immediate
selection from the video screen or take home a set of full-color
proofs of the selected poses.
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(Pictures: on this page is a picture collage with the caption
"CPI, the nation's largest owner/operator of photofinishing
minilabs, entered the business in 1982, and through a combination
of new store openings and acquisitions, has expanded the operation
to its present size and sales volume. The most significant
acquisition, that of Fox Photo, Inc. in 1991, added over 300
locations and almost doubled the business' size. Subsequent
openings and acquisitions, including Proex in 1992 and 21 Fotomat
labs in 1993, brought the 1993 year-end total to 670 locations.")
PHOTO FINISH
The Minilab Market
In 1992, the most recent full year reported by the Photo Marketing
Association, total retail photofinishing sales were $5.5 billion,
down from $5.7 billion in 1991. Stand-alone minilabs held an
approximate 26% share, down slightly based on revised data, with
1992 revenues of $1.4 billion, a 6.2% decline from the prior year's
$1.5 billion. Although 1993 totals are not yet available, PMA
surveys indicate that the total industry rolls processed grew by
about 2.5% in the first half of the year, suggesting a turnaround
from the 3.3% decline in the 1992 full year.
In the past few years, the one-hour retail photofinishing industry
has become increasingly competitive as mass merchandisers,
supermarkets and drug store chains have added one-hour
photofinishing service. In 1992, each of these three segments
recorded slight gains in share of the somewhat smaller market.
Wal-Mart and Eckerd Drug have been especially active in expanding
one-hour service, and Qualex, the dominant wholesale lab operator,
had by year-end 1993 placed over 900 one-hour microlabs in
supermarkets and mass merchant outlets throughout the nation.
In the face of this increased competition, CPI is conspicuous among
stand-alone minilab operators in its sustained success. In only
eleven years, the business has grown from a start-up venture into
a healthy, profitable segment with revenues approaching the $200
million level. The success validates CPI's vision in identifying
and nurturing an emerging consumer market to which its managers
could apply their proven operational skills.
1993 Operating Results
The segment's revenues in 1993 increased 10.6%, to $187.2 million
from $169.2 million in 1992, with the gain due to the full-year
contribution of the Proex labs, which were acquired in late 1992.
Operating earnings declined to $7.0 million from $9.6 million (1992
and prior results restated: see explanation on page 139 of this
document (Management's Discussion and Analysis of Financial
Condition and Results of Operation--Operating Income)), partly due
to a shift in the sales mix from photofinishing services into lower
margin products, such as film, cameras and accessories. Considering
that the division absorbed non-cash expenses totaling $19.7 million
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PAGE
(Pictures: on this page are two pictures with the caption "Custom
cropping and enlargements are among the popular services offered in
CPI minilabs.")
in 1993, the resulting cash flow continues to confirm the real
value of the business, as discussed in the September 1990 analysis,
"Perspectives on CPI's Investment in Minilabs."
Outlook
In 1993, 34 minilabs were closed when, as their leases came up for
renewal, their long-term profit outlook was judged to be marginal.
During the same 1993 period, 21 new labs were opened. Equipment
from the closed locations was relocated to the new minilabs,
minimizing the need for new capital investment and contributing to
the division's continuing progress.
Plans call for opening approximately 30 new minilabs in 1994,
primarily in existing markets to take advantage of economies of
scale in advertising and field management. With continuing
consolidation in the minilab industry, the Company is also in a
good position to invest in further acquisitions should the
opportunities arise.
Significant marketing activities in 1994 will be devoted to
increasing revenues from existing customers, both through a greater
share of an individual customer's rolls processed, and by the sale
of more ancillary products and services to that customer. Other
efforts will be directed toward gaining roll-processing market
share from other competing types of photofinishers.
In selected markets, tests are being conducted of a variety of new
programs, each presenting a strategy believed to be appropriate to
the competitive environment in a particular market. Based on
positive results of a given test, other markets with similar
competitive characteristics to the test market will be identified
for roll-out of the successful strategy. The ultimate objective is
to look at each market individually, and prepare a plan that best
responds to its situation.
In a further step toward developing more focused marketing, a sales
promotion team established in early 1993 has produced positive test
results. Media expense was reduced and sales promotion funding was
added, with the net effect being improved efficiency. Additionally,
there were positive effects on employee morale due to the
involvement of store personnel and field staff. Based on these
results, similar allocations in the media and sales promotion
budgets are planned for 1994.
Given these considerations, plus continuing development of the
Proex operation, CPI management is confident that, in spite of the
present competitive environment, the Photofinishing segment will
improve its position as a significant contributor to long-term
corporate earnings.
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CPI Photofinishing Revenue Growth
(in millions of dollars)
Dollars
1983 6
1984 28
1985 41
1986 51
1987 61
1988 69
1989 76
1990 82
1991 121
1992 169
1993 187
Since 1983, revenues have grown from less than $6.0 million to
$187.2 million in 1993.
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PAGE
(Pictures: on this page is a picture of a Prints Plus retail
store.)
PRINTS PLUS
CPI's strategic acquisition in May 1993 of the Prints Plus chain
provides another vehicle through which the Company can offer
affordable, quality products and services to consumers. Prints Plus
is the leading non-franchise poster, print and framing retailer in
the U.S., operating 103 locations in prime regional shopping malls
throughout the country. It is a well-run company with a strong
continuing management team whose operational criteria and practices
parallel those of CPI. As such, the new business represents a good
strategic fit with CPI's existing capabilities and provides an
advantageous investment of the Company's resources.
The Prints Plus business is expected to add over $50 million in
annual revenues to CPI's total sales. Due to the seasonal nature of
the retail industry, a majority of the sales and profits are
generated in the fourth quarter surrounding the holiday season.
Accordingly, it should be pointed out that the Prints Plus 1993
earnings contribution was disproportionately high due to the
partial year, which did not include the early, seasonally slow
period. Nevertheless, it is gratifying that the new business turned
in positive results almost immediately, producing operating profits
in both the third and fourth quarters.
Each store offers an unparalleled selection of posters and prints
that reflect current decorating trends. While Prints Plus offers
products for all age groups, artistic taste among age groups and
geographic regions are different. Consequently, the merchandise mix
of each location is tailored to a customer profile for each area
that reflects trends, artistic tastes and buying characteristics
within each age group. Marketing efforts center around in-store
programs strongly supported by visual displays.
In providing framing service, Prints Plus holds a significant edge
over most competitors located in regional malls and strip shopping
centers. Prints Plus provides instant custom framing for everyday
value pricing that few competitors can match.
Prints Plus has invested in a new point-of-sale system which is
menu-driven and simplifies the sales transaction and supports
additional sales efforts. The system will also provide capabilities
to relieve administrative burdens and enhance marketing efforts.
With a strong, experienced Prints Plus management team in place,
CPI plans to actively expand its newest business by adding
approximately fifteen new locations in 1994 and a like number in
subsequent years. Like the existing stores, the additions will be
in prime locations within regional malls, access to which will be
facilitated by the Company's ongoing contacts with mall developers
through the CPI photofinishing division. The expansion will be
funded by ongoing cash flow.
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(Pictures: on this page is a picture of a person taking a color
photocopy on some electronic publishing equipment.)
ELECTRONIC PUBLISHING
CPI entered the electronic publishing segment of the quick print
industry in the second quarter of 1988 with the acquisition of a
group of copy stores in California. In the past five to ten years
the electronic publishing business has evolved, through new
technology, from simple black-and-white photocopying into a wide
range of services, including digital color copying, binding and
desktop publishing. The business fits all of CPI's criteria for
identifying new ventures, described in the Overview section of this
report, and offers good growth potential. New locations have been
added in California, and the division has been expanded under CPI's
proprietary Copy USA(registered trademark) identity in other
regions.
1993 Operating Results
Revenues in 1993 were essentially even with the $15.8 million
recorded in 1992, as growth in the division's newer markets offset
the further decline in certain of the acquired California
locations, whose results were hampered by that state's sustained
economic problems. Profit reductions in those California locations
were more than offset by a combination of improving performance in
the newer markets and a significant reduction in depreciation
expense.
Outlook
CPI's electronic publishing business may continue to experience
operating losses for some time to come due to the continuing
softness in the California economy. The newer locations are
expected to continue their development in the coming year, with
further reduction of losses as a result of continuing sales growth
and increased operating efficiencies.
Probing the Future of Digital Imaging
In order to maintain a leadership position in all of its
businesses, CPI is investing in research and development in the
exploration of digital imaging technology. The Company is exploring
new consumer and business services that employ digital technology
to scan, modify and print diverse graphic elements in the creation
of new composite graphics products. A retail location, called
Imageland(trademark), is operating in Chicago as a pilot test in
which staff designers assist customers in creative projects. Three
distinct markets are being addressed:
- --Businesses-by providing full creative service in the design and
production of high quality full-color brochures, slide
presentations, posters and other products that were previously too
expensive or time consuming using conventional production methods.
This concept is especially applicable on limited-quantity projects.
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- --Graphics Professionals-by providing access to state-of-the-art
workstations and output devices, plus technical and design
assistance.
- --Consumers-by scanning, modifying and combining photos, slides,
drawings and text in the creation of highly personalized products,
such as posters, greeting cards and t-shirts, at affordable prices.
CPI is exploring other business, professional and consumer services
through the Fox Imaging Center, a service bureau in Houston. The
facility is also working with major manufacturers in the
development of new applications of digital imaging technology.
Through these and other ventures yet to be established, CPI, with
its understanding of ongoing advances in technology and its network
of 1,800-plus stores that are known for imaging services, will be
in the forefront of meeting consumer demand.
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(Reprinted from March 17, 1994 press release on CPI Corp.
letterhead.)
March 17, 1994
TO: CPI Shareholders
RE: AN OVERVIEW OF 1994
As we enter 1994, we look back over three consecutive years of a
pitched competitive battle in our portrait photography segment,
coupled with a generally soft economy and capped off by a January
fraught with natural disasters that shook up the West Coast, froze
the Midwest and dumped tons of snow and ice on the East Coast. Of
the three years, 1993 was the most trying, but in terms of progress
for the future, was the most satisfying. We accomplished our basic
objective of maintaining our market share over the three years,
even though the cost in foregone profits was great. Second, and
even more important, we reached a decision, based on comprehensive
testing during 1993, to install new technology in all portrait
studios as the first step in a program that will greatly alter, if
not change completely, the mode in which we attract and serve
portrait customers. During this transition, we expect to maintain
our competitive posture and achieve reasonable profit performance.
We believe the studio enhancement program upon which we have
embarked is well-conceived and based on sound market and technical
research. Not only the concept, but also the implementation has
been the subject of comprehensive planning with Sears, which
endorses our efforts in a number of ways:
1. They have entered into a new five-year agreement with us that
further solidifies our mutual interest in the portrait studio
business.
2. They have endorsed our program of studio renovation and space
expansion to better serve our mutual customers.
3. They will cooperate in marketing programs to introduce new
products and services and to provide consistent messages and
value offerings at Sears.
Our decision to commit approximately $75 million to this program
was carefully considered at every level, including a rigorous
examination by the company's board of directors and appropriate,
objective, independent consultation. We anticipate strong returns
on our investment.
With that background, it's time to look at 1994. Bluntly, while we
believe 1994 will be a better earnings year than 1993, it will not
achieve a satisfactory level. However, we owe our loyal
shareholders a better explanation than that. We fully recognize
the patience and confidence we have asked of you over the last
three years. We understand the discomfort that arises from
uncertainty, and in consideration of your patience we will, for
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PAGE
1994 only, outline our planning in some detail. We will not
provide statistics, specific marketing plans or other information
which might weaken our competitive posture, but we will give you
our best estimate of results for the coming year with the caution
that earnings estimates are highly uncertain in this transition
phase. If we find, as the year unfolds, that our outlook has
changed in any major way, we will inform you as promptly as
possible.
Let's first deal with the least complex issues:
PHOTOFINISHING - Though we still envision a highly
competitive environment, we expect some help from the
cost-reduction efforts of 1993. Proex continues to perform
well and there will be some reduction in the amortization of
acquisition expenses. We anticipate an improvement in
segment operating earnings and a continuation of very strong
cash flows.
OTHER PRODUCTS AND SERVICES - Prints Plus will be included in
the operating results for the full year. Though we expect
earnings growth, the results will be muted by seasonal losses
expected in the early, non-comparable months. We expect
some improvement in Copy Services, but the net result will be
continued losses in 1994. So for the segment, management
expects earnings to decrease in the first half, but to
increase for the year as a whole.
CORPORATE EXPENSE should be relatively consistent except for
the inevitable increase in health care in the 6% range and an
increase in net interest expense of approximately $1.5
million resulting from 1993's mid-year note placement.
PORTRAIT STUDIOS - The major uncertainty in 1994's earnings
outlook relates to the massive changes-in-progress in our core
portrait photography segment. On the one hand, we have the benefit
of our new long-term contractual relationship with Sears and Sears'
endorsement of the changes we are making. The costs of
installation, training, and initial depreciation of the new
equipment will, however, all affect the first half
disproportionately. Though we expect positive results to follow
the installation, most of those advantages will occur in the second
half of the year and relate primarily to the marketing of the
benefits emanating from the technology.
Given the considerations addressed above, we expect a significant
reduction in portrait studio earnings for the first two quarters
and a turnaround in the second half, leading to an increase for the
year which is totally dependent on the second half earnings
increase. Should these plans materialize as expected, we
anticipate achieving continuing earnings improvement for future
years. It's important to recognize that the substantial capital
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PAGE
investment will increase the proportion of fixed costs for at
least the next five years, thereby tightening profit margins during
the seasonally slower first half of each year. But it is also
important to realize that the cash flow emanating from future
earnings will be much greater than in the past due to the increased
depreciation charges.
Based on the foregoing discussion, our current 1994 estimate is
earnings per share in the $0.85 to $1.05 range. Achieving the
midpoint projection would produce approximately $14 million of net
income, which, when combined with known depreciation and
amortization, yields $54 million in gross cash flow after taxes.
We expect capital expenditures to approximate $60 million,
primarily a result of the major investment in the studios, and as
we know of no extraordinary working capital changes, 1994 fiscal
year end cash would be projected at approximately $50 million prior
to any share repurchase. Shareholders must remain aware that these
projected earnings are subject to the uncertainties of estimating
in a year of rapid change and cannot be gauged until the company
experiences its peak sales period in November and December.
With these thoughts in mind, we should focus our attention on cash
management. Our company is very strong and we are confident of the
wisdom and effectiveness of the path we have chosen. Management
has demonstrated their confidence for the second consecutive year
by significant participation in the salary reduction stock option
plan. Our responsibility is to manage CPI's resources in such a
way as to reward loyal shareholders and managers through stock
performance. We believe the current valuation of the stock by the
market presents an attractive opportunity for the company to
increase shareholder value through share repurchases. We therefore
have decided to mount a consistent and continuing repurchase
program as long as loan covenants and cash resources permit and the
stock price justifies purchase. We believe this is an effective
way to contribute to long-term shareholder returns.
We hope you will find this information helpful and constructive.
Thanks for your time and your support.
Sincerely,
Alyn V. Essman
Chairman, Chief Executive Officer
121
INDEX-FINANCIAL REVIEW
Index-Financial Review
Page(s)
Financial Background and Trends 123-134
Management's Discussion and Analysis of
Financial Condition and Results
of Operations 135-144
Consolidated Balance Sheets 145-146
Consolidated Statements of Earnings 147
Consolidated Statement of Changes
in Stockholders' Equity 148-150
Consolidated Statements of Cash Flows 151-152
Notes to Consolidated Financial Statements 153-173
Selected Quarterly Financial Data and
Stock Price and Volume 174
Independent Auditors' Report 178
Company Directors and Officers 179
Investor Information 180
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FINANCIAL BACKGROUND AND TRENDS
In the planning, execution and evaluation of its long-term
strategies to maximize shareholder value, CPI management focuses
on:
- --the cash flow generated internally;
- --the reinvestment of that cash in existing and new businesses;
- --the achievement of a rate of return on the assets and equity
employed in comfortable excess of the cost of capital;
- --maintenance of significant cash balances, which both reduces
financial risk and affords a high level of flexibility.
In order to provide an overview of the Company's performance, this
analysis examines (1) the rates at which sales, assets and equity
have grown, and (2) the rates of return earned on those earnings
sources.
The objective herein is to provide shareholders with the same
perspective used by management in its planning and also used by
various analysts in their evaluations. The commentary should be
read in connection with the table on pages 127-134, from which the
data discussed is derived.
10 Year Overview
The decade 1984-1993 reflects management's assessment and testing
of new businesses; the investment of ample cash flow in the
expansion of those which looked promising; and management's resolve
to offset competition, protecting and strengthening its market
franchise by the persistent upgrading of products or services. The
period's financial results are summarized in Table I.
Table I--Selected Financial Results From 1984-1993
1984-1993 Growth Rate Net Earnings***
Sales 13.7% 7.2%
Total Assets 17.8 15.1
Total Equity 17.7 23.4
Employed Assets* 17.9 20.3
Employed Equity** 17.9 38.3
* Total assets less cash and cash equivalents
** Total equity less cash and cash equivalents
*** Excluding $2.1 million credit from accounting change in 1993.
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Sales compounded at 13.7% annually to $475.5 million from $131.2
million, while other earnings sources gained at a compound rate of
almost 18%.
Changing Competitive Framework
Since dramatic changes in the competitive framework occurred in
1990, the further evaluation of the decade's performance is in two
parts. The financial data and analyses show the period 1984-1990 to
have been one of rapid and profitable growth in the face of normal
competition, while the years 1991-1993 mark the advent of explosive
growth in portrait studio competition and the Company's actions to
counteract it, while continuing to fund development projects,
undertake acquisitions, expand the Photofinishing segment and
repurchase stock.
1984-1990--Profitable Growth
The 1984-1990 period was one of high earnings and cash flow growth,
driven by vigorous and sustained expansion of Sears Portrait
Studios and by the launch and rapid development of the
Photofinishing segment. Earnings sources multiplied during the
seven-year span, with sales expanding at a 16.1% compound annual
rate to $373.9 million. Total assets and equity rose somewhat more
quickly to $218.7 million and $151.7 million, respectively.
Table II--Selected Financial Results From 1984-1990
Growth Average Return
1984-90 Rate Net Earnings
Sales 16.1% 8.2%
Total Assets 20.5 17.8
Total Equity 23.7 27.9
Employed Assets* 16.0 23.7
Employed Equity** 17.1 45.1
* Total assets less cash and cash equivalents
** Total equity less cash and cash equivalents
As shown in Table II above, the average rates of return on the
earnings sources-8.2% on sales, 17.8% on assets and 27.9% on
equity-were well above the 10-year averages. Average return on
employed assets was 23.7%, and 45.1% on employed equity.
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Net earnings per share also increased at an 18% compound rate to
$2.19 from $0.69. The cash dividend, initiated in 1985, was raised
to $0.50 from $0.05, reflecting an increase in the payout ratio to
23%. For the entire period, total operating cash flow accumulated
to $290.6 million, funding $113.2 million in replacement capital
expenditures, $58.9 million in acquisitions, $23.3 million in cash
dividends and $43.8 million in stock repurchases and adding $75.1
million to cash balances-all accomplished with virtually no
long-term debt.
Three Years of Transition
The 1991-1993 period has been one of adjustment and transition,
characterized by declining margins in the core portrait business
because of defensive and offensive tactics to offset competition,
and general economic weakness. Although the period was difficult,
earnings sources continued to increase, albeit at reduced rates.
Sales gained at 8.3% to $475.5 million, largely due to
acquisitions. Total assets rose at 11.8% to $305.8 million and
equity at a more modest 5.0% to $175.5 million. See Table III
below.
Table III-Selected Financial Results From 1991-1993
Growth Average Return
1991-93 Rate Net Earnings***
Sales 8.3% 4.6%
Total Assets 11.8 8.9
Total Equity 5.0 12.8
Employed Assets* 22.4 12.3
Employed Equity** 19.8 22.6
* Total assets less cash and cash equivalents
** Total equity less cash and cash equivalents
***Excluding $2.1 million credit from accounting change in 1993.
Employed assets expanded at 22.4% and returned on average 12.3%,
while employed equity gained at 19.8% and produced a 22.6% average
return. The uniformly adverse trend in rates of return was
reflected in net earnings, which declined to $11.1 million
(excluding a $2.1 million credit from an accounting change in
1993), or $0.76 per share, from the 1990 high of $33.6 million, or
$2.19 per share. The cash dividend was increased to $0.56 from
$0.50 per share.
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Even in this troublesome three-year period, cumulative operating
cash flow was $130.2 million. Combining that with $60 million from
privately placed notes, the Company financed $108.9 million in
acquisitions, $24.8 million in cash dividends, and $14.7 million in
stock repurchases, leaving a comfortable $66.4 million in cash and
equivalents and a modest debt ratio of 34.1%.
Although other operating intelligence can be gleaned from the
tables on pages 127-134, the summary analysis provided here shows
that even in a most difficult period, such as the past three years,
the Company has been able to achieve highly acceptable operating
results.
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Selected Financial Data From 1993-1991
1993 1992 1991
Per Share:
Sales $ 32.42 $ 30.62 $ 27.44
Assets 20.92 16.25 16.25
Equity 12.01 11.75 10.90
Earnings 0.90 1.54 1.80
Dividends 0.56 0.56 0.56
Prices: high 20.75 26.38 34.75
low 13.88 15.00 21.88
P/E range: high 23.06 17.13 19.31
low 15.42 9.74 12.15
Dividend yield 3.23% 2.71% 1.98%
Income Data (million $):
Net sales $475.5 $449.4 $414.5
Income from operations 18.8 34.8 39.2
Net interest & other income(expense) (0.3) 1.7 4.1
Pre-tax earnings 18.5 36.5 43.3
Income taxes 7.4 13.9 16.2
Accounting change 2.1 - -
Net earnings from
continuing operations 13.2 22.6 27.1
Avg. shares outstanding
(in million shares) 14.7 14.7 15.1
Balance Sheet (million $):
Current assets $127.8 $ 73.2 $ 83.6
Cash and equivalents 66.4 21.0 31.2
Net fixed assets 114.3 97.6 97.7
Total assets 305.8 237.8 238.9
Employed assets 239.4 216.8 207.7
Current liabilities 65.2 56.8 67.0
Long-term debt 59.8 0.3 0.6
Stockholders' equity 175.5 171.9 160.3
Employed equity 109.2 151.0 129.0
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Selected Financial Data From 1993-1991
1993 1992 1991
Funds Flow Data (million $):
From operations $ 39.4 $ 36.9 $ 53.9
Used for investments (45.1) (36.9) (92.2)
From (used for) financing 51.1 (10.2) (18.7)
Change in cash & cash equivalents 45.4 (10.2) (57.0)
Capital expenditures*
(excluding acquisitions) 30.4 13.3 22.3
Acquisitions 14.7 23.9 70.2
OCECE** 9.0 23.6 31.6
Ratio Analysis:
Net margin (1) 2.8 5.0 6.5
Asset turnover (2)*** 2.00x 1.88x 1.90x
Return on assets (3)*** 5.56% 9.46% 12.35%
Financial leverage (4)*** 1.38x 1.49x 1.44x
Return on equity (5)*** 7.67% 14.10% 17.78%
Retention rate (6) .381 .637 .689
Implied growth rate (7) 2.92% 8.98% 12.25%
OCECE Ratios (8):
% of revenues 1.90% 5.25% 7.63%
% of assets*** 3.80% 9.87% 14.46%
% of equity *** 5.25% 14.72% 20.85%
% of employed assets (9) 4.16% 11.36% 24.25%
% of employed equity (10) 5.98% 18.28% 49.87%
* To maintain capacity
** Operating cash in excess of capital expenditures
*** Beginning fiscal year
(1) Net margin: Net earnings/net sales
(2) Asset turnover: Net sales/total assets (beginning)
(3) Return on assets: Net margin x asset turnover
(4) Financial leverage: Total assets (beginning)/stockholders'
equity (beginning)
(5) Return on equity: Return on assets x financial leverage
(6) Retention rate: Net earnings less dividends on common stock
(1993-1985)/net earnings
(7) Implied growth rate: Return on equity x retention rate
(8) OCECE: Operating cash in excess of capital expenditures
(9) Employed assets: Total assets less cash and cash equivalents
(10) Employed equity: Stockholders' equity less cash and cash
equivalents
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Selected Financial Data From 1990-1988
1990 1989 1988
Per Share:
Sales $ 24.31 $ 22.33 $ 19.02
Assets 14.48 12.74 12.03
Equity 10.04 8.63 8.34
Earnings 2.19 1.97 1.91
Dividends 0.50 0.42 0.25
Prices: high 32.88 33.88 22.25
low 24.25 21.00 17.25
P/E range: high 15.01 18.51 12.29
low 11.07 11.48 9.53
Dividend yield 1.75% 1.53% 1.27%
Income Data (million $):
Net sales $373.9 $350.5 $318.1
Income from operations 47.0 42.7 47.0
Net interest & other income(expense) 6.5 5.6 5.7
Pre-tax earnings 53.5 48.3 52.7
Income taxes 19.9 17.4 20.8
Accounting change - - -
Net earnings from
continuing operations 33.6 30.9 31.9
Avg. shares outstanding
(in million shares) 15.4 15.7 16.7
Balance Sheet (million $):
Current assets $130.2 $106.4 $104.5
Cash and equivalents 88.3 70.0 65.5
Net fixed assets 80.7 81.4 78.0
Total assets 218.7 196.5 197.0
Employed assets 130.4 126.5 131.5
Current liabilities 51.4 47.8 47.3
Long-term debt 0.5 0.3 0.5
Stockholders' equity 151.7 133.1 136.6
Employed equity 63.4 63.1 71.1
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Selected Financial Data From 1990-1988
1990 1989 1988
Funds Flow Data (million $):
From operations $ 53.3 $ 55.9 $ 50.1
Used for investments (19.7) (19.3) (34.4)
From (used for) financing (15.3) (32.1) (9.7)
Change in cash & cash equivalents 18.3 4.5 6.0
Capital expenditures*
(excluding acquisitions) 18.1 21.1 19.3
Acquisitions 1.2 0.8 11.0
OCECE** 35.2 34.8 30.8
Ratio Analysis:
Net margin (1) 9.0 8.8 10.0
Asset turnover (2)*** 1.90x 1.78x 1.89x
Return on assets (3)*** 17.10% 15.66% 18.90%
Financial leverage (4)*** 1.48x 1.44x 1.44x
Return on equity (5)*** 25.31% 22.55% 27.22%
Retention rate (6) .773 .771 .863
Implied growth rate (7) 19.57% 17.39% 23.52%
OCECE Ratios (8):
% of revenues 9.42% 9.92% 9.71%
% of assets*** 17.93% 17.64% 18.31%
% of equity *** 26.46% 25.45% 26.45%
% of employed assets (9) 27.84% 26.43% 28.30%
% of employed equity (10) 55.80% 48.92% 54.01%
* To maintain capacity
** Operating cash in excess of capital expenditures
*** Beginning fiscal year
(1) Net margin: Net earnings/net sales
(2) Asset turnover: Net sales/total assets (beginning)
(3) Return on assets: Net margin x asset turnover
(4) Financial leverage: Total assets (beginning)/stockholders'
equity (beginning)
(5) Return on equity: Return on assets x financial leverage
(6) Retention rate: Net earnings less dividends on common stock
(1993-1985)/net earnings
(7) Implied growth rate: Return on equity x retention rate
(8) OCECE: Operating cash in excess of capital expenditures
(9) Employed assets: Total assets less cash and cash equivalents
(10) Employed equity: Stockholders' equity less cash and cash
equivalents
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Selected Financial Data From 1987-1985
1987 1986 1985
Per Share:
Sales $ 16.92 $ 15.50 $ 12.85
Assets 10.14 8.45 6.47
Equity 7.02 5.69 4.01
Earnings 1.54 1.18 0.90
Dividends 0.165 0.085 0.050
Prices: high 27.75 21.88 12.75
low 12.75 11.88 7.88
P/E range: high 19.01 19.71 14.17
low 8.73 10.70 8.76
Dividend yield 0.81% 0.50% 0.48%
Income Data (million $):
Net sales $283.2 $254.4 $198.3
Income from operations 43.0 38.3 26.7
Net interest & other income(expense) 3.2 1.0 0.2
Pre-tax earnings 46.2 39.3 26.9
Income taxes 20.4 19.9 13.0
Accounting change - - -
Net earnings from
continuing operations 25.8 19.4 13.9
Avg. shares outstanding
(in million shares) 16.7 16.4 15.4
Balance Sheet (million $):
Current assets $ 90.5 $ 60.2 $ 36.6
Cash and equivalents 59.6 29.5 14.7
Net fixed assets 68.8 68.0 55.6
Total assets 168.7 139.3 98.7
Employed assets 109.1 109.7 84.1
Current liabilities 39.9 36.1 30.5
Long-term debt 0.2 0.4 0.4
Stockholders' equity 116.7 93.8 61.2
Employed equity 57.2 64.2 46.5
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Selected Financial Data From 1987-1985
1987 1986 1985
Funds Flow Data (million $):
From operations $ 47.5 $ 32.8 $ 33.1
Used for investments (16.8) (30.6) (13.8)
From (used for) financing (0.7) 12.7 (6.6)
Change in cash & cash equivalents 30.0 14.9 12.7
Capital expenditures*
(excluding acquisitions) 13.6 16.4 9.8
Acquisitions 3.2 15.5 3.9
OCECE** 33.9 16.4 23.3
Ratio Analysis:
Net margin (1) 9.1 7.6 7.0
Asset turnover (2)*** 2.03x 2.58x 2.46x
Return on assets (3)*** 18.47% 19.61% 17.22%
Financial leverage (4)*** 1.49x 1.61x 1.81x
Return on equity (5)*** 27.52% 31.57% 31.17%
Retention rate (6) .888 .924 .945
Implied growth rate (7) 24.44% 29.17% 29.46%
OCECE Ratios (8):
% of revenues 12.00% 6.46% 11.74%
% of assets*** 24.39% 16.64% 28.91%
% of equity *** 36.22% 26.86% 52.25%
% of employed assets (9) 30.96% 19.54% 29.64%
% of employed equity (10) 52.55% 35.33% 54.68%
* To maintain capacity
** Operating cash in excess of capital expenditures
*** Beginning fiscal year
(1) Net margin: Net earnings/net sales
(2) Asset turnover: Net sales/total assets (beginning)
(3) Return on assets: Net margin x asset turnover
(4) Financial leverage: Total assets (beginning)/stockholders'
equity (beginning)
(5) Return on equity: Return on assets x financial leverage
(6) Retention rate: Net earnings less dividends on common stock
(1993-1985)/net earnings
(7) Implied growth rate: Return on equity x retention rate
(8) OCECE: Operating cash in excess of capital expenditures
(9) Employed assets: Total assets less cash and cash equivalents
(10) Employed equity: Stockholders' equity less cash and cash
equivalents
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Selected Financial Data From 1984-1983
1984 1983
Per Share:
Sales $ 10.98 $ 8.53
Assets 5.33 3.96
Equity 2.95 2.28
Earnings 0.67 0.69
Dividends - -
Prices: high 11.88 17.12
low 7.06 10.50
P/E range: high 17.73 24.81
low 10.54 15.22
Dividend yield - -
Income Data (million $):
Net sales $168.9 $131.2
Income from operations 19.1 18.4
Net interest & other income(expense) (0.7) 0.8
Pre-tax earnings 18.4 19.2
Income taxes 8.1 8.6
Accounting change - -
Net earnings from
continuing operations 10.3 10.6
Avg. shares outstanding
(in million shares) 15.4 15.4
Balance Sheet (million $):
Current assets $ 21.5 $ 29.7
Cash and equivalents 2.0 13.2
Net fixed assets 51.9 28.2
Total assets 80.5 59.4
Employed assets 78.5 46.2
Current liabilities 31.1 22.5
Long-term debt 0.7 0.1
Stockholders' equity 44.6 34.3
Employed equity 42.6 21.0
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Selected Financial Data From 1984-1983
1984 1983
Funds Flow Data (million $):
From operations $ 17.9 $ 16.7
Used for investments (37.1) (17.4)
From (used for) financing 7.9 0.4
Change in cash & cash equivalents (11.3) (0.3)
Capital expenditures*
(excluding acquisitions) 14.9 14.5
Acquisitions 23.2 1.7
OCECE** 3.0 2.2
Ratio Analysis:
Net margin (1) 6.1 8.1
Asset turnover (2)*** 2.84x 3.09x
Return on assets (3)*** 17.32% 25.03%
Financial leverage (4)*** 1.73x 1.86x
Return on equity (5)*** 29.96% 46.56%
Retention rate (6) 1.00 1.00
Implied growth rate (7) 29.96% 46.56%
OCECE Ratios (8):
% of revenues 1.76% 1.66%
% of assets*** 5.00% 5.11%
% of equity *** 8.67% 9.51%
% of employed assets (9) 6.43% 7.50%
% of employed equity (10) 14.12% 23.31%
* To maintain capacity
** Operating cash in excess of capital expenditures
*** Beginning fiscal year
(1) Net margin: Net earnings/net sales
(2) Asset turnover: Net sales/total assets (beginning)
(3) Return on assets: Net margin x asset turnover
(4) Financial leverage: Total assets (beginning)/stockholders'
equity (beginning)
(5) Return on equity: Return on assets x financial leverage
(6) Retention rate: Net earnings less dividends on common stock
(1993-1985)/net earnings
(7) Implied growth rate: Return on equity x retention rate
(8) OCECE: Operating cash in excess of capital expenditures
(9) Employed assets: Total assets less cash and cash equivalents
(10) Employed equity: Stockholders' equity less cash and cash
equivalents
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's three business segments are Portrait Studios,
Photofinishing and Other Products and Services. The Other Products
and Services segment consists of the newly acquired wall decor
operation and the electronic publishing operation. To establish a
framework for discussion, financial data has been selected which
summarizes the Company's operating results for fiscal years 1993,
1992 and 1991. The 1992 fiscal year ended February 6, 1993
included a 53 week period, whereas fiscal years 1993 and 1991,
ended February 5, 1994 and February 1, 1992, respectively, covered
52 week periods.
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PAGE
Selected Financial Data 1993 Versus 1992
(In thousands except per share amounts)
FY '93 Amount Percent FY '92
52 weeks Change Change 53 weeks
Net sales:
Portrait Studios $237,937 $(26,421) (10.0)% $264,358
Photofinishing 187,210 18,014 10.6 169,196
Other Products
and Services 50,373 34,547 218.3 15,826
--------- --------- ------- ---------
Total net sales $475,520 $ 26,140 5.8% $449,380
========= ========= ======= =========
Operating earnings:
Portrait Studios $ 29,970 $(18,471) (38.1)% $ 48,441
Photofinishing 6,972 (2,637) (27.4) 9,609
Other Products
and Services 1,142 5,275 127.6 (4,133)
--------- --------- ------- ---------
Total operating earnings 38,084 (15,833) (29.4) 53,917
General corporate
expenses 19,299 217 1.1 19,082
--------- --------- ------- ---------
Income from operations 18,785 (16,050) (46.1) 34,835
Net interest income
(expense) (789) (1,803) (177.9) 1,014
Other income 524 (150) (22.2) 674
--------- --------- ------- ---------
Earnings before income
taxes and cumulative
effect of accounting
change 18,520 (18,003) (49.3) 36,523
Income tax expense 7,404 (6,504) (46.8) 13,908
--------- --------- ------- ---------
Earnings before
cumulative effect of
accounting change $ 11,116 $(11,499) (50.8)% $ 22,615
Cumulative effect of
accounting change 2,120 2,120 100.0 -
--------- --------- ------- ---------
Net earnings $ 13,236 $ (9,379) (41.5)% $ 22,615
========= ========= ======= =========
Earnings per common
share:
Earnings before
cumulative effect of
accounting change $ 0.76 $ (0.78) (50.6)% $ 1.54
Cumulative effect of
accounting change 0.14 0.14 100.0 -
--------- --------- ------- ---------
Net earnings $ 0.90 $ (0.64) (41.6)% $ 1.54
========= ========= ======= =========
Weighted average number
of common and common
equivalent shares
outstanding 14,666 (10) (0.1)% 14,676
========= ========= ======= =========
Dividends per share $ 0.56 $ - - $ 0.56
========= ========= ======= =========
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PAGE
Selected Financial Data 1992 Versus 1991
(In thousands except per share amounts)
FY '92 Amount Percent FY '91
53 weeks Change Change 52 weeks
Net sales:
Portrait Studios $264,358 $(14,647) (5.2)% $279,005
Photofinishing 169,196 47,818 39.4 121,378
Other Products
and Services 15,826 1,690 12.0 14,136
--------- --------- ------- ---------
Total net sales $449,380 $ 34,861 8.4% $414,519
========= ========= ======= =========
Operating earnings:
Portrait Studios $ 48,441 $ (8,502) (14.9)% $ 56,943
Photofinishing 9,609 1,942 25.3 7,667
Other Products
and Services (4,133) 615 13.0 (4,748)
--------- --------- ------- ---------
Total operating earnings 53,917 (5,945) (9.9) 59,862
General corporate
expenses 19,082 (1,608) (7.8) 20,690
--------- --------- ------- ---------
Income from operations 34,835 (4,337) (11.1) 39,172
Net interest income
(expense) 1,014 (2,409) (70.4) 3,423
Other income 674 (6) (0.9) 680
--------- --------- ------- ---------
Earnings before income
taxes and cumulative
effect of accounting
change 36,523 (6,752) (15.6) 43,275
Income tax expense 13,908 (2,232) (13.8) 16,140
--------- --------- ------- ---------
Earnings before
cumulative effect of
accounting change $ 22,615 $ (4,520) (16.7)% $ 27,135
Cumulative effect of
accounting change - - - -
--------- --------- ------- ---------
Net earnings $ 22,615 $ (4,520) (16.7)% $ 27,135
========= ========= ======= =========
Earnings per common
share:
Earnings before
cumulative effect of
accounting change $ 1.54 $ (0.26) (14.4)% $ 1.80
Cumulative effect of
accounting change - - - -
--------- --------- ------- ---------
Net earnings $ 1.54 $ (0.26) (14.4)% $ 1.80
========= ========= ======= =========
Weighted average number
of common and common
equivalent shares
outstanding 14,676 (431) (2.9)% 15,107
========= ========= ======= =========
Dividends per share $ 0.56 $ - - $ 0.56
========= ========= ======= =========
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PAGE
Significant events that affected operating results in the last two
fiscal years are described as follows:
Prints Plus Acquisition
On May 30, 1993, the Company acquired Prints Plus, a wall decor
chain, from Melville Corporation for approximately $14.7 million.
The acquisition included 102 stores, located in malls throughout
the United States, operating a prints, posters and framing business
with annual sales in excess of $40.0 million. In addition, the
Company entered into a non-compete agreement with Melville
Corporation for cash consideration aggregating approximately $1.0
million. The acquisition was recorded using the purchase method of
accounting and, accordingly, the results of operations have been
included in the Company's consolidated financial statements
effective May 30, 1993.
Proex Acquisition
On December 1, 1992, the Company purchased the operational assets
of Pemtom, Inc., a Minneapolis-based company operating under the
name Proex, for cash consideration amounting to approximately $19.0
million. The fair value in excess of the net assets acquired was
approximately $6.7 million, which is being amortized on a
straight-line basis over a forty-year period. Under separate
agreements, the company secured the services of the seven-member
Pemtom management team for an aggregate amount of $4.8 million. The
acquired company now operates 19 portrait studios and 28
photo-finishing locations, which together had annual sales of $22.3
million in fiscal year 1993. The acquisition was recorded as a
purchase and, accordingly, the results of operations have been
included in the Company's consolidated financial statements
effective December 1, 1992.
Results of Operations
Revenues
Sales were $475.5 million in fiscal 1993, a 5.8% increase over
1992. The increase is mainly due to the added sales from the newly
acquired Prints Plus and Proex operations, partially offset by one
less week of sales in 1993 and by a decline in Portrait Studio
sales caused by lower comparable sales in the Sears Portrait
Studios operation and the absence of sales from the Wal-Mart
traveling studio business and Portraits of Distinction Studios.
Sales in 1992 increased 8.4% to $449.4 million from $414.5 million
in 1991. Photofinishing expansion, including the acquisition of Fox
Photo and Proex, accounted for a major portion of the sales
increase. During fiscal year 1992, the Company withdrew from the
Wal-Mart traveling studio business and the Portraits of Distinction
studios. Combined sales from these businesses amounted to $7.3
million and $26.8 million in fiscal years 1992 and 1991,
respectively.
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PAGE
Sears Portrait Studios sales were $237.3 million, $255.9 million
and $251.0 million for fiscal years 1993, 1992 and 1991,
respectively, declining 7.3% in 1993 after increasing 2.0% in 1992.
Eliminating the effect of the 53-week year in 1992, Sears Portrait
Studio sales, on a comparable 52-week basis, declined 5.9% in 1993
after being virtually level in 1992 with the prior year. In the
last three fiscal years, the Company has experienced increasing
competition from others who have continued to add permanent studio
locations. In an effort to maintain market share, the Company has
used price promotions more aggressively during the last two fiscal
years, resulting in lower customer averages. Additionally, the
Company closed 42 portrait studios during the year, the majority as
a result of Sears planned store closing program announced early in
1993. During the 1993 fiscal year, the Company opened 33 portrait
studios, 29 of which are not in Sears stores.
Photofinishing sales in 1993 rose 10.6% to $187.2 million from
$169.2 million in 1992, following a 39.4% gain from $121.4 million
in 1991. Photofinishing includes the sales and operating results of
CPI Photo Finish, Fox Photo from August 18, 1991 and Proex from
December 1, 1992, the effective dates of these acquisitions. These
acquisitions during this two-year period accounted for most of the
sales increases. Stores in operation experienced a net increase of
12 and 19 locations in 1993 and 1992, respectively, bringing the
total locations in operation to 670, 658 and 639 at the end of
1993, 1992 and 1991, respectively.
Other Products and Services includes the electronic publishing
business operating under two trade names, Copy Mat and Copy USA,
and the newly acquired wall decor business operating under the
names Prints Plus and Prints and Posters. Sales increased more than
200% in 1993 to $50.4 million from $15.8 million due to the
acquired wall decor operation in 1993. Sales increased 12.0% in
1992 due to the maturing of the electronic publishing locations
opened in the last three years.
Operating Income
Segment operating earnings for prior years have been restated to
conform with the current year's presentation. Certain employee
benefit costs, which in prior years were recorded as part of
corporate expense, have now been reclassified to the operating
segments to better reflect the operating contribution of the
segments. Income from operations declined 46.1% in 1993 to $18.8
million from $34.8 million in 1992 primarily due to a 38.1%
reduction in Portrait Studio operating earnings. Additionally,
Photofinishing experienced a 27.4% decline in operating earnings,
primarily due to lower gross profit margins. Other Products and
Services operating earnings increased substantially, primarily due
to the contribution to operating earnings from the acquired wall
decor operation. Corporate expense increased due to a $1.4 million
expense for severance and early retirement benefits under a
voluntary early retirement program, which were offset by the
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PAGE
Company's previously announced cost cutting program. In 1992,
income from operations declined 11.1% resulting from a decline in
Sears Portrait Studio operating income, which was partially offset
by higher Photofinishing operating income and reduced losses in the
electronic publishing business.
Sears Portrait Studios operating margins expressed as a percent of
sales were 12.3%, 18.9% and 23.1% for fiscal years 1993, 1992 and
1991, respectively, declining sharply in each of the last two
fiscal years. After a slight sales increase in 1992, a 53-week
year, Sears Portrait Studios experienced a 7.3% sales decline in
1993 or a 5.9% sales decline on a comparable 52-week year basis. In
an effort to maintain market share, the Company has aggressively
priced products. Coupled with increased content in advertised
promotions, this pricing has led to a deterioration of profit
margins. Additionally, operating earnings were penalized by the
extensive testing of products, services and pricing in an effort to
better understand customer needs. The Company should begin to see
the benefit of this testing as new marketing concepts are
introduced and the new freeze-frame digital imaging systems are
installed in the portrait studios. Our testing indicates customers'
response to these changes will have a positive effect both in terms
of customer satisfaction and increased sales.
Photofinishing operating earnings declined 27.4% in 1993 to $7.0
million from $9.6 million in 1992, after increasing 25.3% from $7.7
million in 1991. Operating earnings declined in 1993 primarily due
to lower gross profit margins resulting from an unfavorable sales
mix, as sales of high margin products declined while sales of low
margin products increased. Generally, the sales of value added
products and services, such as photographic prints and processing,
have high margins, whereas sales of film, accessories and ancillary
products carry lower profit margins. Competitive pricing reduced
the sales of value added products and services, reducing profit
margins. Profit margins were further reduced by increased sales and
related costs of low profit margin products. Operating earnings in
1992 increased 25.3% primarily due to the full year inclusion of
Fox Photo.
Other Products and Services improved operating earnings reflect the
inclusion of the newly acquired wall decor business in operating
results. The electronic publishing business also showed improvement
in operating performance as operating losses were reduced in both
1993 and 1992. In the wall decor operation, a majority of the sales
and profits are generated in the fourth quarter surrounding the
holiday season. Accordingly, the operating earnings for the wall
decor operation were disproportionately high due to the partial
year, which did not include the early, seasonally slow period.
Net Earnings
Net earnings declined 41.5% to $13.2 million in 1993 and 16.7% to
$22.6 million in 1992 from $27.1 million in 1991. Included in net
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PAGE
earnings in 1993 is a $2.1 million benefit from the cumulative
effect of a change in accounting principles discussed below under
Income Taxes. Before the benefit, net earnings declined 50.8% to
$11.1 million. The decline in net earnings in each of the last two
fiscal years resulted from lower operating earnings coupled with
interest expense in 1993 and reduced interest income in 1992, and
a higher effective income tax rate in each of the last two fiscal
years. The decline in interest income and the subsequent increase
in interest expense resulted from the Company's recent acquisitions
of Fox Photo, Proex and Prints Plus. Additionally, the Company
entered into a $60.0 million long-term debt agreement in 1993 which
has substantially increased borrowing costs.
Earnings per share before the change in accounting decreased 50.6%
in 1993 to $0.76 from $1.54 in 1992, following a 14.4% decrease
from $1.80 in 1991. After the cumulative effect of the change in
accounting principles, net earnings decreased 41.6% to $0.90 in
1993.
Income Taxes
The effective income tax rate was 40.0% in 1993 compared to 38.1%
in 1992 and 37.3% in 1991. The increase in the 1993 effective
income tax rate resulted primarily from an increase in
nondeductible amortization expense related to the intangible assets
resulting from acquisitions, the Omnibus Budget Reconciliation Act
of 1993 and reduced tax credits from the restoration of the
Company's corporate headquarters. Current year earnings include a
$2.1 million cumulative benefit from a change in accounting
principles. The accounting change, recorded in the first quarter of
1993, resulted from adoption of the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," on a prospective basis. In adopting SFAS No. 109,
the Company has changed its method of accounting for income taxes
from the deferred method to the asset and liability method.
Liquidity and Capital Resources
On August 31, 1993, the Company entered into an agreement with two
insurance companies for the private placement of senior notes in
the amount of $60.0 million (the Note Agreement). The notes, issued
pursuant to the Note Agreement, mature over a seven-year period
with an average maturity of 5.42 years and with the first principal
payment due at the end of the third year. Interest on the notes is
payable semi-annually at an average effective rate of 6.44%. The
Note Agreement requires the Company to maintain certain financial
ratios and to comply with certain restrictive covenants. The
Company incurred approximately $0.5 million in costs related to the
notes, which will be amortized proportionately over the seven-year
term of the notes. Concurrently, the Company negotiated to reduce
its available line of credit with a local bank from $40.0 million
to $25.0 million. A portion of the proceeds from the notes was used
to pay off the outstanding balance of the Company's line of credit.
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PAGE
The remaining proceeds will be used to fund the Company's planned
capital expenditure program in 1994 and for other corporate
purposes. Included in the capital expenditure program is the
continuation of the long-range program involving the application of
digital imaging technology to products and services in the Sears
Portrait Studios.
Total assets were $305.8 million, $237.8 million and $238.9 million
for 1993, 1992 and 1991, respectively. Cash and cash equivalents
increased in 1993 due to the cash received on the $60.0 million
Senior Notes, after declining in 1992 and 1991 as a result of the
acquisition of Fox Photo and Proex. Cash and cash equivalents
amounted to $66.4 million, $21.0 million and $31.2 million,
representing 21.7%, 8.8% and 13.1% of total assets at the end of
1993, 1992 and 1991, respectively. Working capital increased to
$62.6 million in 1993 from $16.3 million in 1992.
The table below shows assets by line of business. Corporate assets
consist primarily of the Company's headquarters and surrounding
property, cash and marketable securities.
Identifiable Assets (dollars in thousands)
1993 % Total 1992 % Total
Portrait Studios $ 62,694 20.5% $ 49,353 20.8%
Photofinishing 125,044 40.9 133,156 56.0
Other Products and Services 31,491 10.3 12,607 5.3
Corporate:
Cash and cash equivalents 66,356 21.7 20,978 8.8
Other 20,211 6.6 21,657 9.1
-------- ------ -------- ------
Total $305,796 100.0% $237,751 100.0%
======== ====== ======== ======
Stockholders' equity increased 2.1% and 7.3% to $175.5 million and
$171.9 million at the end of 1993 and 1992, respectively, net of
treasury stock repurchases of $0.7 million and $2.3 million in 1993
and 1992, respectively. The 9.5% increase in stockholders' equity
since 1991 is primarily due to a $17.1 million increase in retained
earnings after consideration of dividends, which was partially
offset by the purchase of treasury stock. On September 28, 1988,
the Company's Board of Directors authorized the Company to purchase
up to 2,500,000 shares of CPI Corp. common stock, or approximately
15% of the then outstanding common stock. On April 2, 1992, the
Company's Board of Directors authorized the purchase of an
additional 2,000,000 shares of CPI Corp. common stock. Under its
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PAGE
stock repurchase program, the Company has acquired 2,363,808 shares
for $58.6 million as of February 5, 1994. In fiscal year 1993, 1992
and 1991, 40,655 shares, 101,210 shares and 480,792 shares were
purchased for $0.7 million, $2.3 million and $11.7 million,
respectively.
The following table sets forth selected financial data regarding
capital resources and liquidity for the Company's last three fiscal
years:
Selected Financial Data Regarding Capital Resources and
Liquidity for 1993, 1992 and 1991 (in thousands of dollars)
1993 1992 1991
Net cash flow provided by operations $39,389 $ 36,867 $ 53,902
-------- --------- ---------
Investing activities:
Capital expenditures (30,363) (13,274) (22,271)
Acquisitions (14,732) (23,942) (70,233)
Other (47) 295 274
-------- --------- ---------
Net investing (45,142) (36,921) (92,230)
-------- --------- ---------
Financing activities:
Proceeds from issuance of
common stock 439 599 1,574
Net increase (decrease) in debt 59,547 (275) (139)
Dividends (8,198) (8,206) (8,443)
Treasury stock purchases (657) (2,332) (11,717)
-------- --------- ---------
Net financing 51,131 (10,214) (18,725)
-------- --------- ---------
Increase (decrease) in cash
and cash equivalents $45,378 $(10,268) $(57,053)
======= ========= =========
During the period 1991 through 1993, the Company generated $130.2
million in internal funds from operations. Investments during this
period amounted to $174.3 million, including capital expenditures
of $65.9 million and acquisitions amounting to $108.9 million.
Acquisitions consist primarily of the Fox Photo, Proex and Prints
Plus businesses with acquired property and equipment amounting to
$42.1 million and intangible assets resulting from purchase
transactions amounting to $66.8 million. Financing activities
included $59.1 million in additional debt primarily due to the
placement of Senior Notes for $60.0 million, the repurchase of
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PAGE
treasury stock amounting to $14.7 million and dividends paid
amounting to $24.8 million. The net result of these transactions
amounted to a $21.9 million decrease in cash and cash equivalents
during the three-year period.
Future Operations
The Company expects fiscal year 1994 to be one of significant
change, especially for Sears Portrait Studios. After a great deal
of testing, planning and design, the Company has embarked on a
five-year program to provide customers a new level of service at
Sears Portrait Studios. In addition, the Company will benefit from
a renewed relationship with Sears under a new five-year license
agreement. The agreement reflects Sears' and the Company's mutual
commitment to contribute to the implementation of each other's
strategic development plans. In addition, the Company anticipates
cooperative marketing programs with Sears and studio expansion and
renovation to complement Sears' previously announced store
renovation program. The Company also plans to install its new
freeze-frame digital imaging system in most Sears Portrait Studio
locations by the third quarter of 1994. This new system allows both
the photographer and the customer to view images at the time the
photograph is taken. The Company believes these changes will have
a positive effect on earnings in 1994 but not until the second
fiscal half, as the first half will be penalized by the cost of
training and additional depreciation related to the new system.
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PAGE
CONSOLIDATED BALANCE SHEETS--ASSETS
FOR FEBRUARY 5, 1994 AND FEBRUARY 6, 1993
February 5, 1994 February 6, 1993
---------------- ----------------
Current assets:
Cash $ 4,304,171 $ 4,438,233
Short-term investments 62,051,741 16,539,845
Receivables, less allowance
of $918,346 and $1,042,101,
respectively 21,057,245 19,720,745
Inventories 28,530,382 20,326,254
Deferred costs applicable
to unsold portraits 2,822,123 3,772,717
Prepaid expenses and other
current assets 9,005,393 8,356,692
------------- -------------
Total current assets 127,771,055 73,154,486
Net property and equipment 114,328,773 97,572,931
Other assets:
Intangible assets 60,944,867 64,749,556
Other long-term assets 2,751,641 2,273,713
------------- -------------
$305,796,336 $237,750,686
============= =============
See accompanying notes to consolidated financial statements.
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PAGE
CONSOLIDATED BALANCE SHEETS--LIABILITIES AND STOCKHOLDER'S EQUITY
FOR FEBRUARY 5, 1994 AND FEBRUARY 6, 1993
February 5, 1994 February 6, 1993
---------------- ----------------
Current liabilities:
Current maturities of
long-term obligations $ 292,468 $ 178,248
Accounts payable 32,849,291 27,202,692
Accrued expenses and other
liabilities 21,046,068 17,467,273
Income taxes 8,767,222 8,782,043
Deferred income taxes, net 2,232,429 3,196,995
------------- -------------
Total current liabilities 65,187,478 56,827,251
------------- -------------
Long-term obligations, less
current maturities 59,810,789 341,563
Other liabilities 4,848,151 5,495,339
Deferred income taxes, net 441,445 3,140,751
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; 16,978,869 and
16,955,730 shares
outstanding at
February 5, 1994 and
February 6, 1993,
respectively 6,791,548 6,782,292
Additional paid-in capital 29,262,531 28,833,326
Retained earnings 198,166,276 194,419,868
------------- -------------
234,220,355 230,035,486
Treasury stock at cost,
2,363,808 and 2,323,153
shares at February 5,
1994 and February 6, 1993,
respectively (58,556,032) (57,898,854)
Unamortized deferred
compensation - restricted
stock (155,850) (190,850)
------------- -------------
Total stockholders' equity 175,508,473 171,945,782
------------- -------------
$305,796,336 $237,750,686
============= =============
See accompanying notes to consolidated financial statements.
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PAGE
CONSOLIDATED STATEMENT OF EARNINGS--
FOR FISCAL YEARS ENDED FEBRUARY 5, 1994, FEBRUARY 6, 1993,
AND FEBRUARY 1, 1992
FISCAL YEAR FISCAL YEAR FISCAL YEAR
1993 1992 1991
------------- ------------- -------------
Net sales $475,520,119 $449,379,933 $414,518,827
Cost and expenses:
Cost of sales
(exclusive of
depreciation expense
shown below) 135,794,817 115,390,384 96,754,637
Selling,
administrative
and general expenses 287,479,408 270,395,184 252,072,281
Depreciation 27,236,816 24,431,160 22,657,493
Amortization 6,223,898 4,327,873 3,862,175
------------- ------------- -------------
456,734,939 414,544,601 375,346,586
------------- ------------- -------------
Income from operations 18,785,180 34,835,332 39,172,241
Net interest income
(expense) (789,213) 1,013,524 3,422,547
Other income 524,489 674,005 679,956
------------- ------------- -------------
Earnings before income
taxes and cumulative
effect of accounting
change 18,520,456 36,522,861 43,274,744
Income tax expense 7,404,000 13,908,000 16,140,000
------------- ------------- -------------
Earnings before
cumulative effect of
accounting change 11,116,456 22,614,861 27,134,744
Cumulative effect of
accounting change 2,120,000 - -
------------- ------------- -------------
Net earnings $ 13,236,456 $ 22,614,861 $ 27,134,744
============= ============= =============
Earnings per common
share:
Earnings before
cumulative effect
of accounting
change $ 0.76 $ 1.54 $ 1.80
Cumulative effect of
accounting change 0.14 - -
------------- ------------- -------------
Net earnings $ 0.90 $ 1.54 $ 1.80
============= ============= =============
See accompanying notes to consolidated financial statements.
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PAGE
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Additional
Common Paid-In
Stock Capital
------------ ------------
Balance at February 2, 1991: $ 6,743,840 $ 26,698,436
Issuance of common stock:
Profit sharing plan and trust 6,667 451,176
Stock bonus plan 6,682 544,583
Employee stock plans 14,452 550,369
Foreign currency translation --- ---
Dividends ($0.56 per common share) --- ---
Net earnings --- ---
Purchase of treasury stock, at cost --- ---
Amortization of deferred
compensation-restricted stock --- ---
------------- ------------
Balance at February 1, 1992: $ 6,771,641 28,244,564
Issuance of common stock:
Profit sharing plan and trust 4,838 282,977
Stock bonus plan 2,729 173,973
Employee stock plan 3,084 131,812
Foreign currency translation --- ---
Dividends ($0.56 per common share) --- ---
Net earnings --- ---
Purchase of treasury stock, at cost --- ---
Amortization of deferred
compensation-restricted stock --- ---
------------- -------------
Balance at February 6, 1993: $ 6,782,292 $ 28,833,326
Issuance of common stock:
Profit sharing plan and trust 6,190 303,000
Stock bonus plan 1,466 71,805
Employee stock plans 1,600 54,400
Foreign currency translation --- ---
Dividends ($0.56 per common share) --- ---
Net earnings --- ---
Purchase of treasury stock, at cost --- ---
Amortization of deferred compensation-
restricted stock --- ---
------------- -------------
Balance at February 5, 1994: $ 6,791,548 $ 29,262,531
============= =============
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Treasury
Retained Stock
Earnings At Cost
------------- -------------
Balance at February 2, 1991: $162,466,642 $(43,849,876)
Issuance of common stock:
Profit sharing plan and trust --- ---
Stock bonus plan --- ---
Employee stock plans --- ---
Foreign currency translation (91,219) ---
Dividends ($0.56 per common share) (8,442,742) ---
Net earnings 27,134,744 ---
Purchase of treasury stock, at cost --- (11,716,619)
Amortization of deferred
compensation-restricted stock --- ---
------------- -------------
Balance at February 1, 1992: $181,067,425 $(55,566,495)
Issuance of common stock:
Profit sharing plan and trust --- ---
Stock bonus plan --- ---
Employee stock plan --- ---
Foreign currency translation (1,056,558) ---
Dividends ($0.56 per common share) (8,205,860) ---
Net earnings 22,614,861 ---
Purchase of treasury stock, at cost --- (2,332,359)
Amortization of deferred
compensation-restricted stock --- ---
------------- -------------
Balance at February 6, 1993: $194,419,868 $(57,898,854)
Issuance of common stock:
Profit sharing plan and trust --- ---
Stock bonus plan --- ---
Employee stock plans --- ---
Foreign currency translation (1,291,923) ---
Dividends ($0.56 per common share) (8,198,125) ---
Net earnings 13,236,456 ---
Purchase of treasury stock, at cost --- (657,178)
Amortization of deferred
compensation - restricted stock --- ---
------------- -------------
Balance at February 5, 1994: $198,166,276 $(58,556,032)
============= =============
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Deferred
Compensation-
Restricted
Stock Total
------------- -------------
Balance at February 2, 1991: $ (329,326) $151,729,716
Issuance of common stock:
Profit sharing plan and trust --- 457,843
Stock bonus plan --- 551,265
Employee stock plans (203,061) 361,760
Foreign currency translation --- (91,219)
Dividends ($0.56 per common share) --- (8,442,742)
Net earnings --- 27,134,744
Purchase of treasury stock, at cost --- (11,716,619)
Amortization of deferred
compensation - restricted stock 289,822 289,822
------------- -------------
Balance at February 1, 1992: $ (242,565) $160,274,570
Issuance of common stock:
Profit sharing plan and trust --- 287,815
Stock bonus plan --- 176,702
Employee stock plan (45,786) 89,110
Foreign currency translation --- (1,056,558)
Dividends ($0.56 per common share) --- (8,205,860)
Net earnings --- 22,614,861
Purchase of treasury stock, at cost --- (2,332,359)
Amortization of deferred
compensation - restricted stock 97,501 97,501
------------- -------------
Balance at February 6, 1993: $ (190,850) $171,945,782
Issuance of common stock:
Profit sharing plan and trust --- 309,190
Stock bonus plan --- 73,271
Employee stock plans (56,000) ---
Foreign currency translation --- (1,291,923)
Dividends ($0.56 per common share) --- (8,198,125)
Net earnings --- 13,236,456
Purchase of treasury stock, at cost --- (657,178)
Amortization of deferred
compensation - restricted stock 91,000 91,000
------------- -------------
Balance at February 5, 1994: $ (155,850) $175,508,473
============= =============
See accompanying notes to consolidated financial statements.
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PAGE
CONSOLIDATED STATEMENTS OF CASH FLOWS--
FOR FISCAL YEARS ENDED: FEBRUARY 5, 1994, FEBRUARY 6, 1993
AND FEBRUARY 1, 1992
FISCAL YEAR FISCAL YEAR FISCAL YEAR
1993 1992 1991
------------- ------------- -------------
Cash flows provided by
operating activities $ 39,389,209 $ 36,866,797 $ 53,901,903
Cash flows provided by
(used in) financing
activities:
Proceeds from
issuance of
long-term debt 59,913,356 - 305,178
Repayment of
long-term debt (366,418) (275,480) (444,731)
Issuance of common
stock to employee
stock plans 438,461 599,413 1,573,929
Cash dividends (8,198,125) (8,205,860) (8,442,742)
Purchase of treasury
stock (657,178) (2,332,359) (11,716,619)
------------- ------------- -------------
Cash flows provided
by (used in)
financing
activities 51,130,096 (10,214,286) (18,724,985)
------------- ------------- -------------
Cash flows before
investing activities 90,519,305 26,652,511 35,176,918
------------- ------------- -------------
Cash flows provided by
(used in) investing
activities:
Additions to property
and equipment, net (30,362,715) (13,274,473) (22,271,472)
Acquisitions:
Property and
equipment (13,629,943) (11,056,700) (17,401,095)
Intangible assets (1,101,639) (12,885,268) (52,831,924)
Long-term investments 8,826 340,783 477,456
Restricted stock (56,000) (45,786) (203,061)
------------- ------------- -------------
Cash flows used in
investing
activities (45,141,471) (36,921,444) (92,230,096)
------------- ------------- -------------
Net increase (decrease)
in cash and cash
equivalents 45,377,834 (10,268,933) (57,053,178)
Cash and cash
equivalents at
beginning of year 20,978,078 31,247,011 88,300,189
------------- ------------- -------------
Cash and cash
equivalents at
end of year $ 66,355,912 $ 20,978,078 $ 31,247,011
============= ============= =============
See accompanying notes to consolidated financial statements.
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PAGE
CONSOLIDATED STATEMENTS OF CASH FLOWS--RECONCILIATION OF NET
EARNINGS TO CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
FOR FISCAL YEARS ENDED: FEBRUARY 5, 1994, FEBRUARY 6, 1993
AND FEBRUARY 1, 1992
FISCAL YEAR FISCAL YEAR FISCAL YEAR
1993 1992 1991
------------- ------------- -------------
Net earnings $ 13,236,456 $ 22,614,861 $ 27,134,744
Adjustments for items
not requiring cash:
Depreciation and
amortization 33,460,714 28,759,033 26,519,668
Deferred income taxes (3,663,872) (2,193,923) (2,228,159)
Deferred compensation (647,188) (908,539) (2,354,090)
Other (2,968,739) (2,103,615) (1,155,238)
Decrease (increase)
in current assets:
Receivables and
inventories (9,540,628) (1,161,292) (9,078,219)
Deferred costs
applicable to
unsold portraits 950,594 761,130 20,726
Prepaid expenses and
other current
assets (648,701) 568,911 (1,341,188)
Increase (decrease) in
current liabilities:
Accounts payable,
accrued expenses
and other
liabilities 9,225,394 (9,143,019) 17,404,811
Income taxes (14,821) (326,750) (1,021,152)
------------- ------------- -------------
Cash flows provided by
operating activities $ 39,389,209 $ 36,866,797 $ 53,901,903
============= ============= =============
Supplemental cash flow
information:
Interest paid $ 302,486 $ 166,044 $ 195,114
============= ============= =============
Income taxes paid $ 9,828,416 $ 14,934,061 $ 19,628,031
============= ============= =============
See accompanying notes to consolidated financial statements.
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PAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of CPI Corp. (the Company)
include the accounts of CPI Corp. and all of its majority or wholly
owned subsidiaries, partnerships and joint ventures. All
significant intercompany transactions have been eliminated.
Fiscal Year
The Company's fiscal year ends on the first Saturday in February.
The Company designates its fiscal year by the calendar year in
which the fiscal year begins. Accordingly, fiscal year 1993 ended
February 5, 1994, fiscal year 1992 ended February 6, 1993 and
fiscal year 1991 ended February 1, 1992. The 1993 and 1991 fiscal
years are comprised of 52 weeks, while the 1992 fiscal year is
comprised of 53 weeks.
Translation of Foreign Currency
Assets and liabilities of foreign operations are translated into
U.S. dollars at the exchange rate in effect on the balance sheet
date, while equity accounts are translated at historical rates.
Income and expense accounts are translated at the average rates in
effect during each fiscal period.
Cash, Cash Equivalents and Short-Term Investments
For purpose of reporting cash flows, cash and cash equivalents
include cash on hand and short-term investments. Short-term
investments consist of treasury bills, bankers acceptances,
commercial paper, term deposits, government agency notes,
repurchase agreements and government money market funds which
mature less than one year from year-end and which are stated at
cost, adjusted for discount accretion and premium amortization. The
government money market funds include obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities, as well as repurchase agreements fully
collateralized by such obligations, which may have a long-term
maturity greater than one year but a short-term option to liquidate
the investment. Based on the short-term nature of the Company's
investments, the carrying value approximated estimated fair value
at February 5, 1994.
Total interest income for years 1993, 1992 and 1991 was $1,210,193,
$1,182,630 and $3,575,897, respectively.
Inventories
Inventories are stated at the lower of cost or market, with cost of
the majority of inventories being determined by the first-in,
first-out (FIFO) method and the remainder by the last-in, first-out
(LIFO) method.
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PAGE
Photographic Sales
Processed portraits initially ordered by the customer are
recognized as sales when shipped from the processing lab to the
studio for customer pickup. Processed portraits not initially
ordered by the customer are recognized as sales at the time the
portraits are purchased by the customer.
Deferred Costs Applicable to Unsold Portraits
Deferred costs applicable to unsold portraits consist of
photographic salaries and employment costs, advertising and other
costs directly associated with the photography function. Such costs
are charged to selling, general and administrative expense when the
customer accepts or declines the portraits.
Depreciation
Depreciation is computed principally using the straight-line method
over estimated service lives of the respective assets.
Retirement Plan
The Company has a noncontributory defined benefit retirement plan
covering substantially all full-time employees. Pension expense,
which is funded as accrued, includes current costs and amortization
of prior service costs over a period of ten years.
Intangible Assets
Intangible assets acquired through acquisitions were accounted for
by the purchase method of accounting and include the excess of cost
over fair value of net assets acquired, favorable lease rights and
covenants not to compete. The excess of cost over fair value of net
assets acquired and favorable lease rights are being amortized on
a straight-line basis over periods ranging from five to forty
years. The covenants not to compete are being amortized on a
straight-line basis over the respective periods of the agreements,
which range from three to five years. Accumulated amortization of
intangible assets was $10,060,786 and $6,408,061 at February 5,
1994 and February 6, 1993, respectively.
Income Taxes
Deferred income taxes are recognized to reflect the effect of
timing differences in the recognition of income and expense items
for income tax and financial reporting purposes.
Investment tax credits are recognized by the flow through method,
which recognizes the benefits of such credits in the year realized.
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting For Income Taxes," in 1993 on a
prospective basis. Statement No. 109 requires the Company to
account for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax
consequences attributable to the differences between the financial
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PAGE
reporting basis and the tax basis of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such
amounts are realized or settled. The effect of a change in tax
rates on deferred tax assets and liabilities is recognized in
income in the period that includes the enactment date. The Company
recognized the cumulative effect as of February 7, 1993 of $2.12
million in net earnings as a cumulative change in accounting
principle.
United States income taxes have not been provided on $14,202,535 of
undistributed earnings of the Canadian subsidiary because of the
Company's intention to reinvest these earnings. The determination
of unrecognized deferred U.S. tax liability for the undistributed
earnings of international subsidiaries is not practicable. However,
it is estimated that foreign withholding taxes of $1,420,254 may be
payable if such earnings were distributed.
Earnings Per Common Share and Other Share Information
Earnings per common share are computed by dividing net earnings by
the sum total of the weighted average number of shares of common
stock outstanding plus contingently issuable shares under the
employee stock plans. Fully diluted earnings per common share are
not presented as the differences between primary and fully diluted
earnings per common share are not material.
Reclassification
Certain 1992 and 1991 accounts have been reclassified to conform
with the presentation in 1993.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments", requires the Company to disclose estimated fair
values for its financial instruments. A financial instrument is
defined as cash or a contract that both imposes on one entity a
contractual obligation to deliver cash or another financial
instrument to a second entity and conveys to that second entity a
contractual right to receive cash or another financial instrument
from the first entity. Fair value estimates, methods and
assumptions are set forth for the Company's financial instruments,
short-term investments and long-term obligations in Notes 1 and 7,
respectively.
2. Acquisitions
On August 19, 1991, a wholly owned subsidiary of the Company
acquired all the outstanding common and preferred stock of FPI
Holding Corporation and its subsidiary, Fox Photo, Inc. (Fox
Photo), with an effective date of August 18, 1991. The cash
consideration of the acquisition of common and certain series of
outstanding preferred stock amounted to $27.9 million. Payment to
debt holders of Fox Photo and holders of exchangeable preferred
stock amounted to approximately $26.0 million and other costs of
155
PAGE
the transaction aggregated $7.4 million. The total cash
consideration of $61.3 million was provided by the Company's then
available cash. The acquisition has been recorded using the
purchase method of accounting and the results of operations of Fox
Photo have been included in the Company's consolidated financial
statements since the effective date of the acquisition. The excess
of the purchase price over the net liabilities assumed (goodwill)
was approximately $49.9 million and is being amortized using a
straight-line method over a 40-year period.
In addition, the Company entered into a consulting and non-compete
agreement with certain employees of Fox Photo for cash
consideration of $2,292,000 which is being amortized over a
four-year period. Additionally, prior to the acquisition, Fox Photo
purchased certain photographic processing equipment from a third
party for $2,500,000 which was reimbursed by the Company.
The unaudited proforma results of operations for the fiscal year
ended February 1, 1992, assuming the acquisition occurred as of the
beginning of the fiscal year, were net sales of $453.7 million, net
earnings of $28.3 million and earnings per share of $1.88. These
proforma results were prepared for comparative purposes only and do
not purport to be indicative of the results of operations which
actually would have resulted had the combination been in effect.
On December 1, 1992, the Company acquired the operating assets of
Pemtom, Inc., a Minneapolis-based company consisting of 25
photofinishing locations operating under the name Proex, 15 of
which offer added services through adjacent Proex Portrait Studios,
for approximately $19.0 million. In a separate, but related
transaction, the Company secured the services of the Pemtom, Inc.
management team for $4.8 million. The acquisition was recorded as
a purchase and, accordingly, the results of operations of Proex
have been included in the Company's consolidated financial
statements since the effective date of the acquisition. The excess
of the purchase price over the net liabilities assumed (goodwill)
was approximately $6.7 million and is being amortized using a
straight-line method over a 40-year period. The unaudited proforma
results of operations for the fiscal year ended February 6, 1993,
assuming the acquisition occurred as of the beginning of the fiscal
year, were not material.
On May 30, 1993, CPI Corp. acquired Prints Plus from the Melville
Corporation. The 103 store chain, located in malls throughout the
United States, operates a prints, posters and framing business with
annual sales in excess of $40.0 million. Prints Plus was acquired
for approximately $14.7 million. In conjunction with the
acquisition, the Company entered into a non-compete agreement with
Melville Corporation for cash consideration aggregating $1,050,000.
Stores will continue to be operated under the trade name "Prints
Plus" and "Prints and Posters". The acquisition was recorded as a
purchase and, accordingly, the results of operations of Prints Plus
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PAGE
have been included in the Company's consolidated financial
statements since the effective date of the acquisition. The
unaudited proforma results of operations for the fiscal year ended
February 5, 1994, assuming the acquisition occurred as of the
beginning of the fiscal year, were not material.
3. Discontinued Businesses
On February 3, 1992, the Company announced its intention not to
renew existing contracts between the Portraits of Distinction
Studios and the host department store chains. The Company also
announced that it was not renewing its existing contract with Wal-
Mart, Inc., which allowed the Company to provide portrait
photography service through regional Wal-Mart stores.
The Company completed the closedown of the Portraits of Distinction
Studios and Wal-Mart Pictureland operations in fiscal year 1992. A
provision of approximately $1.1 million was made for asset
write-offs and severance pay in fiscal year 1991.
There were no sales for the discontinued businesses in fiscal year
1993. Net sales of the discontinued businesses for fiscal year 1992
and 1991 were $7,333,223 and $26,846,059, respectively.
4. Property and Equipment
The following table sets forth a summary of the Company's property
and equipment:
Summary of Property and Equipment for Year-End 1993 and 1992
1993 1992
Property and equipment, at cost:
Land and land improvements $ 3,072,438 $ 2,856,197
Building improvements 26,788,651 23,244,107
Leasehold improvements 33,435,155 22,798,763
Machinery and equipment 128,575,421 112,226,654
Furniture and fixtures 55,568,397 50,305,468
------------ ------------
247,440,062 211,431,189
Less accumulated depreciation 133,111,289 113,858,258
------------ ------------
Net property and equipment $114,328,773 $ 97,572,931
============ ============
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PAGE
5. Inventories
Inventories consist of the following components:
Components of Inventories for Year-End 1993 and 1992
1993 1992
Raw materials and supplies $27,981,589 $19,577,140
Portraits-in-process 548,793 749,114
----------- -----------
$28,530,382 $20,326,254
=========== ===========
The Company accounts for certain raw material inventories of film,
paper, chemicals and portraits-in-process under the LIFO method.
Such inventories aggregated approximately $1,660,000 and $1,464,000
at February 5, 1994 and February 6, 1993, respectively. The excess
of replacement cost of these inventories over their stated LIFO
value was approximately $425,000 and $473,000 at February 5, 1994
and February 6, 1993, respectively.
Portraits-in-process include the cost of film, laboratory labor,
paper, processing chemicals and supplies and other items directly
associated with the production of portraits that have not been
recognized as sales.
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PAGE
6. Intangible Assets
Intangible assets and related amortization are as follows:
Intangible Assets and Related Amortization for
Year-End 1993, 1992 and 1991
Unamortized
Balance at
February 5, ------Amortization------
1994 1993 1992 1991
Excess of cost over
fair value of net
assets acquired $55,632,556 $1,598,486 $1,501,997 $1,344,433
Favorable lease
rights 332,226 193,964 328,697 458,131
Covenants not to
compete 2,535,640 1,113,878 912,842 746,247
Signing bonus 2,444,445 2,000,000 355,555 -
----------- ---------- ---------- ----------
$60,944,867 $4,906,328 $3,099,091 $2,548,811
=========== ========== ========== ==========
7. Credit Agreements and Outstanding Debt
On August 31, 1993, the Company entered into an agreement with two
insurance companies for the private placement of senior notes in
the amount of $60.0 million (the "Note Agreement"). The notes,
issued pursuant to the Note Agreement, mature over a seven year
period with an average maturity of 5.42 years and with the first
principal payment due at the end of the third year. Interest on
the notes is payable semi-annually at an average effective rate of
6.44%. The Note Agreement requires the Company to maintain certain
financial ratios and comply with certain restrictive covenants. The
Company incurred $459,304 in issuance costs associated with the
private placement of the notes. These costs are being amortized
ratably over the seven-year life of the notes.
Under a concurrently negotiated agreement with a domestic bank, the
Company reduced its existing line of credit from $40.0 million to
$25.0 million. The Line of Credit Agreement contains the same
financial covenants as those set forth in the Note Agreement and
has interest rates set at the prevailing prime interest rate or at
a lower rate quoted by the bank. This Line of Credit Agreement
expires July 30, 1994. As of February 5, 1994, the Company had
outstanding letters of credit for the principal amount of
$5,466,454. There were no borrowings under this line of credit as
of fiscal year end.
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PAGE
The Company's performance of the conditions of the Note Agreement
and the Line of Credit Agreement and the underlying notes issued
under both agreements is secured by a pledge of the stock of the
Company's direct subsidiaries. The pledged stock will be released
if the Company achieves certain stipulated financial ratios, but
not prior to the end of fiscal year 1994.
The Company's long-term obligations consist of the following:
Long-Term Obligations as of February 5, 1994 and February 6, 1993
February 5, 1994 February 6, 1993
Senior notes, net of
issuance costs $59,577,204 $ -
Notes payable and
obligations under
capital leases 526,053 519,811
Less current maturities 292,468 178,248
----------- --------
$59,810,789 $341,563
=========== ========
The fair value of the Company's long-term debt is estimated based
on quoted market prices for similar debt issues with the same
remaining maturities. On February 5, 1994, the carrying value and
estimated fair market value of the Company's long-term debt was
$59,810,789 and $59,507,789, respectively.
To manage its exposure to fluctuations in interest rates, the
Company has also entered into an interest rate swap agreement for
a notional principal amount of $40 million, maturing August 28,
1995. Interest rate swap agreements involve the exchange of
interest obligations on fixed and floating interest rate debt
without the exchange of the underlying principal amount. The
differential paid or received on the interest rate swap agreement
is recognized as an adjustment to interest expense. The fair value
of the Company's swap agreement, representing the estimated amount
the Company would receive or pay to terminate the agreement, was
obtained from dealer quotes. The carrying value, which represents
accrued income arising from the swap agreement, and estimated fair
market value for the swap agreement were $86,539 and $109,991,
respectively, on February 5, 1994.
Interest expense for fiscal years 1993, 1992 and 1991 was
$1,999,406, $169,106 and $153,350, respectively.
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8. Operating Leases
The Company leases various premises and equipment under
noncancelable operating lease agreements with initial terms of one
or more years and expiring at various dates. Substantially all
leases require the Company to pay maintenance, insurance and taxes.
At February 5, 1994, minimum rental payments under operating leases
with initial terms in excess of one year are as follows:
Minimum Rental Payments Under Operating Leases With Initial
Terms in Excess of One Year at February 5, 1994
Year Dollar
1994 $ 39,877,626
1995 31,329,819
1996 23,505,275
1997 17,019,755
1998 11,195,237
1999-2003 12,745,380
------------
$135,673,092
============
Rental expense during fiscal years 1993, 1992 and 1991 on all
operating leases was $30,048,454, $24,304,248 and $18,621,554,
respectively.
9. Income Taxes
Earnings before income taxes by U.S. and Canadian sources (dollars
in thousands):
Earnings Before Income Taxes by U.S. and Canadian Sources
(Dollars in Thousands)
1993 1992 1991
U.S. $15,163 $31,427 $38,224
Canada 3,357 5,096 5,051
------- ------- -------
$18,520 $36,523 $43,275
======= ======= =======
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PAGE
Income taxes from continuing operations consist of the following
components (dollars in thousands):
Components of Income Taxes From Continuing Operations For Fiscal
Year-End 1993, 1992 and 1991 (Dollars in Thousands)
Federal Canadian State Total
1993: Current $ 7,567 $ 926 $ 963 $ 9,456
Deferred (1,744) (63) (245) (2,052)
-------- ------- ------- --------
$ 5,823 $ 863 $ 718 $ 7,404
======== ======= ======= ========
1992: Current $ 9,602 $1,833 $2,528 $13,963
Deferred 53 (122) 14 (55)
-------- ------- ------- --------
$ 9,655 $1,711 $2,542 $13,908
======== ======= ======= ========
1991: Current $14,642 $1,467 $2,659 $18,768
Deferred (2,182) (71) (375) (2,628)
-------- ------- ------- --------
$12,460 $1,396 $2,284 $16,140
======== ======= ======= ========
The source of timing differences which gave rise to deferred income
taxes and the related tax effects are as follows (dollars in
thousands):
Timing Differences for Taxes for Fiscal Year-End 1992 and 1991
1992 1991
Difference between tax and book depreciation $(1,919) $(2,772)
Cash basis adjustment for certain income items (252) 124
Cash basis adjustment for certain expense items 2,116 20
-------- --------
$ (55) $(2,628)
======== ========
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PAGE
The following is a reconciliation between income tax expense
related to continuing operations at the Federal statutory rate and
actual income tax expense (dollars in thousands):
Reconciliation Between Income Taxes For Fiscal
Year-End 1993, 1992 and 1991 (Dollars in Thousands)
1993 1992 1991
Taxes at Federal statutory rate $6,583 $12,622 $14,915
Increase resulting from state
income taxes, net of Federal
tax benefit 467 1,678 1,507
Other, net 354 (392) (282)
------ -------- --------
$7,404 $13,908 $16,140
====== ======== ========
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PAGE
The sources of the tax effect for temporary differences that give
rise to the deferred tax assets and liabilities were as follows:
Sources of Tax Effects
Dollars
Deferred tax assets:
Deferred compensation and other employee benefits,
due to accrual for financial reporting purposes $ 2,245,972
Expense accruals, due to accrual for financial
reporting purposes 250,357
Accounts receivable, due to allowance for doubtful
accounts 249,248
Inventory costs capitalized 172,475
Other 94,206
------------
Total deferred tax assets 3,012,258
------------
Deferred tax liabilities:
Property and equipment, due to depreciation (2,746,152)
Deferred cost of unsold portraits (1,098,325)
Employee pension plan, due to accrual for financial
reporting purposes (827,431)
Revenue recognition (685,878)
Intangible assets, due to period of amortization (107,108)
Other (221,238)
------------
Total deferred tax liability $(5,686,132)
------------
Net deferred tax liability $(2,673,874)
============
Current deferred income taxes $(2,232,429)
============
Long-term deferred income taxes $ (441,445)
============
Pursuant to SFAS 109, a valuation allowance would be provided on
deferred tax assets when it is more likely than not that some
portion of the assets will not be realized. The Company has not
established a valuation allowance as of February 5, 1994, due to
management's belief that all criteria for recognition have been
met, including the existence of a history of taxes paid sufficient
to support the realization of deferred tax assets.
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10. Retirement Plan
The Company maintains a qualified, noncontributory pension plan
that covers all full-time employees meeting certain age and service
requirements. The plan provides pension benefits based on an
employee's length of service and the average compensation earned
from the later of the hire date or January 1, 1985 to the
retirement date. The Company's funding policy is to contribute
annually at least the minimum amount required by government funding
standards, but not more than is tax deductible.
Pension expense included in the consolidated statement of earnings
for 1993, 1992 and 1991 was $1,010,259, $721,656 and $748,231,
respectively. Net periodic pension expense of the defined benefit
plan for 1993, 1992 and 1991 was as follows:
Net Periodic Pension Expense of the Defined Benefit Plan
for 1993, 1992 and 1991
1993 1992 1991
Service cost-benefits earned
during the period $ 934,662 $701,154 $663,012
Interest cost on projected
benefit obligation 1,052,115 911,010 831,977
Return on plan assets (921,101) (811,323) (862,427)
Net amortization and deferral (55,417) (79,185) 115,669
----------- --------- ---------
Net periodic pension expense $1,010,259 $721,656 $748,231
=========== ========= =========
Plan assets consist primarily of cash equivalents, a marketable
equity securities fund, guaranteed interest contracts (GIC),
immediate participation guarantee contracts (IPG) and government
bonds.
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The following table sets forth the funded status at December 31,
1993, December 31, 1992 and December 31, 1991:
Funded Status at December 31, 1993, December 31, 1992
and December 31, 1991
1993 1992 1991
Actuarial present
value of vested
benefit obligation $ 12,809,526 $ 10,350,912 $ 9,224,425
============= ============= =============
Accumulated benefit
obligation $ 14,334,743 $ 11,357,402 $ 9,752,351
============= ============= =============
Projected benefit
obligation $(16,703,055) $(12,343,792) $(11,032,948)
Plan assets at fair
value 14,598,490 13,249,626 11,836,939
------------- ------------- -------------
Plan assets in excess
of (less than)
projected benefit
obligations (2,104,565) 905,834 803,991
Unrecognized net
(gain) loss 3,165,383 (195,393) (600,475)
Unrecognized prior
service cost 560,676 672,811 784,946
Net transition
obligation 28,273 31,807 35,341
------------- ------------- -------------
Prepaid pension cost
recognized in the
consolidated balance
sheet $ 1,649,767 $ 1,415,059 $ 1,023,803
============= ============= =============
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Assumptions used in the previous determinations were as follows:
Assumptions on Funded Status at December 31, 1993,
December 31, 1992 and December 31, 1991
1993 1992-91
Discount rate in determining benefit
obligations 7.0% 8.0%
Rate of increase in compensation levels 6.0% 6.0%
Expected long-term rate of return on assets 8.0% 8.0%
11. Employee Stock Plans
Deferred Compensation and Stock Appreciation Rights Plan
In January 1986, the Company's Board of Directors approved a
deferred compensation and stock appreciation rights plan designed
to attract and retain certain key employees. Under the deferred
compensation plan, eligible employees are granted the opportunity
to defer the payment of a portion of their compensation. Under the
stock appreciation rights plan, eligible employees are granted the
right to receive a cash payment from the Company equal to the
excess of the market value of a share of common stock of the
Company at the payment date over the initial value at the issuance
date. The rights become payable after five years following the
effective date of the grant. The stock appreciation rights plan
was amended on November 7, 1991 such that the outstanding rights as
of November 6, 1991 shall not be higher than the excess of $22.38
per share over the initial value at the issuance date. In the event
an employee retires, their rights under the deferred compensation
plan and the stock appreciation rights plan may become payable.
There were no stock appreciation rights granted during fiscal years
1993 and 1992. For the 1991 fiscal year, approximately 23,700 stock
appreciation rights were granted under this plan. For 1993, 1992
and 1991 fiscal years, approximately $7,070, $9,500 and $1,254,000,
respectively, were paid under this plan.
Restricted Stock Plan
In January 1988, the Company's Board of Directors adopted the CPI
Corp. Restricted Stock Plan with an effective date of February 7,
1988. Under the plan, 250,000 shares of CPI common stock are
reserved for issuance to key employees. Awards will usually be made
at the beginning of each fiscal year, and will range from 20% to
40% of a recipient's annual compensation in that fiscal year. In
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fiscal year 1992, 1,761 grants were issued and were vested in
fiscal 1993. In fiscal year 1993 and 1991, 4,000 and 7,022 grants,
respectively, were issued and are to be vested over a four-year
period. Of the grants issued in fiscal year 1988, no grants were
forfeited in fiscal years 1993 and 1992 and 662 grants were
forfeited during fiscal year 1991. As of February 5, 1994, 179,497
shares are reserved for issuance under this plan.
Profit Sharing Plan
Under the Company's profit sharing plan, eligible employees may
elect to invest from 1% to 10% of their base compensation in a
trust fund, the assets of which are invested in securities other
than Company stock. The Company matches up to 70% of the employee's
investment, up to a maximum of 5% of the employee's base
compensation, based on attainment of predefined earnings levels by
the Company. The Company's matching contributions are made in
shares of its common stock which vest over a maximum of five years,
depending on the employee's length of service with the Company. The
difference between the market value of forfeited shares at the
dates of their original contribution and their market value at the
dates used to satisfy subsequent requirements have been charged to
expense, with a corresponding credit to additional paid-in-capital.
The Company provided 15,473 and 12,093 shares to satisfy its
obligations under the plan for fiscal years 1992 and 1991,
respectively, and estimates that 19,536 shares will be required to
satisfy its obligations under the plan for fiscal year 1993. For
fiscal years 1992 and 1991, the Company matched the employee's
investment at a rate of 30%. For fiscal year 1993, the Company
estimates the match will also be 30%.
Stock Bonus Plan
Under the Company's stock bonus plan, shares of the Company's
common stock are reserved for issuance to key employees, based on
attainment by the Company of predefined earnings levels established
annually. Each year, employees receive one-third of the shares
which were awarded in each of the previous three years. For the
1993 and 1992 fiscal years, 3,678 and 2,890 shares, respectively,
were issuable under this plan. No original awards were made under
this plan in fiscal 1991 and 1993. In fiscal 1992, there was a
discretionary award of 6,355 shares. As of February 5, 1994, 63,493
shares are reserved for issuance under this plan.
Expenses related to the profit sharing and stock bonus plans are
accrued in the year to which the awards relate, based on the fair
market value of the Company's common stock to be issued, determined
as of the date earned. The cumulative appreciation related to stock
appreciation rights, determined at the end of each period, is
allocated on a ratable basis over the five-year vesting period.
Expenses related to the restricted stock plan are accrued
periodically, based on fair market value of the Company's common
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stock on the grant date. Expenses recognized for fiscal years 1993,
1992 and 1991 with respect to these plans were $370,111, $596,855
and $1,181,415, respectively.
Incentive Stock Option Plan
The Company has a non-qualified incentive stock option plan, under
which certain key officers may receive options to acquire shares of
the Company's common stock. Twenty-five percent of options granted
become exercisable at the end of each of the second through fifth
years of continuous employment from the date of the grant, and
unexercised options expire after six years. No compensation expense
is recognized under the plan, since the exercise price equals or
exceeds the fair market value of the Company's common stock at the
date of grant. Activity in the plan is summarized as follows:
Activity in Incentive Stock Option Plan
----1992----
Number of Per Share
Shares Option Price
Outstanding at beginning of year 5,950 $14.38-$15.80
Exercised (5,950) $14.38-$15.80
-------
Outstanding at end of year - $14.38-$15.80
=======
Exercisable at end of year - $14.38-$15.80
=======
There was no activity under the Incentive Stock Option Plan in
1993. As of February 5, 1994, there were 306,177 shares reserved
for issuance under this plan.
Stock Option Plan
The Company has a non-qualified stock option plan, under which
certain officers and key employees may receive options to acquire
shares of the Company's common stock. Awards of stock options and
the terms and conditions of such awards are subject to the
discretion of the Stock Option Committee created under the plan and
consisting of disinterested directors of the Company. The plan was
approved by stockholders on June 11, 1991 and the issuance of
additional shares was ratified by stockholders on June 13, 1992. A
total of 1,700,000 shares has been authorized for issuance under
the plan. As of February 5, 1994, the Stock Option Committee has
awarded options on the terms set forth as follows:
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Options Awarded Under the Stock Option Plan For
1993 and 1992
-------1993------- -------1992-------
Number of Per Share Number of Per Share
Shares Option Price Shares Option Price
Outstanding at
beginning of
year 1,156,620 $15.63-$35.00 270,780 $22.38-$29.00
Granted 62,992 $15.63-$35.00 885,840 $21.75-$35.00
Cancelled (7,458) $15.63-$35.00 - $21.75-$35.00
---------- ---------
Outstanding at
end of year 1,212,154 $15.63-$35.00 1,156,620 $21.75-$35.00
========== =========
Under the plan, 432,154 options granted become exercisable from
one-fourth to one-third a year commencing one year after award and
expiring from four to five years after award. An additional 780,000
options granted under the plan are cliff vested and become
exercisable from four to five years after award and expire six to
seven years after award.
As of February 5, 1994, there were 1,700,000 shares reserved for
issuance under this plan and 215,326 shares exercisable.
Voluntary Stock Option Plan
The Company has a non-qualified voluntary stock option plan, under
which certain key officers may receive options to acquire shares of
the Company's common stock. The plan was approved by stockholders
on June 11, 1993 and was effective March 18, 1993. Options are
granted as a participant elects, pursuant to their Stock Option
Agreement, to reduce their compensation for the fiscal year
beginning February 7, 1993. A total of 1,000,000 shares has been
authorized for issuance. As of February 5, 1994, 240,284 options at
an exercise price of $18.75 have been awarded. Options granted are
exercisable after three years and expire at the end of eight years.
The terms and conditions of the plan, for one or more fiscal years
after the fiscal year beginning February 7, 1993, are amendable by
the Board of Directors at its discretion. The plan has been
extended to the fiscal year beginning February 6, 1994.
12. Industry Segment Information
The Company is engaged in developing and marketing products and
services for consumers in the United States and Canada through a
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network of centrally managed retail locations. The Company
classifies its operations into three major industry segments of
Portrait Studios, Photofinishing and Other Products and Services.
The Company's Portrait Studios segment operates a professional
portrait photography business, primarily through fixed location
studios. The Company's Photofinishing segment provides
photofinishing, primarily for amateur photographers, and also sells
film and other photo-related accessories. The Company's Other
Products and Services industry segment consists of the electronic
publishing business and Prints Plus, a wall decor business. Sales
and operating earnings industry segment information is included in
"Management Discussion and Analysis of Financial Condition and
Results of Operations" and is incorporated by reference herein from
the table on pages 136-137 of this document. The following table
sets forth certain information about each of these industry
segments (dollars in thousands):
Selected Industry Segment Information for 1993, 1992, and 1991
(Dollars in Thousands)
1993 1992 1991
Depreciation and amortization:
Portrait Studios $ 6,332 $ 6,015 $ 6,712
Photofinishing 19,655 17,019 14,285
Other Products and Services 4,411 2,784 2,938
Corporate 3,063 2,941 2,585
-------- -------- --------
$ 33,461 $ 28,759 $ 26,520
======== ======== ========
Identifiable assets:
Portrait Studios $ 62,694 $ 49,353 $ 54,028
Photofinishing 125,044 133,156 115,097
Other Products and Services 31,491 12,607 13,835
Corporate 86,567 42,635 55,967
-------- -------- --------
$305,796 $237,751 $238,927
======== ======== ========
Capital expenditures:
Portrait Studios $ 18,960 $ 2,378 $ 8,881
Photofinishing 10,147 18,688 23,853
Other Products and Services 15,627 1,640 2,515
Corporate 625 4,560 5,349
-------- -------- --------
$ 45,359 $ 27,266 $ 40,598
======== ======== ========
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PAGE
Substantially all the Company's portrait studio business operates
in the United States under a Sears, Roebuck and Co., ("Sears")
license agreement that is terminable by either the Company or Sears
upon 90 days' notice. Except in connection with store closings,
Sears has never terminated the operations of any of the Company's
portrait studios. The Company's relationship with Sears is
long-standing, and management has no reason to believe that Sears
will exercise its rights under the agreements to reduce materially
the scope of the Company's business with Sears.
13. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following
(dollars in thousands):
Accrued Expenses and Other Liabilities as of February 5, 1994
and February 6, 1993
February 5, February 6,
1994 1993
Accrued employment costs $ 9,247 $ 6,480
Sales taxes payable 3,005 2,655
Accrued advertising expense 3,640 4,847
Accrued license fees 2,380 2,635
Accrued interest 1,728 30
Other 1,046 820
------- -------
$21,046 $17,467
======= =======
14. Stock Repurchase Plan
The Company's Board of Directors announced on September 29, 1988,
that it had authorized the Company to purchase up to 2,500,000
shares, or approximately 15%, of its outstanding common stock. In
addition, on April 2, 1992, the Company's Board also authorized the
purchase of an additional 2,000,000 shares of Company common stock.
The Board has authorized purchases at management's discretion from
time to time at acceptable market prices. Acquired shares are held
as treasury stock and will be available for general corporate
purposes. As of February 5, 1994, the Company had purchased
2,363,808 shares of stock for $58,556,032 at an average stock price
of $24.77. Subsequent to fiscal year end and as of April 6, 1994,
the Company had purchased an additional 204,855 shares of stock for
$3,329,272 at an average stock price of $16.25.
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PAGE
15. Stockholder Rights Plan
On May 1, 1989, the Board of Directors of the Company declared a
dividend distribution of one preferred stock purchase right for
each outstanding share of common stock. The rights were issued
under a Rights Plan, which entitles holders of common stock to
purchase one one-hundredth of a share of Series A Participating
Preferred Stock in the Company, or an acquirer of the Company, in
the event of certain hostile efforts, as defined in the Rights
Plan, to gain control of the Company. The rights issued expire on
May 11, 1999, unless redeemed earlier. On August 26, 1993, the
Board of Directors of the Company amended the Company's Stockholder
Rights Plan. As a result of the amendment, the rights will be
exercisable if any person or group (other than certain entities
affiliated with CPI) becomes the beneficial owner of 15 percent or
more of CPI common stock. Under the original Stockholder Rights
Plan the rights were exercisable at 20 percent of CPI common stock.
16. Contingencies
The Company is the defendant in various lawsuits arising in the
normal course of business. It is the opinion of management that the
ultimate liability, if any, resulting from the resolution of such
lawsuits will not have a material effect on the consolidated
financial position or the results of operations of the company.
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SELECTED QUARTERLY FINANCIAL DATA
The Company's portrait photography business is seasonal, with the
largest sales volume during the third and fourth quarters, the
period preceding and including the Thanksgiving and Christmas
seasons.
The following table sets forth selected financial data for the
quarters of the Company's fiscal years ended February 5, 1994,
February 6, 1993 and February 1, 1992. Although this information is
unaudited, in the opinion of the Company, it reflects all
adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of operations for
such periods.
Since April 17, 1989, the Company's common stock has been traded on
the New York Stock Exchange under the symbol CPY. Prior to that
time it was traded on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") under the symbol CPIC. The
table below sets forth the high and low last sale prices of the
common stock reported by the New York Stock Exchange or NASDAQ
during the Company's last three fiscal years.
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PAGE
Selected Quarterly Financial Data for Fiscal Year 1993
(In Thousands, Except Per Share Amounts)
-------------- Quarter Ended -------------
May 1, July 24, Nov. 13, Feb. 5,
1993 1993 1993 1994
(12 wks.) (12 wks.) (16 wks.) (12 wks.)
FISCAL YEAR 1993:
Net sales $ 88,790 $ 95,386 $145,320 $146,024
Earnings (loss) before
income taxes and
cumulative effect
of accounting change$ (4,246) $ 3,459 $ 5,588 $ 13,718
Earnings (loss) before
cumulative effect of
accounting change $ (2,538) $ 2,067 $ 3,353 $ 8,235
Net earnings (loss) $ (418) $ 2,067 $ 3,353 $ 8,235
Earnings per common
share:
Cumulative effect
of accounting
change $ 0.14 - - -
Net earnings $ (0.03) $ 0.14 $ 0.23 $ 0.56
Weighted average
number of common
and common
equivalent shares 14,663 14,680 14,673 14,645
Dividends $ 0.14 $ 0.14 $ 0.14 $ 0.14
STOCK PRICE AND
VOLUME:
High $ 20.75 $ 16.75 $ 18.25 $ 17.88
Low $ 16.00 $ 14.00 $ 13.88 $ 14.38
Volume (thousands) 1,790 3,153 1,731 2,309
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Selected Quarterly Financial Data for Fiscal Year 1992
(In Thousands, Except Per Share Amounts)
-------------- Quarter Ended -------------
Apr. 25, July 18, Nov. 7, Feb. 6,
1992 1992 1992 1993
(12 wks.) (12 wks.) (16 wks.) (13 wks.)
FISCAL YEAR 1992:
Net sales $ 92,636 $ 92,637 $126,468 $137,639
Earnings before income
taxes $ 3,491 $ 5,968 $ 9,907 $ 17,156
Net earnings $ 2,181 $ 3,646 $ 6,180 $ 10,608
Earnings per common
share $ 0.15 $ 0.25 $ 0.42 $ 0.72
Weighted average
number of common
and common
equivalent shares 14,727 14,672 14,655 14,658
Dividends $ 0.14 $ 0.14 $ 0.14 $ 0.14
STOCK PRICE AND
VOLUME:
High $ 25.88 $ 26.38 $ 19.75 $ 21.63
Low $ 22.50 $ 19.50 $ 15.00 $ 16.00
Volume (thousands) 1,991 2,014 2,280 4,019
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Selected Quarterly Financial Data for Fiscal Year 1991
(In Thousands, Except Per Share Amounts)
-------------- Quarter Ended -------------
Apr. 27, July 20, Nov. 9, Feb. 1,
1991 1991 1991 1992
(12 wks.) (12 wks.) (16 wks.) (12 wks.)
FISCAL YEAR 1991:
Net sales $ 80,552 $ 79,656 $129,900 $124,411
Earnings before income
taxes $ 7,141 $ 8,685 $ 10,904 $ 16,545
Net earnings $ 4,492 $ 5,486 $ 6,835 $ 10,322
Earnings per common
share $ 0.30 $ 0.36 $ 0.45 $ 0.69
Weighted average
number of common
and common
equivalent shares 15,199 15,237 15,181 14,784
Dividends $ 0.14 $ 0.14 $ 0.14 $ 0.14
STOCK PRICE AND
VOLUME:
High $ 34.63 $ 34.75 $ 31.50 $ 26.75
Low $ 28.88 $ 30.00 $ 21.88 $ 22.63
Volume (thousands) 1,532 3,593 5,038 2,689
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CPI Corp.:
We have audited the accompanying consolidated balance sheets of CPI
Corp. and subsidiaries as of February 5, 1994 and February 6, 1993,
and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for each of the fiscal years
in the three-year period ended February 5, 1994. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of CPI Corp. and subsidiaries at February 5, 1994 and
February 6, 1993, and the results of their operations and their
cash flows for each of the fiscal years in the three-year period
ended February 5, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements,
the Company changed its method of accounting for income taxes to
conform with the provisions of Statement of Financial Accounting
Standards No. 109.
/s/ KPMG PEAT MARWICK
St. Louis, Missouri
April 6, 1994
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PAGE
DIRECTORS AND OFFICERS
Directors
Milford Bohm*
Retired founder and former Chairman, CPI Corp.
Alyn V. Essman
Chairman of the Board and Chief Executive Officer, CPI Corp.
Russell Isaak
President, CPI Corp.
Lee Liberman*
Former Chairman, Laclede Gas Company
Nicholas L. Reding
Vice Chairman, Monsanto Company
Robert L. Virgil*
Partner, Edward D. Jones & Co.
Officers
Chairman, Chief Executive Officer
Alyn V. Essman
Office of the President
Russell Isaak-President
David E. April-Senior Executive Vice President
Patrick J. Morris-Senior Executive Vice President
Secretary and General Counsel
Jane E. Nelson
Corporate Officers
Barry Arthur-Executive Vice President, Finance
-Chief Financial Officer
Edmund J. Chase-Executive Vice President,
Studio Strategic Development
William F. Cronin-Executive Vice President, Marketing
Fran Scheper-Executive Vice President, Human Resources
Richard Tarpley-Executive Vice President, Manufacturing
Division Presidents
R. L. Beck-CPI/Fox Photo Finish
W. G. Blossfield-Sears Portrait Studios,
Eastern Retail Operations
Theodore deBuhr II-CPI Electronic Publishing
Arthur Padovese-Prints Plus
Harry Stecher-Sears Portrait Studios, Western Retail Operations
and Canadian Operations
* Member of the Audit Committee of the Board of Directors
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INVESTOR INFORMATION
Most Recent Analyst Reports:
Forbes Investors Advisory Institute, William D. Curtin,
November 1, 1993
Morgan Keegan & Co. , Craig T. Weichmann, March 25,1994
Smith Barney, Peter J. Enderlin, March 21, 1994
Value Line, Philip M. Seligman, March 4, 1994
Stock Transfer Agent and Registrar:
Continental Stock Transfer & Trust Company, 2 Broadway,
New York, New York 10004
Automatic Dividend Reinvestment:
The automatic dividend reinvestment plan is a convenient way for
shareholders to increase their investment in the Company, with all
brokerage commissions and service charges paid by CPI Corp. Cash
contributions in the amount of $10 to $10,000 per quarter can also
be made toward the purchase of additional shares. For a plan
description, enrollment card or other information, write or call
the Shareholder Service Department at CPI Corporate Headquarters.
At the Company:
Alyn V. Essman
Chairman
CPI Corp., 1706 Washington Avenue, St. Louis, MO 63103
(314) 231-1575, Extension 3240
At the Financial Relations Board, Inc.:
LeRoy A. Glasner, Jr.
C.F.A. Assistant Managing Partner
John Hancock Center
875 N. Michigan Avenue
Chicago, IL 60611
(312) 266-7800
Kathy Phelan
Partner, Manager-East Coast MID
675 Third Avenue
New York, NY 10017
(212) 661-8030
Annual Meeting/Corporate Headquarters:
The annual meeting of stockholders' will convene at 10:00 a.m.,
Tuesday, June 7, 1994 at the Corporate Headquarters,
1706 Washington Avenue, St. Louis, MO 63103-1717.
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PAGE
(Back cover of Annual Report to Shareholders)
CPI Corp.
1706 Washington Avenue, St. Louis, Missouri 63103-1717
NYSE:CPY
181
PAGE
Exhibit (21)
SUBSIDIARIES OF THE REGISTRANT AS OF FEBRUARY 7, 1994
Subsidiaries of the Registrant as of February 7, 1994
State/Province Country
-------------- ------------
CPI Corp. Delaware United States
Consumer Programs Holding, Inc. Delaware United States
Consumer Programs, Incorporated Missouri United States
d/b/a Sears Portrait Studios
d/b/a Pictureland
CPI Brands, Inc. Delaware United States
Consumer Programs Partner,Inc. Delaware United States
Fox Photo, Inc. Delaware United States
d/b/a Fox Photo
d/b/a CPI Photo Finish
d/b/a CPI One-Hour Lab
d/b/a CPI One-Hour Photo
d/b/a Studio Express
d/b/a Portraits By You
d/b/a Fox Imaging Center
Fox Photo Partner, Inc. Delaware United States
Proex Photo Systems, Inc. Missouri United States
d/b/a Proex Portrait & Photo
d/b/a Proex Photo & Lab
d/b/a Proex Photo
CPI Prints Plus, Inc. Delaware United States
Ridgedale Prints Plus, Inc. Minnesota United States
d/b/a Prints Plus
Prints Plus, Inc. California United States
d/b/a Prints Plus
d/b/a Prints & Posters
182
Subsidiaries of the Registrant as of February 7, 1994
State/Province Country
-------------- ------------
Color Laser Corp. Delaware United States
d/b/a Imageland
CPI Photo Finish, Inc. Delaware United States
CPI Copy Services, Inc. Missouri United States
d/b/a CopyMat
d/b/a Copy USA
d/b/a Raging Fingers
CPI Technology Corp. Missouri United States
CPI Corp. Canada Ontario Canada
d/b/a Sears Portrait Studios
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Exhibit (23)
ACCOUNTANTS' CONSENT
The Board of Directors and Stockholders
CPI Corp.:
We consent to incorporation by reference in the Registration
Statements (No. 2-86403, No. 33-19981 and No. 33-50082) on Form S-8
of CPI Corp. of our report dated April 6, 1994, relating to the
consolidated balance sheets of CPI Corp. and subsidiaries as of
February 5, 1994 and February 6, 1993 and the related consolidated
statements of earnings, changes in stockholders' equity and cash
flows and related schedules for each of the fiscal years in the
three-year period ended February 5, 1994, which report appears in
the 1993 annual report on Form 10-K of CPI Corp.
/s/ KPMG PEAT MARWICK
St. Louis, Missouri
April 6, 1994
184