0001169232-05-004432.txt : 20050901 0001169232-05-004432.hdr.sgml : 20050901 20050901172556 ACCESSION NUMBER: 0001169232-05-004432 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20050723 FILED AS OF DATE: 20050901 DATE AS OF CHANGE: 20050901 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CPI CORP CENTRAL INDEX KEY: 0000025354 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 431256674 STATE OF INCORPORATION: DE FISCAL YEAR END: 0206 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10204 FILM NUMBER: 051065514 BUSINESS ADDRESS: STREET 1: 1706 WASHINGTON AVE CITY: ST LOUIS STATE: MO ZIP: 63103-1790 BUSINESS PHONE: 3142311575 MAIL ADDRESS: STREET 1: 1706 WASHINGTON AVE CITY: ST LOUIS STATE: MO ZIP: 63103 10-Q 1 d65232_10-q.htm QUARTERLY REPORT

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

FORM 10-Q


x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 23, 2005

OR

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

Commission file number 1-10204

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


Delaware		43-1256674
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

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

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

x Yes o No

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

x Yes o No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

As of August 29, 2005, the Registrant had 7,874,643 common shares outstanding.

CPI CORP.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
12 Weeks and 24 Weeks Ended July 23, 2005


			Page


PART 1.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Interim Condensed Consolidated Balance Sheets
		July 23, 2005 (Unaudited) and February 5, 2005	1

		Interim Condensed Consolidated Statements of Operations (Unaudited)
		12 and 24 Weeks Ended July 23, 2005 and July 24, 2004	3

		Interim Condensed Consolidated Statement of Changes in Stockholders’ Equity
		(Unaudited) 24 Weeks Ended July 23, 2005	4

		Interim Condensed Consolidated Statements of Cash Flows (Unaudited)
		24 Weeks Ended July 23, 2005 and July 24, 2004	5

		Notes to Interim Condensed Consolidated Financial Statements (Unaudited)	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24

	Item 4.	Controls and Procedures	24

PART II.	OTHER INFORMATION

	Item 4.	Submission of Matters to a Vote of Security Holders	25

	Item 6.	Exhibits	25

Signatures			26

Exhibit Index			27

CPI CORP.
Interim Condensed Consolidated Balance Sheets – Assets

PART I. FINANCIAL INFORMATION

Item 1 Financial Statements


	July 23, 2005
*thousands*	(Unaudited)			February 5, 2005


ASSETS
Current assets:
Cash and cash equivalents	$	14,824		$	33,883
Restricted cash-collateral for outstanding letters of credit		—			6,154
Accounts receivable:
Due from licensor stores		8,407			7,365
Other		144			326
Inventories		10,098			10,521
Prepaid expenses and other current assets		5,663			6,905
Deferred tax assets		9,001			8,795


Total current assets		48,137			73,949


Property and equipment:
Land		2,765			2,765
Building improvements		26,423			26,684
Leasehold improvements		6,377			6,005
Photographic, sales and manufacturing equipment		131,222			183,979

Total		166,787			219,433
Less accumulated depreciation and amortization		120,774			177,775

Property and equipment, net		46,013			41,658
Assets of business transferred under contractual arrangements:
Preferred Security		7,000			7,000
Accrued dividends on preferred security		979			689
Impairment reserve related to preferred security interest		(7,979	)		(7,689	)
Other investments - supplemental retirement plan		6,141			6,141
Deferred tax assets		14,029			11,734
Other assets, net of amortization of $1,359 at both July 23, 2005 and February 5, 2005		1,438			1,618


TOTAL ASSETS	$	115,758		$	135,100

See accompanying notes.

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


	July 23, 2005
*thousands, except share and per share data*	(Unaudited)			February 5, 2005


LIABILITIES
Current liabilities:
Current maturities of long-term debt	$	8,580		$	8,580
Accounts payable		11,659			13,011
Accrued employment costs		12,160			12,463
Customer deposit liability		20,882			21,828
Accrued severance		4,290			4,205
Income taxes payable		2,279			2,872
Sales taxes payable		1,297			1,886
Accrued advertising expenses		1,816			1,568
Accrued expenses and other liabilities		5,024			5,348


Total current liabilities		67,987			71,761


Long-term debt, less current maturities		8,486			17,050
Accrued pension obligations		14,705			13,993
Supplemental retirement plan obligations		3,972			4,512
Customer deposit liability		3,384			4,334
Other liabilities		298			564


Total liabilities		98,832			112,214


STOCKHOLDERS’ EQUITY
Preferred stock, no par value, 1,000,000 shares authorized; no shares outstanding		—			—
Preferred stock, Series A, no par value, 200,000 shares authorized; no shares outstanding		—			—
Common stock, $0.40 par value. 50,000,000 shares authorized; 18,494,514 and 18,432,779 shares outstanding at July 23, 2005 and February 5, 2005, respectively		7,398			7,373
Additional paid-in capital		54,415			53,301
Retained earnings		199,240			206,812
Accumulated other comprehensive loss		(10,244	)		(10,505	)

		250,809			256,981
Treasury stock - at cost, 10,639,543 and 10,672,236 at July 23, 2005 and February 5, 2005, respectively		(233,541	)		(234,031	)
Unamortized deferred compensation- restricted stock		(342	)		(64	)

Total stockholders’ equity		16,926			22,886

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	115,758		$	135,100

See accompanying notes.

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


	12 Weeks Ended						24 Weeks Ended

*thousands, except share and per share data*	July 23, 2005			July 24, 2004			July 23, 2005			July 24, 2004


Net sales	$	54,724		$	48,621		$	110,528		$	103,546

Cost and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)		7,880			6,670			15,345			14,362
Selling, general and administrative expenses		45,178			42,561			92,309			88,238
Depreciation and amortization		4,776			3,679			9,049			7,540
Other charges and impairments		1,467			3,941			1,576			13,504

		59,301			56,851			118,279			123,644


Loss from continuing operations		(4,577	)		(8,230	)		(7,751	)		(20,098	)

Interest expense		409			532			860			1,131
Interest income		145			269			320			550
Other income, net		37			105			209			150


Loss from continuing operations before income tax benefit		(4,804	)		(8,388	)		(8,082	)		(20,529	)
Income tax benefit		1,787			1,869			3,007			6,361


Net loss from continuing operations		(3,017	)		(6,519	)		(5,075	)		(14,168	)
Net loss from discontinued operations, net of income tax benefit		—			(2,588	)		—			(3,737	)


NET LOSS	$	(3,017	)	$	(9,107	)	$	(5,075	)	$	(17,905	)


NET LOSS PER COMMON SHARE

Net loss per share from continuing operations - diluted	$	(0.38	)	$	(0.82	)	$	(0.65	)	$	(1.76	)
Net loss per share from discontinued operations - - diluted		—			(0.32	)		—			(0.46	)

Net loss per share - diluted	$	(0.38	)	$	(1.14	)	$	(0.65	)	$	(2.22	)


Net loss per share from continuing operations - basic	$	(0.38	)	$	(0.82	)	$	(0.65	)	$	(1.76	)
Net loss per share from discontinued operations - - basic		—			(0.32	)		—			(0.46	)

Net loss per share - basic	$	(0.38	)	$	(1.14	)	$	(0.65	)	$	(2.22	)


Dividends per share	$	0.16		$	0.16		$	0.32		$	0.32


Weighted average number of common and common equivalent shares outstanding-diluted		7,849,938			7,988,186			7,829,773			8,044,379

Weighted average number of common and common equivalent shares outstanding-basic		7,849,938			7,988,186			7,829,773			8,044,379

See accompanying notes.

CPI CORP.
Interim Condensed Consolidated Statement of Changes in Stockholders’ Equity
(Unaudited)


	Twenty-four weeks ended July 23, 2005

thousands, except share and per share data	Common stock		Additional paid-in capital		Retained earnings			Accumulated other comprehensive loss			Treasury stock, at cost			Deferred compensation - restricted stock			Total


Balance at February 5, 2005	$	7,373	$	53,301	$	206,812		$	(10,505	)	$	(234,031	)	$	(64	)	$	22,886

Net loss		—		—		(5,075	)		—			—			—			(5,075	)
Foreign currency translation adjustment		—		—		—			261			—			—			261

Total comprehensive loss		—		—		(5,075	)		261			—			—			(4,814	)
Issuance of common stock to employee benefit plans, restricted stock awards and option exercises (94,428 shares)		25		1,114		—			—			490			(850	)		779
Dividends ($.32 per common share)		—		—		(2,497	)		—			—			—			(2,497	)
Amortization of deferred compensation - restricted stock		—		—		—			—			—			572			572


Balance at July 23, 2005	$	7,398	$	54,415	$	199,240		$	(10,244	)	$	(233,541	)	$	(342	)	$	16,926

See accompanying notes.

CPI CORP.
Interim Condensed Consolidated Statements of Cash Flows
(Unaudited)


	24 Weeks Ended

*thousands*	July 23, 2005			July 24, 2004


Reconciliation of net loss from continuing operations to cash flows (used in) provided by operating activities:

Net loss from continuing operations	$	(5,075	)	$	(14,168	)

Adjustments for items not requiring cash:
Depreciation and amortization		9,445			7,546
Loss on disposition of property, plant and equipment		234			90
Deferred income taxes		(2,501	)		(772	)
Deferred revenues and related costs		(1,620	)		(650	)
Accrued interest on preferred security		—			(290	)
Accelerated vesting of supplemental retirement plan benefits		—			3,338
Other impairment charges		—			4,298
Other		938			1,188

(Increase) decrease in current assets:
Receivables and inventories		(438	)		617
Refundable income taxes		—			(5,575	)
Prepaid expenses and other current assets		1,105			250

(Decrease) increase in current liabilities:
Accounts payable		(1,352	)		(4,345	)
Accrued expenses and other liabilities		(903	)		185
Income taxes payable		(592	)		—


Cash flows used in continuing operations		(759	)		(8,288	)
Cash flows used in discontinued operations		—			(2,692	)

Cash flows used in operating activities	$	(759	)	$	(10,980	)

See accompanying notes.

CPI CORP.
Interim Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)


	24 Weeks Ended

*thousands*	July 23, 2005			July 24, 2004


Cash flows used in operating activities	$	(759	)	$	(10,980	)

Cash flows (used in) provided by financing activities:
Repayment of long-term obligations		(8,580	)		(8,580	)
Reduction in restricted cash-collateral for outstanding letters of credit		6,154			—
Proceeds from option exercises		112			920
Cash dividends		(2,497	)		(2,593	)
Purchase of treasury stock		—			(6,008	)

Cash flows used in financing activities		(4,811	)		(16,261	)


Cash flows (used in) provided by investing activities:
Additions to property and equipment		(13,735	)		(7,525	)
Proceeds from sales of property and equipment		64			215
Proceeds from sales of assets held for sale		35			—
Changes in loan receivable:
Borrowings		—			(22,220	)
Repayments		—			20,596
Increase in assets held in Rabbi Trust		(159	)		(456	)
Supplemental retirement payments funded by assets held in Rabbi Trust		159			405

Cash flows used in investing activities		(13,636	)		(8,985	)


Effect of exchange rate changes on cash and cash equivalents		147			41


Net decrease in cash and cash equivalents		(19,059	)		(36,185	)

Cash and cash equivalents at beginning of period		33,883			51,011


Cash and cash equivalents at end of period	$	14,824		$	14,826


Supplemental cash flow information:
Interest paid	$	959		$	1,278

Income taxes paid	$	117		$	52


Supplemental non-cash financing activities:
Issuance of treasury stock under the employee profit sharing plan	$	490		$	554

Issuance of restricted stock to employees and directors	$	850		$	—

Repayment of borrowings against cash surrender value of life insurance via liquidation of related policies	$	—		$	1,548

Executive retirement stock option modification	$	177			—

See accompanying notes.

CPI CORP.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)


NOTE 1 –	DESCRIPTION OF BUSINESS AND INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company operates 1,034 professional portrait studios as of July 23, 2005 throughout the United States, Canada and Puerto Rico principally under license agreements with Sears, Roebuck and Co. (“Sears”). The Company also operates searsphotos.com, an on-line photofinishing service as well as a vehicle for the Company’s customers to archive, share portraits via email and order additional portraits and products.

The Interim Condensed Consolidated Balance Sheet as of July 23, 2005, the related Interim Condensed Consolidated Statements of Operations for the 12 and 24 weeks ended July 23, 2005 and July 24, 2004, the Interim Condensed Consolidated Statement of Changes in Stockholders’ Equity for the 24 weeks ended July 23, 2005 and the Interim Condensed Consolidated Statements of Cash Flows for the 24 weeks ended July 23, 2005 and July 24, 2004, are unaudited. The interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals), which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the CPI Corp. 2004 Annual Report on Form 10-K for its fiscal year ended February 5, 2005. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain reclassifications have been made to the 2004 financial statements to conform with the current year presentation.

NOTE 2 – INVENTORIES

The following table sets forth the components of inventory:


thousands	July 23, 2005		February 5, 2005


Raw materials - film, paper, chemicals	$	3,800	$	3,750
Portraits in process		1,210		1,555
Finished portraits pending delivery		620		496
Frames and accessories		1,374		1,286
Studio supplies		2,218		2,197
Other supplies and parts		876		1,237

Total	$	10,098	$	10,521

CPI CORP.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)


NOTE 3 –	BORROWINGS

On April 15, 2005, the Company entered into a new $30.0 million (reducing to $25 million in February 2006 and $20 million in February 2007) unsecured bank revolving credit facility (the “Revolving Facility”), which will expire on April 13, 2007 and carries a variable interest rate charged at either LIBOR or prime rate funds, with an applicable margin added.

Concurrent with the closing of the Revolving Facility, the Company amended its existing Senior Note agreement to allow it to incur additional indebtedness without violating the debt to equity ratio covenant included in the original agreement. The covenants of the amended Senior Note Agreement now principally mirror those included in the Revolving Facility.

At July 23, 2005, the Company had $17.1 million outstanding under its existing Senior Note Agreement and no borrowings against its $30.0 million Revolving Facility.


NOTE 4 –	OTHER CHARGES AND IMPAIRMENTS

Other charges and impairments for the half ended July 23, 2005 totaled $1.6 million and included the following:

Impairment Charges

During the second quarter of 2005, the Company recorded a reserve of $180,000 for repair parts related to its film infrastructure determined to be obsolete due to the conversion of its studios to the full digital format. In addition, the Company recorded $74,000 in costs to discard assets removed from service during the 2004 hardware and printer upgrade and the ongoing digital conversion.

Reserves for Severance and Related Costs

In the first and second quarters of 2005, the Company recognized $134,000 and $75,000, respectively, in additional costs associated with the dismissal of certain executives in 2004.

Executive Retirements/Repositioning Costs

As part of the Board of Directors ongoing effort to realign the executive management team following the proxy consent solicitation in early 2004, two senior executives agreed to retire during the second quarter of 2005. During the quarter ended July 23, 2005, the Company recorded approximately $1.1 million in separation costs relating to these two executives and for costs incurred as part of the Company’s search for a new CEO which was completed and announced on July 20, 2005.

Contract Terminations and Settlements

During the first and second quarters of 2005, favorable settlements of professional services billings were negotiated resulting in the reversals of $25,000 and $11,000, respectively, of previous accruals. The Company also recorded an additional $50,000 accrual relating to the settlement of a compensation claim by a former consultant to the Company. This former consultant is a relative of the Company’s Chairman of the Board.

CPI CORP.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)


NOTE 5 –	STOCK-BASED COMPENSATION PLANS

At July 23, 2005, the Company had various stock-based employee compensation plans, which are described more fully in Note 8 of the Notes to Consolidated Financial statements in the Company’s 2004 Annual Report on Form 10-K. The Company accounts for those plans in accordance with APB No. 25, “Accounting For Stock Issued to Employees”, and related Interpretations. The fair value recognition effect would have been additional costs of $0.01 and $0.02, respectively, for the 12 and 24 weeks of the prior year, and no net effect in the current year.

On April 14, 2005, the Board of Directors approved a grant of 34,562 shares of restricted stock to its Chairman of the Board who has been acting in an executive officer capacity since October 6, 2004, when the Company formed its Office of the Chief Executive. The compensation award included the grant, without restrictions, of 17,281 shares of the Company’s common stock and 17,281 shares of restricted stock that vest ratably from April 2005 through September 2005. The total fair value of the award at the date of the grant was $519,121. The fair value of the 17,281 shares awarded, without restrictions, amounted to $259,561, $175,000 of which represented compensation for fiscal 2004 and was recorded as such in the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended February 5, 2005. During the 12 and 24 weeks ended July 23, 2005, $130,000 and $256,000 of compensation expense was recorded related to the remainder of the expense pertaining to the unrestricted shares as well as the amortization related to the restricted shares that vested through July 23, 2005.

CPI CORP.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)


NOTE 6 –	EMPLOYEE BENEFIT PLANS

The Company maintains a qualified, noncontributory pension plan that covers all full-time United States 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, 1998 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. Plan assets consist primarily of marketable equity securities funds, guaranteed interest contracts, cash equivalents, immediate participation guarantee contracts and government bonds.

The Company also maintains a noncontributory defined benefit plan providing supplemental retirement benefits for certain current and former executives. The cost of providing these benefits is accrued over the remaining expected service lives of the active plan participants. The supplemental retirement plan is unfunded and as such does not have a specific investment policy or long-term rate of return assumptions. However, certain assets will be used to finance these future obligations and consist of investments in a Rabbi Trust.

The following tables set forth the components of net periodic benefit cost for the defined benefit plans:


	12 Weeks Ended

	Pension Plan						Supplemental Retirement Plan

*thousands*	July 23, 2005			July 24, 2004			July 23, 2005			July 24, 2004

Components of net periodic benefit cost:
Service cost	$	117		$	118		$	26		$	47
Interest cost		651			623			57			89
Expected return on plan assets		(644	)		(677	)		—			—
Amortization of prior service cost		10			10			7			9
Amortization of net (gain) loss		222			101			(4	)		—


Net periodic benefit cost	$	356		$	175		$	86		$	145


	24 Weeks Ended

	Pension Plan						Supplemental Retirement Plan

*thousands*	July 23, 2005			July 24, 2004			July 23, 2005			July 24, 2004

Components of net periodic benefit cost:
Service cost	$	234		$	471		$	52		$	83
Interest cost		1,302			1,247			114			174
Expected return on plan assets		(1,288	)		(1,354	)		—			—
Amortization of prior service cost		20			20			14			9
Amortization of net (gain) loss		444			420			(8	)		—
Accelerated vesting		—			—			—			3,338
Settlement expense		—			—			—			86
Curtailment expense		—			—			—			230


Net periodic benefit cost	$	712		$	804		$	172		$	3,920

Based upon the results of its recently completed actuarial report for the 2004 plan year, the Company now expects to make a voluntary contribution to its pension plan in the amount of $2,050,000 on or prior to September 15, 2005.

CPI CORP.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)


NOTE 7 –	CONTINGENCIES

Standby Letters of Credit

As of July 23, 2005, the Company had outstanding standby letters of credit in the principal amount of $6.3 million used primarily in conjunction with the Company’s self insurance programs. On May 17, 2005, the Company replaced all previously-held collateralized standby letters of credit with new letters of credit issued under the Company’s new revolving credit facility. Accordingly, the restricted cash which had been deposited as cash collateral as of February 5, 2005 has been returned to the Company to be used for general corporate purposes.

Litigation

The Company is a defendant in various lawsuits. It is the opinion of management that the ultimate liability, if any, resulting from such lawsuits will not materially affect the consolidated financial position or results of operations of the Company.

Contingent Lease Obligations

In July 2001, the Company announced the completion of the sale of its Wall Décor segment which included the ongoing guarantee of certain operating real estate leases of Prints Plus. As of July 23, 2005, the maximum future obligation to the Company under its guarantee of these leases is $4.2 million. To recognize the risk associated with these leases and based upon the Company’s past experience with renegotiating lease obligations, a $1.0 million reserve was established in 2001 at time of the sale. As a result of the significant deterioration in the financial performance of Prints Plus in the third quarter of 2004, including its subsequent bankruptcy filing, all of which is more fully described in Note 12 to the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended February 5, 2005, the Company recorded an additional $2.1 million of lease obligation reserves bringing the total reserve at July 23, 2005 to $3.1 million. Based on the progress of the bankruptcy case to-date, including Prints Plus’ receipt of debtor-in-possession financing on May 18, 2005, and the continued operations of selected locations of Prints Plus, the Company believes that the $3.1 million reserve is adequate to cover the potential losses to be realized under the Company’s operating lease guarantees.

To assist Prints Plus in obtaining the above-mentioned debtor-in-possession financing facility, the Company guaranteed $300,000 of the facility by posting a letter of credit with the lender.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide the reader of the financial statements with a narrative on the Company’s results of operations, financial position and liquidity, significant accounting policies and critical estimates, and the future impact of accounting standards that have been issued but are not yet effective. Management’s Discussion and Analysis is presented in the following sections: Executive Overview; Results of Operations; Liquidity and Capital Resources; and Accounting Pronouncements and Policies. The reader should read Management’s Discussion and Analysis in conjunction with the interim condensed consolidated financial statements and related notes thereto contained elsewhere in this document.

EXECUTIVE OVERVIEW

The Company’s Operations

CPI Corp. is a long-standing leader, based on sittings and related revenues, in the professional portrait photography of young children and families. From a single studio opened by our predecessor company in 1942, we have grown to 1,034 studios throughout the United States (“U.S.”), Canada and Puerto Rico, principally under license agreements with Sears. We have provided professional portrait photography for Sears’ customers since 1959 and have been the exclusive Sears portrait studio operator since 1986.

As of the end of the second quarter in fiscal 2005 and 2004 the Company’s studio counts were:


	July 23, 2005		July 24, 2004


United States and Puerto Rico:
Within full-line Sears stores		860		861
Locations not within Sears stores		40		39
Within Sears Essential/Grand stores		18		2

Canada		116		117


Total		1,034		1,019

During the second quarter of 2005, the Company continued its plan to transition a substantial number of studios to full digital technology by converting an additional 374 U.S. studios to full digital format, bringing the total number converted to 645 U.S. studios as of July 23, 2005. As of September 1, 2005, the number of converted U.S. studios has grown to 902.

Based on ongoing discussions with Sears, the Company believes that Sears Portrait Studios will be in approximately 32 new Sears Essential and/or Sears Grand stores by the end of fiscal 2005. As of July 23, 2005, the Company has opened new portrait studios in 14 Sears Essential stores and as of September 1, 2005, this number has grown to 24.

RESULTS OF OPERATIONS

A summary of consolidated results of operations and key statistics were as follows:


	12 Weeks Ended						24 Weeks Ended

*thousands, except per share data*	July 23, 2005			July 24, 2004			July 23, 2005			July 24, 2004


Net sales	$	54,724		$	48,621		$	110,528		$	103,546

Cost and expenses:
Cost of sales		7,880			6,670			15,345			14,362
(exclusive of depreciation and amortization shown below)
Cost of sales as a percentage of net sales		14.4	%		13.7	%		13.9	%		13.9	%
Gross margin as a percentage of net sales		85.6	%		86.3	%		86.1	%		86.1	%
Selling, general and administrative expenses		45,178			42,561			92,309			88,238
Selling, general and administrative expenses as a percentage of net sales		82.6	%		87.5	%		83.5	%		85.2	%
Depreciation and amortization		4,776			3,679			9,049			7,540
Other charges and impairments		1,467			3,941			1,576			13,504

		59,301			56,851			118,279			123,644


Loss from continuing operations		(4,577	)		(8,230	)		(7,751	)		(20,098	)

Interest expense		409			532			860			1,131
Interest income		145			269			320			550
Other income, net		37			105			209			150

Loss from continuing operations before income tax benefit		(4,804	)		(8,388	)		(8,082	)		(20,529	)

Income tax benefit		1,787			1,869			3,007			6,361


Net loss from continuing operations		(3,017	)		(6,519	)		(5,075	)		(14,168	)
Net loss from discontinued operations, net of income tax benefit		—			(2,588	)		—			(3,737	)


NET LOSS	$	(3,017	)	$	(9,107	)	$	(5,075	)	$	(17,905	)


Net loss per share from continuing operations - diluted	$	(0.38	)	$	(0.82	)	$	(0.65	)	$	(1.76	)
Net loss per share from discontinued operations - diluted		—			(0.32	)		—			(0.46	)


Net loss per share - diluted	$	(0.38	)	$	(1.14	)	$	(0.65	)	$	(2.22	)

12 weeks ended July 23, 2005 compared to 12 weeks ended July 24, 2004

The Company reported a net loss for the 12-week second quarter ended July 23, 2005 of $3.0 million or $0.38 per diluted share compared to a net loss of $9.1 million or $1.14 per diluted share for the comparable quarter of fiscal 2004. The overall results for the second quarter of 2005 were impacted by the recording of other charges and impairments totaling $921,000 on an after-tax basis related principally to executive retirements. The second quarter of fiscal 2004 was significantly impacted by the recording of other charges and impairments totaling $2.9 million on an after-tax basis and $2.6 million of after-tax charges recorded as net losses from discontinued operations. The other charges and impairments consist principally of costs incurred by the Company in the second quarter of 2004 for severance accruals related to corporate headquarters staff reductions, asset write-downs and write-offs resulting from on going changes in strategic technology direction and accruals related to early contract terminations and settlements. The discontinued operations presentation resulted from the Company’s decision to exit its Mexican and mobile photography operations in the second quarter of 2004.

Net sales totaled $54.7 million and $48.6 million in the second quarter of fiscal 2005 and 2004, respectively.


•	Net sales for the second quarter of 2005 increased $6.1 million, or approximately 13%, to $54.7 million from the $48.6 million reported in the second quarter of 2004. The comparability of the sales comparisons for the second quarter of 2005 versus 2004 was not significantly impacted by the opening of portrait studios in new Sears Essential stores during the quarter. Although there were 14 new studios operating inside Sears Essential stores as of the quarter end, substantially all of them were opened between late May and late July. Based on the latest available information, the Company currently expects to have a total of 32 new studios operating in Sears Essential and/or Sears Grand stores by the end of fiscal 2005.

	The increase in second quarter sales is due principally to an increase in average sale per customer sitting of approximately 20%, offset only partially by a 7% decline in overall sittings versus the same period last year. Significantly, sales for the quarter were positively impacted by $2.1 million due to a reduced backlog of portraits in process or pending delivery to customers at the end of the second quarter. This reduction in backlog is primarily attributable to the increasing number of digital studios which, due to their faster processing and quicker turnaround to customers, both through central and on-site fulfillment, have lower levels of undelivered portraits. The impact of the reduction in backlog discussed above is also reflected in the reported decline in sittings which would be significantly greater than 7% absent the material change in backlog. The Company attributes the sittings decline to a number of internal and external factors. Significantly, the Company’s marketing program has undergone extensive change designed to simplify pricing, eliminate most coupons, and prepare the way for a significant repositioning of the Sears Portrait Studio brand in conjunction with completion of the digital rollout. At the same time, as preparation for the relaunch of the brand, the Company has broadly tested various offer changes to reflect the differentiated value proposition offered by its digital studios. While having a positive impact on both the average sale and total sales, these offer changes have resulted in the loss of more price-sensitive customers to lower priced competitors. In addition, the Company believes that the continuing proliferation of amateur digital photography may be reducing portrait activity overall, especially during periods such as the Company’s second quarter, which are marked by the absence of significant holidays and life cycle events.

Costs and expenses were $59.3 million in the second quarter of 2005, compared with $56.9 million in the comparable prior year period.

•	Cost of sales, excluding depreciation and amortization expense, was $7.9 million in the second quarter of 2005 compared with $6.7 million in the comparable prior year period. Cost of sales as a percentage of net sales was 14.4% in the second quarter of 2005, compared to 13.7% in the comparable quarter in 2004. Correspondingly, gross margin rates were 85.6% and 86.3% in the second quarter of 2005 and 2004, respectively. The increase in cost of sales resulted significantly from continuing start-up costs and inefficiencies (both in-studio and central lab) in connection with the ongoing digital conversion, including waste associated with the operation of onsite printers in the digital studios, higher overall print media costs associated with onsite-fulfilled product, and inefficiencies related to the transition from a film-based to a central digital manufacturing system. In addition, the decrease in the backlog discussed above added approximately $300,000 to cost of sales in the second quarter of 2005. The increase is also due in part to increased sales of specialty portrait products. These increases were partially offset by declines in film purchases and associated shipping costs due to the digital conversion and lower costs resulting from reduced production of traditional portrait sheets.


•	Selling, general and administrative (“SG&A”) expenses were $45.2 million and $42.6 million for the second quarter of 2005 and 2004, respectively. As a percentage of sales, these expenses were 82.6% in 2005 and 87.5% in 2004. Selling, general and administrative costs increased primarily as a result of increases in studio employment costs totaling $2.2 million, including $529,000 of additional costs related to the reduction in the backlog, sales commissions paid to Sears resulting from higher sales ($884,000), travel and training costs related to the digital conversion of studios ($425,000) and restricted stock amortization related to employee grants ($227,000). These increases were partially offset by lower corporate employment costs resulting from previous staff reductions ($546,000), reduced employee medical insurance costs driven principally by plan design changes made at the beginning of 2005 and reduced participation ($733,000) and reduced supplemental executive retirement benefit costs resulting from changes to the underlying funding mechanisms and a reduction in the number of participants through early, discounted lump sum settlements ($312,000).

	The increase in studio employment costs resulted from the Company’s ongoing initiative to restore studio coverage and training hours that had been reduced substantially beginning in the second half of 2003 and continuing through the middle of last year’s second quarter in response to then-declining sales trends. Studio labor also reflects increased labor and training investments in connection with the start-up operations of the Company’s digital studios. Studio employment cost comparisons to the prior year improved through the end of the quarter both due to increasingly easier comparisons as well as the impact of various initiatives launched late in the first quarter of 2005 to improve labor scheduling and productivity.

•	Depreciation and amortization was $4.8 million in the second quarter of 2005, compared to $3.7 million in the comparable quarter of 2004. The increase in depreciation and amortization is principally attributable to significant investments that have been made in connection both with a studio-wide hardware and printer upgrade in 2004 as well as the ongoing digital conversion.

•	Other charges and impairments reflect costs incurred from strategic actions implemented by the Company to restructure its operations, costs that are unpredictable and atypical of the Company’s operations and additional charges due to asset impairments. In the second quarter of 2005 and 2004, the Company recognized $1.5 million and $3.9 million, respectively, in other charges and impairments. As more fully discussed in Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended February 5, 2005, the second quarter of 2004 included reserves for severance and related costs ($1.1 million), impairment charges ($2.1 million), contract terminations and settlements ($640,000) and guaranteed bonus accruals ($76,000). In the second quarter of 2005, other charges and impairments consisted of the following:

	o	Executive Retirements/Repositioning Costs

		As part of the Board of Directors ongoing effort to realign the executive management team following the proxy consent solicitation in early 2004, two senior executives agreed to retire during the second quarter of 2005. During the quarter ended July 23, 2005, the Company recorded approximately $1.1 million in separation costs relating to these two executives and for costs incurred as part of the Company’s search for a new CEO which was completed and announced on July 20, 2005.


	o	Reserves for Severance and Related Costs

		In the second quarter of 2005 the Company recognized $75,000 in additional costs associated with the dismissal of certain executives in 2004.

	o	Impairment Charges

		During the second quarter of 2005, the Company recorded a reserve of $180,000 for repair parts related to its film infrastructure determined to be obsolete due to the conversion of its studios to the full digital format. In addition, the Company recorded $74,000 in costs to discard assets removed from service during the 2004 hardware and printer upgrade and the ongoing digital conversion.

	o	Contract Terminations and Settlements

		During the second quarter of 2005, the Company recorded an additional $50,000 accrual relating to the settlement of a compensation claim by a former consultant to the Company. This former consultant is a relative of the Company’s Chairman of the Board. In addition, a favorable settlement of a professional services billing was negotiated resulting in the reversal of $11,000 of a previous accrual.

•	Interest expense was $409,000 in the second quarter of 2005 compared to $532,000 in the comparable prior year quarter. The reduction in interest expense is the result of scheduled annual principal payments totaling $8.6 million made in June 2005 reducing the outstanding balance of the Senior Notes.

•	Interest income was $145,000 in the second quarter of 2005 compared to $269,000 in the second quarter of 2004. The second quarter of 2004 included $145,000 of accrued preferred security dividends that were subsequently fully reserved in the third quarter of 2004 as a result of the deteriorating financial performance of Prints Plus, the Company’s former Wall Décor segment. Excluding these accrued dividends, interest income increased between 2004 and 2005 due to the impact of higher interest rates earned on average invested cash balances partially offset by lower average balances.

•	Income tax benefits on losses from continuing operations were $1.8 million and $1.9 million in the second quarter of 2005 and 2004, respectively. These benefits resulted in effective tax rates of 37.2% in 2005 and 22.3% in 2004. The lower effective income tax rate in the second quarter of 2004 was attributable to permanent differences associated with taxable gains primarily resulting from the surrender of company-owned life insurance policies held by a Rabbi Trust as funding vehicles for the Company’s supplemental executive retirement plan and non-deductible expenditures related to the termination of certain Company executives.

24 weeks ended July 23, 2005 compared to 24 weeks ended July 24, 2004

The Company reported a net loss for the 24-week first half of 2005 of $5.1 million or $0.65 per diluted share, compared to a net loss of $17.9 million or $2.22 per diluted share for the comparable first half of fiscal 2004. The first half of 2005 was impacted by the recording of other charges and impairments totaling $1.6 million, $989,000 on an after-tax basis or $0.13 per diluted share relating principally to repositioning of the executive management team, including separation costs associated with two executive retirements. The overall results of the first half of 2004 were significantly impacted by the $3.7 million net after-tax loss recorded on the discontinuation of the Mexico and mobile photography operations and by the recording of other charges and impairments. Other charges and impairments during the first half of 2004 totaled $13.5 million, $9.1 million on an after-tax basis or $1.14 per diluted share. The other charges and impairments consist principally of additional costs incurred by the Company in the first half of 2004 related to the then-ongoing consent solicitation contest, accruals triggered by various change of control provisions included in certain executive employment contracts and accruals, and reserves and charges resulting from personnel and strategic direction decisions made by the Company’s reconstituted Board of Directors.

Net sales totaled $110.5 million and $103.5 million in the first half of fiscal 2005 and 2004, respectively.


•	Net sales for the first half of 2005 increased $7.0 million, or 7%, to $110.5 million from the $103.5 million reported in the first half of 2004. For the reasons discussed in the preceding section related to 12-week results, the comparability of the sales comparisons for the first half of 2005 versus 2004 was not significantly impacted by the opening of portrait studios in new Sears Essential stores during the first half of 2005.

	The increase in first half 2005 sales is due principally to an increase in average sale per customer sitting of approximately 16% offset only partially by an 8% decline in overall sittings. The Company attributes the increase in first half sales to the impacts of the following initiatives undertaken throughout the second half of 2004 and continuing to date:

	•	The implementation of a significant computer hardware and printer upgrade which improved the performance of legacy systems while laying the foundation for a transition to digital.

	•	The successful conversion of 645 U.S. studios to full digital format as of the end of the second quarter of 2005. The converted studios significantly outperformed the analog film studios in the first half of 2005.

	•	The restoration of coverage and training hours in the studios that had been significantly reduced in the first half of 2004 in response to then-declining sales trends.

	•	The effectuation of various offer changes and targeted price increases as well as the utilization of more efficient advertising vehicles.

	In addition, as previously discussed in the preceding discussion of 12-week results, sales for the first half were positively impacted by approximately $1.0 million resulting from a reduction of the backlog of portraits in process or pending delivery to customers at the end of the second quarter of 2005. Finally, the Company believes that first half sales growth was moderated somewhat by a lower level of marketing intensity in the early part of the first quarter as well as the possible negative effects of an early Easter, a seasonally-important time for portraiture sales. Historically, the Company has generally recognized lower Easter-related sales in those years when Easter falls earlier on the calendar.

Costs and expenses were $118.3 million in the first half of 2005, compared with $123.6 million in the comparable prior year.


•	Cost of sales, excluding depreciation and amortization expense, was $15.3 million in the first half of 2005 compared with $14.4 million in the comparable prior year. Cost of sales as a percentage of net sales was 13.9% in both the first half of 2005 and 2004. Correspondingly, gross margin rates were 86.1% in both the first half of 2005 and 2004. The increase in cost of sales resulted significantly from continuing start-up costs and inefficiencies (both in-studio and central lab) in connection with the ongoing digital conversion, including waste associated with the operation of onsite printers in the digital studios, higher overall print media costs associated with onsite-fulfilled product, and inefficiencies related to the transition from a film-based to a central digital manufacturing system. The increase is also due in part to increased sales of specialty portrait products. These increases were partially offset by declines in film purchases and associated shipping costs due to the digital conversion and lower costs resulting from reduced production of traditional portrait sheets.

•	Selling, general and administrative (“SG&A”) expenses were $92.3 million and $88.2 million for the first half of 2005 and 2004, respectively. As a percentage of sales, these expenses were 83.5% in 2005 and 85.2% in 2004.

	Selling, general and administrative costs increased primarily as a result of an increase in studio employment costs totaling $4.4 million, including $445,000 of additional costs due to the reduction in backlog at the end of the second quarter of 2005, sales commissions paid to Sears resulting from higher sales ($1.1 million), travel and training costs related to the digital conversion of studios ($609,000) and restricted stock amortization related to employee grants ($391,000). These increases were partially offset by planned reductions in advertising costs ($955,000), reduced employee medical insurance costs driven principally by plan design changes made at the beginning of 2005 and reduced participation ($1.0 million) and reduced corporate employment costs resulting from various net headcount reductions effected as part of the Company’s efforts to reduce such costs ($1.0 million).

	The increase in studio employment costs resulted from the Company’s ongoing initiative to restore studio coverage and training hours that had been substantially reduced beginning in the second half of 2003 and continuing through the middle of last year’s second quarter in response to then-declining sales trends. Studio labor also reflects increased labor and training investments in connection with the start-up operations of the Company’s digital studios. Studio employment cost comparisons to the prior year improved through the end of the first half due to increasingly easier comparisons as well as the impact of various initiatives launched late in the first quarter of 2005 to improve labor scheduling and productivity.

•	Depreciation and amortization was $9.0 million in the first half of 2005, compared to $7.5 million in the comparable half of 2004.

	The increase in depreciation and amortization is principally attributable to significant investments that have been made in connection both with a studio-wide hardware and printer upgrade in 2004 as well as the ongoing digital conversion.


•	Other charges and impairments reflect costs incurred from strategic actions implemented by the Company to restructure its operations, costs that are unpredictable and atypical of the Company’s operations and additional charges due to asset impairments. In the first half of 2005 and 2004, the Company recognized $1.6 million and $13.5 million, respectively, in other charges and impairments. As more fully discussed in Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended February 5, 2005, the first half of 2004 included reserves for severance and related costs ($3.2 million), impairment charges ($5.1 million), contract terminations and settlements ($840,000), accruals related to accelerated vesting of supplemental retirement plan benefits and guaranteed bonuses for 2004 ($3.5 million) and consent solicitation costs ($846,000). In the first half of 2005, other charges and impairments consisted of the following:

	o	Executive Retirements/Repositioning Costs

		As part of the Board of Directors ongoing effort to realign the executive management team following the proxy consent solicitation in early 2004, two senior executives agreed to retire during the second quarter of 2005. During the quarter ended July 23, 2005, the Company recorded approximately $1.1 million in separation costs relating to these two executives and for costs incurred as part of the Company’s search for a new CEO which was completed and announced on July 20, 2005.

	o	Reserves for Severance and Related Costs

		In the first half of 2005, the Company recognized $209,000 in additional costs associated with the dismissal of certain executives in 2004.

	o	Impairment Charges

		During the second quarter of 2005, the Company recorded a reserve of $180,000 for repair parts related to its film infrastructure determined to be obsolete due to the conversion of its studios to the full digital format. In addition, the Company recorded $74,000 in costs to discard assets removed from service during the 2004 hardware and printer upgrade as well as the ongoing digital conversion.

	o	Contract Terminations and Settlements

		During the first half of 2005, favorable settlements of professional services billings were negotiated resulting in reversals of $36,000 of a previous accrual. The Company also recorded an additional $50,000 accrual relating to the settlement of a compensation claim by a former consultant to the Company. This former consultant is a relative of the Company’s Chairman of the Board.

•	Interest expense was $860,000 in the first half of 2005 compared to $1.1 million in the comparable half of the prior year. The reduction in interest expense is primarily a result of scheduled annual principal payments totaling $8.6 million made in June 2005 reducing the outstanding balance of the Senior Notes.

•	Interest income was $320,000 in the first half of 2005 compared to $550,000 in the first half of 2004. The first half of 2004 included $290,000 of accrued preferred security dividends that were subsequently fully reserved in the third quarter of 2004 as a result of the deteriorating financial performance of Prints Plus, the Company’s former Wall Décor segment. Excluding these accrued dividends, interest income increased due to the impact of higher interest rates earned on average invested cash balances partially offset by lower average balances.

•

Income tax benefits on losses from continuing operations were $3.0 million and $6.4 million in the first half of 2005 and 2004, respectively. These benefits resulted in effective tax rates of 37.2% in 2005 and 31.0% in 2004. The lower effective income tax rate in the first half of 2004 was attributable to permanent differences associated with taxable gains primarily resulting from the surrendering of company-owned life insurance policies held by a Rabbi Trust and previously used as funding vehicles for the Company’s supplemental executive retirement plan and non-deductible expenditures related to the termination of certain Company executives.

LIQUIDITY AND CAPITAL RESOURCES

The following table presents a summary of our cash flows for first half of 2005 and 2004.


	24 Weeks Ended

*thousands*	July 23, 2005			July 24, 2004

Net cash (used in) provided by:
Operating activities	$	(759	)	$	(10,980	)
Investing activities		(13,636	)		(8,985	)
Financing activities		(4,811	)		(16,261	)
Effect of exchange rate changes on cash		147			41


Net decrease in cash	$	(19,059	)	$	(36,185	)

Net Cash Used In Operating Activities

Net cash used in operating activities was $759,000 in the first half of 2005 compared to $11.0 million in the first half of 2004. Cash flows used in discontinued operations were $2.7 million in 2004 and zero in 2005. During 2004, expenses and charges related to the change of control of the Company’s Board of Directors and strategic leadership changes were incurred. A decrease in related payments in first half 2005 as compared to first half 2004 increased cash flow by approximately $2.9 million. The remaining change of approximately $4.6 million is primarily attributable to improved operating results year to date 2005 over the same period of 2004.

Net Cash Used In Investing Activities

Net cash used in investing activities during the first half of 2005 was $13.6 million compared to $9.0 million in the first half of 2004. The $4.6 million increase in cash used for investing activities is primarily related to a $6.3 million increase in capital expenditures during the first half of 2005, partially offset by a decrease of $1.6 million in revolving loans outstanding from Prints Plus between 2004 and 2005. The increase in capital expenditures is primarily the result of the Company’s ongoing implementation of its plan to convert its studios to digital technology, while the decrease in the revolving loans outstanding to Prints Plus is the result of the repayment of such loans and the concurrent termination of the revolving credit agreement with them.

Net Cash Used In Financing Activities

Net cash used in financing activities was $4.8 million in the first half of 2005 compared to $16.3 million in the comparable half of 2004. The $11.5 million decrease in net cash used was primarily related to a reduction of $6.2 million in restricted cash representing collateral for outstanding letters of credit in the first half of 2005 and a $6.0 million repurchase of Company shares in a negotiated transaction in the first half of 2004. This was partially offset by an $808,000 decrease in cash proceeds from option exercises. In the second quarter of 2005, the Company replaced all of the outstanding collateralized standby letters of credit with new letters of credit issued under the Company’s new revolving credit facility. Accordingly, the restricted cash which had been deposited as cash collateral has been returned to the Company for general corporate purposes.

Debt Covenants

At July 23, 2005, the Company had $17.1 million outstanding under its existing Senior Note Agreement and no borrowings against its $30.0 million Revolving Facility. The Company was in compliance with all the covenants under its Senior Note Agreement and its Revolving Facility as of July 23, 2005.

Off-Balance Sheet Arrangements

Other than stand-by letters of credit to support various self-insurance programs and the ongoing guarantee of certain operating real estate leases of Prints Plus, both of which are more fully discussed in the following Contingencies section, the Company has no additional off-balance sheet arrangements.

Contingencies

The Company uses stand-by letters of credit to support its various self-insurance programs. As of July 23, 2005, the Company had standby letters of credit outstanding in the principal amount of $6.3 million.

To assist Prints Plus in obtaining the above-mentioned debtor-in-possession financing facility, the Company guaranteed $300,000 of the facility by posting a letter of credit with the lender.

Liquidity

Cash flows from operations, cash and cash equivalents on hand and the borrowing capacity under the Company’s new Revolving Facility represent the expected sources of funds in 2005 to meet its obligations and commitments, including debt service, annual dividends to shareholders, planned capital expenditures which are estimated to be approximately $25 million in fiscal 2005 and normal operating needs. Estimated capital expenditures are down $2.0 million from the original estimate of $27 million due principally to the reduction in the number of planned new studios in Sears Essential stores in 2005.

ACCOUNTING PRONOUNCEMENTS AND POLICIES

Adoption of New Accounting Standards

In December 2004, FASB issued FASB Staff Position (“FSP”) No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creations Act of 2004” (“FSP 109-2”), which provides guidance under FASB Statement No. 109, “Accounting for Income Taxes,” with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation of Act of 2004 (the “Jobs Act”) on enterprises’ income tax expense and deferred tax liability. The Jobs Act was enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying FASB Statement No. 109. We expect to make our repatriation determination during the third quarter of 2005. Accordingly, as provided for in FSP 109-2, we have not adjusted our tax expense or deferred tax liability to reflect the repatriation provisions of the Jobs Act.

Application of Critical Accounting Policies

The Company’s significant accounting policies are discussed in the Notes to the Consolidated Financial Statements that are included in the Company’s 2004 Annual Report on Form 10-K that is filed with the Securities and Exchange Commission. In most cases, the accounting policies utilized by the Company are the only ones permissible under U.S. Generally Accepted Accounting Principles for businesses in our industry. However, the application of certain of these policies requires significant judgments or a complex estimation process that can affect the results of operations and financial position of the Company, as well as the related footnote disclosures. The Company bases its estimates on historical experience and other assumptions that it believes are reasonable. If actual amounts are ultimately different from previous estimates, the revisions are included in the Company’s results of operations for the period in which the actual amounts become known. The accounting policies and estimates that can have a significant impact on the operating results, financial position and footnote disclosures of the Company are described in the Management Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2004 Annual Report on Form 10-K.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

The statements contained in this report, and in particular in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Act of 1995, and involve risks and uncertainties. Management wishes to caution the reader that these forward-looking statements, such as the Company’s outlook for portrait studios, future cash requirements, compliance with debt covenants, valuation allowances, reserves for charges and impairments and capital expenditures, are only predictions or expectations; actual events or results may differ materially as a result of risks facing the Company. Such risks include, but are not limited to: customer demand for the Company’s products and services, the Company’s ability to obtain financing when needed under reasonable terms, the overall level of economic activity in the Company’s major markets, competitors’ actions, manufacturing interruptions, dependence on certain suppliers, changes in the Company’s relationship with Sears and the impact of the Kmart/Sears merger, fluctuations in operating results, the ultimate impact of the Prints Plus bankruptcy, the attraction and retention of qualified personnel, unforeseen difficulties arising from installation and operation of new equipment in its portrait studios, the Company’s conversion to a full digital format and other risks as may be described in the Company’s filings with the Securities and Exchange Commission, including its Form 10-K for the year ended February 5, 2005. The Company does not undertake any obligation to update any of these forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risks relating to the Company’s operations result primarily from changes in interest rates and changes in foreign exchange rates. The Company’s long-term debt obligations have fixed interest rates, therefore, the Company’s exposure to changes in interest rates is minimal. The Company’s exposure to changes in foreign exchange rates relates to its Canadian operations and is also minimal, as these operations constitute 11.0% of the Company’s total assets at July 23, 2005 and 7.0% of the Company’s total net sales for the 24 weeks then ended.

Item 4. Controls and Procedures

An evaluation of the Company’s disclosure controls and procedures (as defined in Section 13(a)-14(c) of the Securities Exchange Act of 1934 (the “Act”) was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and several other members of the Company’s senior management as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

In the quarter ended July 23, 2005, the Company did not make any changes to its internal controls over financial reporting that have reasonably affected, or are reasonably likely to affect, the Company’s internal control over financial reporting. In addition, since the date of this evaluation to the filing date of this Quarterly Report, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.


PART II.	OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

The 2005 Annual Meeting of Stockholders was held in St. Louis, Missouri on Thursday, June 23, 2005. The following items were voted on and the results are listed below:



1.	The following individuals were elected to the Company’s Board of Directors:


Name	Shares For	Shares Withheld


James J. Abel	7,116,133	391,950
Michael S. Koeneke	7,128,769	379,314
David M. Meyer	7,223,725	284,358
Mark R. Mitchell	7,373,595	134,488
John Turner White IV	7,111,133	396,950


2.	The Board of Directors’ appointment of KPMG LLP to audit the Company’s financial statements for the 2005 fiscal year:


For	Against	Abstain

7,501,368	6,175	540


3.	Modifications to the CPI Corp. Restricted Stock Plan:


For	Against	Abstain

5,036,541	589,564	3,230

Item 6. Exhibits


		a.	Exhibits

			An Exhibit Index has been filed as part of this Report on Page E-1.

CPI CORP.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CPI Corp.
	(Registrant)

	By:	/s/ Gary W. Douglass

		Gary W. Douglass
		Executive Vice President, Finance and Chief Financial Officer
		(Principal Financial Officer)

Dated: September 1, 2005

	By:	/s/ Dale Heins

		Dale Heins
		Vice President, Corporate Controller
		(Principal Accounting Officer)

Dated: September 1, 2005

CPI CORP.

E-1
EXHIBIT INDEX


10.98		Retirement and Release Agreement by and between Stephen A. Glickman and CPI Corp.

10.99		Consulting Agreement by and between Stephen A. Glickman and CPI Corp.

10.100		Retirement and Release Agreement by and between Jack Krings and CPI Corp.

10.101		Consulting Agreement by and between Jack Krings and CPI Corp.

10.102		Employment Agreement by and between Renato Cataldo and CPI Corp.

10.103		Stock Award and Restriction Agreement by and between Renato Cataldo and CPI Corp.

10.104		Confidentiality, Noncompetition and Nonsolicitation Agreement by and between Renato Cataldo and CPI Corp.

10.105		Stock Award and Restriction Agreement by and between Paul Rasmussen and CPI Corp.

10.106		Confidentiality, Noncompetition and Nonsolicitation Agreement by and between Paul Rasmussen and CPI Corp.

11.1		Computation of Per Common Share Earnings (Loss) - Diluted - for the 12 and 24 weeks ended July 23, 2005 and July 24, 2004

11.2		Computation of Per Common Share Earnings (Loss) - Basic - for the 12 and 24 weeks ended July 23, 2005 and July 24, 2004

31.1		Certification Pursuant to Rule 13a-14(a) Under the Securities and Exchange Act of 1934 by the Chief Executive Officer

31.2		Certification Pursuant to Rule 13a-14(a) Under the Securities and Exchange Act of 1934 by the Executive Vice President, Finance and Chief Financial Officer

32.0		Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer and Executive Vice President, Finance and Chief Financial Officer

EX-10.98 2 d65232_ex10-98.htm RELEASE AGREEMENT

EXHIBIT 10.98

RETIREMENT AND RELEASE AGREEMENT

THIS RETIREMENT AND RELEASE AGREEMENT is made and entered into as of June 1, 2005, by and between STEPHEN A. GLICKMAN, an individual (hereinafter referred to as “Glickman”), and Consumer Programs Incorporated, a Missouri Corporation, on behalf of itself and its affiliated corporations (hereinafter referred to, alternatively and collectively, as “CPI”).

WHEREAS, Glickman has served as an employee of CPI for more than twenty years, including more than four years as a member of CPI’s Executive Committee of Officers; and

WHEREAS, Glickman has decided to retire; and

WHEREAS, Glickman is entitled to certain benefits under his Employment Agreement with CPI dated as of February 6, 2000 (the “Employment Agreement”) and under various benefit plans of CPI; and

WHEREAS, CPI and Glickman desire that Glickman’s benefits be valued and paid out in accordance with the terms set forth in this Agreement; and

WHEREAS, CPI desires to award to Glickman certain benefits in addition to any to which he may be entitled under the Employment Agreement and the various benefit plans of CPI (hereinafter, the “Special Retirement Benefits”);

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereby agree as follows:

1. Retirement. Glickman shall retire from employment with CPI as of Friday, July 8, 2005 (the “Retirement Date”).

2. Special Retirement Benefits.

(a) CPI shall pay to Glickman the gross amount of One Hundred Thousand Dollars ($100,000.00) in a lump sum on the Retirement Date, which payment includes compensation for Glickman’s accrued, unused vacation as of the Retirement Date.

(b) Glickman may continue to participate in CPI’s group health plan with coverage for himself and his spouse at the rates paid by active employees until he attains age sixty-five.

(c) Glickman is entitled to death or supplemental retirement benefits pursuant to subsections 5(g) and 5(i) of the Employment Agreement in the annual gross amount of Seventy-seven Thousand Dollars ($77,000.00), payable in equal monthly installments for two hundred forty months, commencing on the earlier of the month after (i) Glickman’s death or (ii) the date on which Glickman attains sixty-five years of age. In lieu thereof, CPI shall pay or cause to be paid to Glickman or to his estate or beneficiaries in the event of Glickman’s death prior to payment, the gross amount of Five Hundred Fifty-Nine Thousand, Six Hundred Fifteen Dollars and Sixty-one Cents ($559,615.61), the calculated net present value of Glickman’s death or supplemental retirement benefits calculated on the basis of a discount rate of 8.73%, as of and payable in a lump sum on December 30, 2005. The payment made by CPI pursuant to this subsection (c) shall be in full and complete satisfaction of Glickman’s death and supplemental retirement benefits provided under subsections 5(h) and 5(i) of the Employment Agreement; and

(d) CPI shall engage Glickman as an independent consultant on the terms set forth on Exhibit A.

3. Other Benefits. CPI shall also pay or provide to Glickman (or in the event of his death prior to payment, to his estate or beneficiaries) the following benefits in accordance with the Employment Agreement or other CPI benefit plans and programs:

(a) Base salary through the Retirement Date, based on the annual rate of One Hundred Ninety-two Thousand Five Hundred Dollars ($192,500.00);

(b) All of Glickman’s vested and accrued benefits under the CPI Retirement Plan and Trust (the “Pension Plan”) in accordance with the terms of the Pension Plan;

(c) A monthly payment in the amount of $224.35 commencing the first day of the month following the Retirement Date and continuing each month thereafter until Glickman’s death;

(d) All of Glickman’s vested and accrued benefits under the CPI Corp. Profit Sharing Plan and Trust (the “Profit Sharing Plan”), in accordance with the terms of the Profit Sharing Plan;

(e) Rights to exercise options to purchase shares of common stock of CPI Corp. previously granted to Glickman and described on Exhibit B, attached hereto, through the earlier of (i) their original expiration date and (ii) the first anniversary of the Retirement Date; and

(f) Continued indemnification rights and benefits for Glickman’s service as an executive officer of CPI in accordance with CPI’s by-laws.

4. Release.

In consideration of the payment by CPI to Glickman of the Special Retirement Benefits described in Section 2 above, Glickman does hereby release and forever discharge CPI, its affiliated corporations, and their respective directors, officers, employees and agents, from any and all claims, causes of action, liabilities and obligations, of any kind whatsoever (except those arising under this Agreement), whether known or unknown, arising directly or indirectly out of Glickman’s employment by CPI, the termination thereof, or the Employment Agreement, including, but not limited to, any claims arising under or in connection with the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act, Title VII of the Civil Rights Act of 1964, the Equal Pay Act, the Fair Labor Standards Act, the Occupational Safety and Health Act, the Employee Retirement Income Security Act, the Older Workers Benefit Protection Act, 42 U.S.C. Sections 1981, 1983 and 1985, the Missouri Human Rights Act, the Missouri Service Letter Law (all such statutes as amended), and any regulations under such authorities, or common law of the state of Missouri, torts, breach of express or implied employment agreement, wrongful discharge, constructive discharge, infliction of emotional distress, defamation, or tortious interference with contractual relations.

The purpose of the release set forth herein is to make full, final and complete settlement of all claims, known or unknown, arising directly or indirectly out of Glickman’s employment by CPI, the termination thereof, or the Employment Agreement (except those arising under this Agreement and Section 13 of the Employment Agreement).

5. Survival of Covenants. Glickman acknowledges and agrees that the covenants and agreements contained in Section 13 of the Employment Agreement, attached hereto as Exhibit C and incorporated herein, shall survive the execution and delivery of this Agreement and shall remain in full force and effect in accordance with their terms, and Glickman hereby affirms those covenants and agreements. All other terms and conditions of the Employment Agreement shall terminate on the Retirement Date.

6. Withholding Taxes. CPI shall have the right to withhold from all payments due Glickman hereunder to the extent required by law or regulation, all federal, state and local income and other taxes applicable to such payments.

7. Modification and Waiver. No modification, amendment or waiver of any of the provisions of this Agreement shall be effective unless made in writing specifically referring to this Agreement, and signed by both parties. The failure to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions.

8. Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted.

9. Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs and legal representatives.

10. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Missouri.

11. Attorney’s Fees. In the event litigation is commenced to enforce the provisions of this Agreement, in addition to all other remedies and damages, the prevailing party shall be entitled to recover attorney’s fees, expert witness fees and other reasonable and customary costs of litigation.

12. Interest Interest shall accrue and be payable at the rate of seven percent (7%) per annum on any late payments from original due date through the date of actual payment.

BALANCE OF PAGE INTENTIONALLY LEFT BLANK

IN WITNESS WHEREOF, the parties have executed this Agreement as of the last date written below.

NOTICE TO MR. GLICKMAN: This Agreement includes a waiver of certain rights or claims arising prior to the date this Agreement is executed, including, but not limited to, those rights or claims arising under the Age Discrimination in Employment Act. You are advised to consult with an attorney prior to executing this Agreement. CPI’s offer to enter into this Agreement with you will remain open and effective for twenty-one days from the date first written above. You may elect to accept or reject this offer within that time period. If you do nothing within the twenty-one day period, the offer will be considered withdrawn by CPI.

If you decide to sign this Agreement and release CPI pursuant to Section 4, you will have seven days following the return of the signed document to change your mind and revoke the Agreement. If you desire to revoke the Agreement and release, please deliver notice of such revocation in writing to Jane E. Nelson, CPI Corp., Legal Department, 1706 Washington Avenue, St. Louis, Missouri 63103, on or before the close of business on the seventh day following your execution and delivery of the Agreement. Consequently, this Agreement will not be in effect until seven days have passed following your signing and delivery of the Agreement.


Date: July 8, 2005		/s/ Stephen A. Glickman

		Stephen A. Glickman, Individually

		CONSUMER PROGRAMS INCORPORATED, a Missouri corporation, on behalf of itself and it’s affiliated corporations

Date: July 8, 2005		By: /s/ David M. Meyer

		David M. Meyer
		Its: Chairman and Member of the Office of the Chief Executive

EX-10.99 3 d65232_ex10-99.htm CONSULTING AGREEMENT

EXHIBIT 10.99


	June 1, 2005

          Mr. Stephen A. Glickman
          15714 Trapp Ridge Cour
          Chesterfield, MO 63017
          RE: Consulting Services

Dear Steve:

This will confirm the terms of your engagement by CPI Corp. (“CPI”) for consulting services:

1. You will be assigned special projects consistent with your operational background and experience under the direction of the Office of the Chief Executive, including but not limited to a range of studio improvement initiatives. You may also be asked to assist in the evaluation, planning and launch of various new ventures.

2. The term of your engagement shall be for six months, commencing as of Monday following the Retirement Date, as defined in that certain Retirement and Release Agreement of even date herewith (the Retirement and Release Agreement”), during which time CPI will offer you a minimum of 110 days of consulting work and you will be expected to provide a minimum of one hundred ten (110) days of consulting services at such times as are mutually agreeable.

3. You will be paid One Hundred Thousand Dollars ($100,000.00) for the six-month term of your service, payable in semi-monthly increments of $8,333 each. In the event that you fail to work a minimum of 110 days during the six-month term of this agreement, you agree that the aggregate amount payable to you for the six-month term shall be reduced by $800.00 for each day worked below 110. You will not be entitled to additional compensation for additional days worked within the six-month term of this agreement. In the event CPI fails to make the semi-monthly payments required pursuant to this paragraph, all remaining payments shall become immediately due and payable. Late payments shall accrue interest at the rate of seven percent (7%) per annum from the due date through the date of actual payment.

4. You will act as an independent contractor and not as an employee of CPI.

5. You will be reimbursed for expenses reasonably incurred in accordance with customary reimbursement policies established by CPI. Any such expense reimbursement shall be paid promptly after you submit written request and substantiation therefore.

6. You will not, except as authorized in writing by CPI, copy, use or disclose to any third parties any information relating to CPI that you receive or develop in the course of performing services for CPI, except as may be required to perform your obligations.

7. CPI shall have sole ownership of any report, recommendations or other product of your consulting services performed pursuant to this consulting engagement.

8. CPI will indemnify you against and hold you harmless from any claims, actions, damages, losses, and expenses (including reasonable attorneys’ fees) arising from actions taken at the direction or request of CPI.

9. In the event CPI believes Glickman has breached any term of this Consulting Agreement, CPI shall identify the specific details of the alleged breach in writing, and Glickman shall have five (5) business days following receipt of notice in which to cure the alleged breach.

10. No breach of this Consulting Agreement shall excuse either party from performing its respective obligations under the Retirement and Release Agreement.

11. In the event litigation is commenced to enforce the provisions of this Agreement, in addition to all other remedies and damages, the prevailing party shall be entitled to recover attorney’s fees, expert witness fees and other reasonable and customary costs of litigation.

12. This letter constitutes the entire agreement between you and CPI with respect to consulting services.

Please acknowledge your receipt and agreement to the terms set forth herein by signing one copy of this letter in the space provided below and returning it to me.


		CPI CORP.

		By: /s/ David M. Meyer

		David M. Meyer
		Chairman and Member of the Office of the Chief Executive
Acknowledged and agreed to this 8^th day of July, 2005.

/s/ Stephen A. Glickman

Stephen A. Glickman

EX-10.100 4 d65232_ex10-100.htm CONSULTING AGREEMENT

EXHIBIT 10.100

RETIREMENT AND RELEASE AGREEMENT

THIS RETIREMENT AND RELEASE AGREEMENT is made and entered into as of July 25, 2005, by and between JACK KRINGS, an individual (hereinafter referred to as “Krings”), and Consumer Programs Incorporated, a Missouri Corporation, on behalf of itself and its affiliated corporations (hereinafter referred to, alternatively and collectively, as “CPI”).

WHEREAS, Krings has served as a key executive of CPI; and

WHEREAS, Krings has decided to retire; and

WHEREAS, Krings is entitled to certain benefits under his Employment Agreement with CPI dated as of September 5, 2001 (the “Employment Agreement”) and under various benefit plans of CPI; and

WHEREAS, CPI and Krings desire that Krings’ benefits be valued and paid out in accordance with the terms set forth in this Agreement; and

WHEREAS, CPI desires to award to Krings certain benefits in addition to any to which he may be entitled under the Employment Agreement and the various benefit plans of CPI (hereinafter, the “Special Retirement Benefits”);

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereby agree as follows:

1. Retirement. Krings shall retire from employment with CPI as of Monday, July 25, 2005 (the “Retirement Date”).

2. Special Retirement Benefits.

(a) CPI shall pay to Krings the gross amount of Six Hundred Fifty Thousand Dollars ($650,000.00) in a lump sum on January 26, 2006.

(b) Subject to the approval of the Compensation Committee operating as the Stock Option Committee under the CPI Corp. Stock Option Plan, which consent shall not be unreasonably withheld, Krings shall have the right to exercise previously granted options to purchase common stock, as described on Exhibit B, attached hereto, until July 25, 2006.

3. Other Benefits. CPI shall also pay or provide to Krings (or in the event of his death prior to payment, to his estate or beneficiaries) the following benefits in accordance with the Employment Agreement or other CPI benefit plans and programs:

(a) Base salary through the Retirement Date, based on the annual rate of Three Hundred Sixty-five Thousand Dollars ($365,000.00);

(b) All of Krings’s unused vacation as of the Retirement Date;

(c) All of Krings’s vested and accrued benefits under the CPI Corp. Profit Sharing Plan and Trust (the “Profit Sharing Plan”), in accordance with the terms of the Profit Sharing Plan;

and

(d) Continued indemnification rights and benefits for Krings’s service as an executive officer of CPI in accordance with CPI’s by-laws.

4. Release.

In consideration of the payment by CPI to Krings of the Special Retirement Benefits described in Section 2 above, Krings does hereby release and forever discharge CPI, its affiliated corporations, and their respective directors, officers, employees and agents, from any and all claims, causes of action, liabilities and obligations, of any kind whatsoever (except those arising under this Agreement), whether known or unknown, arising directly or indirectly out of Krings's employment by CPI, the termination thereof, or the Employment Agreement, including, but not limited to, any claims arising under or in connection with the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act, Title VII of the Civil Rights Act of 1964, the Equal Pay Act, the Fair Labor Standards Act, the Occupational Safety and Health Act, the Employee Retirement Income Security Act, the Older Workers Benefit Protection Act, 42 U.S.C. Sections 1981, 1983 and 1985, the Missouri Human Rights Act, the Missouri Service Letter Law (all such statutes as amended), and any regulations under such authorities, or common law of the state of Missouri, torts, breach of express or implied employment agreement, wrongful discharge, constructive discharge, infliction of emotional distress, defamation, or tortious interference with contractual relations.

The purpose of the release set forth herein is to make full, final and complete settlement of all claims, known or unknown, arising directly or indirectly out of Krings’s employment by CPI, the termination thereof, or the Employment Agreement (except those arising under this Agreement and Section 13 of the Employment Agreement).

5. Survival of Covenants. Krings acknowledges and agrees that the covenants and agreements contained in Section 13 of the Employment Agreement, attached hereto as Exhibit C and incorporated herein, shall survive the execution and delivery of this Agreement and shall remain in full force and effect in accordance with their terms, and Krings hereby affirms those covenants and agreements. All other terms and conditions of the Employment Agreement shall terminate on the Retirement Date.

6. Withholding Taxes. CPI shall have the right to withhold from all payments due Krings hereunder to the extent required by law or regulation, all federal, state and local income and other taxes applicable to such payments.

9. Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs and legal representatives.

10. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Missouri.

BALANCE OF PAGE INTENTIONALLY LEFT BLANK

IN WITNESS WHEREOF, the parties have executed this Agreement as of the last date written below.

NOTICE TO MR. KRINGS: This Agreement includes a waiver of certain rights or claims arising prior to the date this Agreement is executed, including, but not limited to, those rights or claims arising under the Age Discrimination in Employment Act. You are advised to consult with an attorney prior to executing this Agreement. CPI's offer to enter into this Agreement with you will remain open and effective for twenty-one days from the date first written above. You may elect to accept or reject this offer within that time period. If you do nothing within the twenty-one day period, the offer will be considered withdrawn by CPI.


Date: July 25, 2005		/s/ Jack Krings

		Jack Krings, Individually

		CONSUMER PROGRAMS INCORPORATED, a Missouri corporation, on behalf of itself and its affiliated corporations

Date: July 25, 2005		By: /s/ David M. Meyer

		David M. Meyer
		Its: Chairman and Member of the Office of the Chief Executive

EX-10.101 5 d65232_ex10-101.htm CONSULTING AGREEMENT

EXHIBIT 10.101


	July 25, 2005

Mr. Jack Krings
36 Briarcliff
Ladue, MO 63124

RE: Consulting Services

Dear Jack:

This will confirm the terms of your engagement by CPI Corp. (“CPI”) for consulting services:

1. You will be assist with the transition of Paul C. Rasmussen as Chief Executive Officer, oversee field management and carry out other projects consistent with your operational background and experience under the direction of the Chairman of the Board.

2. The term of your engagement shall be for two months, commencing as of the date following your Retirement Date, as defined in that certain Retirement and Release Agreement of even date herewith (the Retirement and Release Agreement”). You will be expected to perform consulting services for a minimum of forty days during the two-month term or at such other times as are mutually agreeable.

3. You will be paid Eighty Thousand Dollars ($80,000.00) for the two-month term of your service, payable in four equal increments of $20,000 each on August 12, 2005, August 26, 2005, September 8, 2005 and September 26, 2005. In the event that you fail to work a minimum of 40 days during the two-month term of this agreement, you agree that the aggregate amount payable to you for the two-month term shall be reduced by $2,000.00 for each day worked below 40. You will not be entitled to additional compensation for additional days worked within the two-month term of this agreement. In the event CPI fails to make the payments required pursuant to this paragraph, all remaining payments shall become immediately due and payable. Late payments shall accrue interest at the rate of seven percent (7%) per annum from the due date through the date of actual payment.

4. You will act as an independent contractor and not as an employee of CPI.

7. CPI shall have sole ownership of any report, recommendations or other product of your consulting services performed pursuant to this consulting engagement.

9. In the event CPI believes Krings has breached any term of this Consulting Agreement, CPI shall identify the specific details of the alleged breach in writing, and Krings shall have five (5) business days following receipt of notice in which to cure the alleged breach.

10. No breach of this Consulting Agreement shall excuse either party from performing its respective obligations under the Retirement and Release Agreement.

12. This letter constitutes the entire agreement between you and CPI with respect to consulting services.

Please acknowledge your receipt and agreement to the terms set forth herein by signing one copy of this letter in the space provided below and returning it to me.


	CPI CORP.

	By: /s/ David M. Meyer


	David M. Meyer
	Chairman and Member of the Office of the
	Chief Executive

Acknowledged and agreed to
this 25^th day of July, 2005.

/s/ Jack Krings

Jack Krings

EX-10.102 6 d65232_ex10-102.htm EMPLOYMENT AGREEMENT

EXHIBIT 10.102

July 21, 2005

Mr. Renato Cataldo
1816 Woodmark Road
St. Louis, MO 63131

RE: Offer of Employment

Dear Renato:

On behalf of the Board of Directors of CPI Corporation, we are pleased to offer you the position of Chief Operating Officer, reporting to the Chief Executive Officer, and starting on Monday, July 25, 2005. Under the direction of the Chief Executive Officer, your duties and responsibilities will be that of a lead executive of the Company and include helping plan, implement and achieve the strategies and goals of the Company as reviewed and established by the Board. Your principal place of employment will be St. Louis, Missouri, at the Company’s headquarters office. This offer includes the following terms and conditions:

1. Base Cash Salary: Your base cash salary initially will be $275,000 annually. Your base cash salary will be reviewed with you no less than annually and may be adjusted from time to time by the Compensation Committee of the Board of Directors.

2. Restricted Stock Grant: You will be granted Restricted Stock of CPI in the amount of $100,000 priced at the closing price of the Company’s common stock on the first trading day immediately prior to the commencement date of your full-time employment with the Company. The Restricted Stock will vest (subject to your continued employment on each vesting date) in three equal increments at the close of each Fiscal Year during the period of your employment, beginning with the Fiscal Year ended February, 2006.

3. Annual Bonus: You will be eligible to participate in the Performance Incentive Plan of the Company as a key executive of the Company. It is anticipated that any payment due you under this plan will be paid substantially in Restricted Shares with annual vesting as determined by the Compensation Committee of the Board.

4. Other Benefits: As a CPI executive, you will generally be entitled to participate in other active benefit plans and programs on the same terms as the other executives in the Company. These benefits currently include:


	a.	401(k) Plan: This qualified plan allows employees to contribute up to 25% of base salary annually. The company matches 50% of employee contributions up to a maximum of 5% of salary in common stock. The plan is administered by American Express and offers a full range of investment options. The required discrimination testing, however, substantially limits the amount highly compensated executives may contribute.

	b.	Health/Disability: The Company’s benefit plan provides for competitive health care coverage and short-term disability insurance. Employee premiums are adjusted annually. Long-term disability insurance is also available.

	c.	Life Insurance: Key managers of the Company are eligible for life insurance equal to two times annual base salary to a maximum benefit of $400,000. Once per year, the key managers are offered an option to convert group term insurance in excess of $50,000 to a permanent cash value policy. Contributions that the Company would have paid on the term life premiums are paid towards the permanent insurance premium, and the key manager pays the balance.

	d.	Vacation: You will be entitled to four weeks of paid vacation per year.

5. Termination and Severance: If your employment is terminated by the Company without Cause at any time, you shall be entitled to a severance amount equal to one year’s base salary, payable in a lump sum. If your

employment is terminated for any other reason, you will be entitled to no benefits, except as provided by law or under the specific terms of the Company’s benefit programs in which you are then participating. “Cause” as used herein shall mean any of the following acts by or other circumstances regarding the Executive: (i) an act committed, after the date of this Agreement, in bad faith and to the detriment of the Company or any of its affiliates, (ii) refusal or failure to act in substantial accordance with any written material direction or order of the Company, (iii) repeated unfitness or unavailability for service, disregard of the Company’s rules or policies after reasonable notice and opportunity to cure, or misconduct, but not incapacity, (iv) entry of a final order of judgment affirming the conviction of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person, (v) any breach or threatened breach by Executive of Sections 6, 7, 8 or 9 of this Agreement, or (vi) material breach or violation of any other provision of this Agreement or of any other contractual obligation to the Company or any of its affiliates.

6. Insider Status: As a key executive of the Company, you will be considered an “insider” subject to SEC reporting of all stock transactions and to pre-clearance of all transactions through the Company’s General Counsel.

7. Confidentiality: You will maintain in confidence all non-public information you learn about the Company and its business, including strategies, plans, prospects and financial, employee, vendor and customer information. You will not use, copy or disclose any such information except as necessary to perform the functions of your job or with the prior consent of the company.

8. Non-Compete and Non-Solicitation: It is agreed that you will not be employed directly by or act in an advisory role for any direct competitor of the Company during the period of your employment and for a period of one year from the date of termination.

9. Work for Hire: As an employee, you agree that your ideas, concepts, graphics, creative or other products of your work will be owned by the Company, and you agree to acknowledge the company’s ownership in writing upon request from the Company.

10. Existing Agreements: This offer is conditioned on your confirmation that your employment by the Company will not violate the terms of any existing agreements to which you are a party, including but not limited to employment agreements and agreements relating to your competitive employment.

11. Termination of Consulting Agreement: Your consulting agreement with the Company will terminate as of July 24, 2005.

We look forward to a productive and valuable relationship.

We hope you find this offer acceptable and ask that you kindly respond by no later than Friday, July22. We look forward to hearing from you.


	Sincerely,

	/s/ David M. Meyer	/s/ Paul C. Rasmussen


	David M. Meyer Chairman of the Board	Paul C. Rasmussen Chief Executive Officer-Elect

Accepted this 21^st day of June, 2005

/s/ Renato Cataldo


Renato Cataldo

EX-10.103 7 d65232_ex10-103.htm STOCK AWARD & RESTRICTION AGREEMENT

EXHIBIT 10.103

(PAGE NUMERS REFER TO PAPER DOCUMENT ONLY)

STOCK AWARD AND RESTRICTION AGREEMENT

THIS STOCK AWARD AND RESTRICTION AGREEMENT (“Agreement”), is entered into effective as of the 25^th day of July, 2005, between CPI Corp., a Missouri corporation (the “Company”), and Renato Cataldo (the “Executive”).

RECITALS

WHEREAS, the Executive commenced his employment with the Company on July 25, 2005 (the “Commencement Date”);

WHEREAS, Executive and the Company entered into a letter agreement dated July 21, 2005, specifying the terms of Executive’s employment with the Company (the “Employment Letter”);

WHEREAS, pursuant to Paragraph 2 of the Employment Letter, the Company agreed to grant to Executive, on the commencement date of his employment with the Company, shares of restricted stock of the Company;

WHEREAS, the Company and the Executive have agreed to enter into this Stock Award and Restriction Agreement pursuant to Paragraph 2 of the Employment Letter; and

WHEREAS, the Compensation Committee of the Board of Directors of the Company has approved an award of shares of common stock of the Company to the Executive, subject to the terms, conditions and restrictions set out in this Agreement and the CPI Corp. Restricted Stock Plan, as amended and restated (the “Plan”);

NOW, THEREFORE, in consideration of the mutual promises contained herein, and intending to be legally bound hereby, the parties hereto agree as follows:

1. Award of Shares; Deliveries.

(a) As of the date of this Agreement, the Company hereby grants to the Executive an award of 5,587 shares of common stock of the Company, par value $.40 per share (collectively, the “Restricted Shares”), upon the terms and conditions set forth in this Agreement.

(b) Concurrently with the execution of this Agreement:


	(i) subject to Section 5 hereof, the Company shall deliver to the Executive a copy of a share certificate or certificates representing the Restricted Shares which shall contain the legend set forth in Section 5 hereof;

	(ii) the Executive shall deliver to the Company a duly signed stock power, endorsed in blank, relating to the Restricted Shares; and

	1



	(iii) the Executive shall execute and deliver to the Company the Confidentiality, Noncompetition and Nonsolicitation Agreement attached as Exhibit A to this Agreement.

(c) If the Executive shall have elected to file a Section 83(b) election with respect to the Restricted Shares, the Executive shall have delivered, or within 30 days of the date of this Agreement shall deliver, to the Company a copy of a duly executed Section 83(b) election.

2. Representations and Acknowledgements of Executive. The Executive hereby:


	(i) acknowledges and accepts the Restricted Shares described in Section 1;

	(ii) represents that he is acquiring the Restricted Shares for investment and not with a view to or for resale or distribution thereof;

	(iii) agrees and acknowledges that the Restricted Shares are issued pursuant to, and subject to the terms and conditions set forth in the Plan; and

	(iv) agrees that the Restricted Shares will be held by Executive subject to all of the restrictions, terms and conditions contained in this Agreement, and that the Restricted Shares will be disposed of only in accordance with the terms of this Agreement.

3. Restrictions. The Restricted Shares are subject to the Transfer Restrictions and Forfeiture Restrictions set forth in Sections 3(a) and 3(b) below (collectively, the “Restrictions”). The restrictions set out in Section 3(a) are hereinafter referred to in this Agreement as the “Transfer Restrictions,” and the restrictions set out in Section 3(b) are hereinafter referred to in this Agreement as the “Forfeiture Restrictions.”

(a) Transfer Restrictions. Except as otherwise permitted under this Agreement, Executive agrees not to sell, transfer, assign, give, pledge, or otherwise dispose of or encumber any part or all of the Restricted Shares, whether voluntarily, by operation of law, or otherwise, prior to the lapse of the Transfer Restrictions thereon pursuant to Section 4 hereof. Any attempted transfer of all or any portion of the Restricted Shares that remain subject to the Transfer Restrictions shall be considered null and void and the Executive shall continue to be bound by all of the terms and provisions hereof.

(b) Forfeiture Restrictions. Upon any termination of the Executive’s employment with the Company, all of the Restricted Shares that have not yet become Vested Shares (as defined below) at the effective time of such termination (determined after taking into account the lapse of the Restrictions under Section 4 hereof), shall be returned to and canceled by the Company and shall be deemed to have been forfeited by Executive. Upon a forfeiture by Executive of any Restricted Shares under this Section 3(b), the Company will not be obligated to pay Executive any consideration whatsoever for the forfeited Restricted Shares.

4. Lapse of Restrictions.

(a) The Restrictions shall lapse as to 1,862 of the Restricted Shares on February 4, 2006, and shall lapse as to an additional 1,863 of the Restricted Shares on February 3, 2007, and as to the remaining 1,862 of the Restricted Shares on February 2, 2008, provided that the Executive remains in the continuous employment of the Company as of each such vesting date. In the event the Executive’s employment with the Company is terminated for any reason prior to February 2, 2008, no further vesting (pro rata or otherwise) shall occur from and after the effective date of such termination.

(b) To the extent the Forfeiture Restrictions shall have lapsed under Section 4(a) with respect to any portion of the Restricted Shares subject to this Award, those shares (“Vested Shares”) will, from and after the applicable vesting date, thereafter be free of the Restrictions set forth in Section 3 hereof. Any Restricted Shares for which the Restrictions have not yet lapsed in accordance with this Section 4 shall, for all purposes of this Agreement, continue to be considered Restricted Shares, and will be subject to all of the terms and conditions of this Agreement, including but not limited to the Restrictions set forth in Section 3.

(c) Notwithstanding Section 14 of the Plan, it is agreed and understood that the Restrictions will not lapse as to any Restricted Shares held by the Executive as a result of a “Change of Control” of the Company.

5. Restrictive Legend. A stock certificate or certificates in respect of the Restricted Shares will be issued to Executive, which certificate(s) will be registered in Executive’s name and may bear such legend(s) as may be required or necessary to comply with the Securities Act of 1933, as amended and applicable state securities laws. Any certificate or certificates relating to the Restricted Shares shall also be inscribed with a legend evidencing the Restrictions.

6. Custody. All certificates representing the Restricted Shares shall be deposited, together with stock powers executed by Executive, in proper form for transfer, with the Company. The Company is hereby authorized to cause the transfer to come into its name of all certificates representing the Restricted Shares which are forfeited to the Company pursuant to Section 3(b) hereof.

7. Voting and Dividends; Adjustments. Subject to the Restrictions and the limitations imposed by this Section 7, Executive shall have all of the rights of a shareholder of the Company with respect to the Restricted Shares, including the right to vote the Restricted Shares and to receive dividends thereon. Stock dividends and shares, if any, issued as a result of any stock-split, recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares, or any similar change affecting the capital stock of the Company, which has occurred after the date hereof, issued with respect to the Restricted Shares shall be treated as additional Restricted Shares and shall be subject to the same Restrictions and other terms and conditions that apply with respect to, and shall vest or be forfeited at the same time as the Restricted Shares with respect to which such stock dividends or shares are issued.

8. No Right to Continue Relationship. Nothing in this Agreement shall confer upon the Executive any right to continue in the employ of the Company or shall interfere with or restrict in any way the rights of the Company which are hereby expressly reserved, to discharge the Executive.

9. Entire Agreement.

(a) This Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof. Any term or provision of this Agreement may be waived at any time by the party which is entitled to the benefits thereof, and any term or provision of this Agreement may be amended or supplemented at any time by the mutual consent of the parties hereto, except that any waiver of any term or condition, or any amendment, of this Agreement must be in writing.

(b) This Agreement shall not affect in any way the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or other securities with preference ahead of or convertible into, or otherwise affecting the Restricted Shares or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of the Company’s assets or business, or any other act or proceeding, whether of a similar character or otherwise.

(c) In the event that any term or provision of this Agreement shall be finally determined to be superseded, invalid, illegal or otherwise unenforceable pursuant to applicable law by a governmental authority having jurisdiction and venue, that determination shall not impair or otherwise affect the validity, legality or enforceability, to the maximum extent permissible by law, (i) by or before that authority of the remaining terms and provisions of this Agreement, which shall be enforced as if the unenforceable term or provision were deleted, or (ii) by or before any other authority of any of the terms and provisions of this Agreement.

(d) Capitalized terms not otherwise defined in this Agreement shall have the same meaning as set forth in the Plan.

10. Tax Withholding. The lapse of the Restrictions on the Restricted Shares awarded hereunder is conditioned on the statutory minimum federal, state and local withholding taxes having been timely paid by Executive pursuant to a direct payment of cash or other readily available funds to the Company. If the Executive makes a Section 83(b) Election with respect to the Restricted Shares, the award of the Restricted Shares is conditioned on the Executive providing the Company with a direct payment of cash or other immediately available funds in an amount equal to the statutory minimum federal, state and local withholdings taxes required to be withheld by the Company not later than 30 days after the date of the award.

11. Governing Law. The laws of the State of Missouri shall govern the interpretation, validity and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflict of laws.

12. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the successors, assigns and heirs of the respective parties.

13. Notices. All notices and other communications required or permitted under this Agreement shall be written and shall be delivered personally or sent by registered or certified first-class mail, postage prepaid and return receipt required, addressed as follows: if to the Company, to the Company’s executive offices at 1706 Washington Avenue, St. Louis, Missouri, 60313, attention: Chief Financial Officer, and if to the Executive or his successor, to the address last furnished by the Executive to the Company. Each notice and communication shall be deemed to have been given when received by the Company or the Executive.

14. No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

15. Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Agreement. The masculine pronoun shall include the feminine and neuter and the singular shall include the plural, when the context so indicates.

[Signature page follows]

N WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.


	CPI CORP.

	By:	/s/ David M. Meyer

		David M. Meyer

	Its:	Chairman of the Board

The undersigned Executive hereby accepts, and agrees to, all terms and provisions of the foregoing Agreement.


	/s/ Renato Cataldo

	Renato Cataldo

	Signature

EX-10.104 8 d65232_ex10-104.htm STOCK AWARD & RESTRICTION AGREEMENT

EXHIBIT 10.104

(PAGE NUMBERS REFER TO PAPER DOCUMENT ONLY)

Confidentiality, Noncompetition and Nonsolicitation Agreement

In consideration of my employment by CPI Corp., a Missouri corporation (the “Company”), as reflected in the Offer of Employment between myself and the Company dated July 21, 2005, which is attached hereto, I hereby agree as follows:

1. During the term of my employment and thereafter, I agree that all records, data lists, lists of actual or potential customers or suppliers, account information, pricing policies, sales and promotional techniques and practices, services and products, files, reports, notes, strategic or business plans, compilations or other recorded matter and copies or reproductions thereof, relating to the operation and activities of the Company and/or its affiliates which are not generally known to the public or those persons engaged in (a) business(es) similar to that/those conducted by the Company and/or its affiliates and which were made or received by, or which become known to, me during the term of my employment (hereinafter referred to as “Confidential Information”) are, respectively, the exclusive property of the Company and/or its affiliates and I hold the same as trustee for the Company and/or its affiliates and subject to the respective control of the Company and/or its affiliates. I therefore agree that:


	(i) I will abide by any and all policies regarding confidentiality and with the terms and provisions of this Confidentiality, Noncompetition and Nonsolicitation Agreement (the “Agreement”);

	(ii) I will not at any time during the term of this Agreement or thereafter, except in the performance of my duties hereunder, use or permit any third person to use or disclose directly or indirectly any such Confidential Information or any trade secrets (including, but not limited to, using or permitting any third person to use Confidential Information or trade secrets to solicit any customer of the Company or any of its affiliates;

	(iii) I will return promptly upon termination of my employment for whatever reason, or at any time at the request of the board of directors of the Company (or in the event of my death, my personal representative will return promptly) to the board(s) at its direction, all Company property in my possession or control including, without limitation, personal computer(s), keys, credit cards, and records (whether stored electronically or otherwise) and including any and all copies of records, drawings, writings, blueprints, materials, memoranda and other tangible manifestations of and pertaining to Confidential Information or trade secrets, regardless of by or for whom the same were prepared;

	(iv) in the event any of the restrictions contained in the covenants set forth in this Section 1 are deemed unreasonable by any court, the Company and I agree that the court may reduce such restriction(s) to ones it deems reasonable to protect the Company and/or its affiliates; and

	(v) the Company and I agree that the provisions of this Section 1 will be enforced pursuant to Section 3 below.

For purposes of this Agreement, an “affiliate” of the Company means a company which either controls, is controlled by or is under common control with the Company.


2. (a) During the term of my employment with the Company, and for a period ending one (1) year following the effective date of my termination of employment by the Company (the “Non-Compete Period”), I agree that I will not directly or indirectly:

			(i) without the prior written authorization of the Company, whether alone or as an employee, officer, agent, consultant, entrepreneur, venturer, owner, partner or stockholder, engage in any business in competition with the Company or any of its affiliates;


			(ii) solicit business from any individual or entity that is a client, customer or supplier of the Company or any affiliate on the date of termination (or who was such a client, customer or supplier of the Company within the one (1) year prior to the effective date of my termination of employment by the Company);

			(iii) request, induce or advise any such customer, or any distributor or supplier of the Company or any affiliate to withdraw, curtail or cancel their business with the Company or any affiliate;

			(iv) request, induce, attempt to induce or advise any employees, consultants, or other personnel to terminate their relationships or breach their agreements with the Company or any affiliate; and

			(v) solicit for employment or employ any individual employed by the Company or any affiliate as of the date of termination; or

			(vi) directly or indirectly, aid or abet any other person or entity to undertake any of the activities described in paragraphs (i) through (v) above.

(b) Notwithstanding anything stated herein to the contrary, the covenants set forth in this Section 2 will not apply to the passive ownership of up to five percent (5%) of the securities of any publicly-traded corporation listed on a national securities exchange or traded on the over-the-counter markets.

(c) I hereby agree and acknowledge that the duration and scope applicable to the covenant not to compete or solicit described in this Section 2 are fair, reasonable and necessary, that I have received adequate compensation for such obligations, and that these obligations would not prevent me from earning a livelihood. If, however, for any reason any court determines that the restrictions in this Section 2 are not reasonable, that the consideration is inadequate or that I have been prevented from earning a livelihood, such restrictions will be

interpreted, modified or rewritten to include as much of the duration and scope identified in this Section 2 as will render such restrictions valid and enforceable.

(d) The Company and I agree that the provisions of this Section 2 will be enforced pursuant to Section 3 below.

3. I agree that in the event of my breach or violation or attempted breach or violation of Sections 1 and/or 2, the provisions may be enforced by an injunction in a suit in equity, and that a temporary or preliminary injunction or restraining order may be granted immediately upon the commencement of any such suit and without notice. In the event of a breach or violation or attempted breach or violation by me of the provisions of Section 2, I agree that an amount of time equal to the time period during which such a breach or violation exists will be added to the duration of the restrictions in Section 2. The existence of any claim or cause of action I may have against the Company or an affiliate, whether predicated on this Agreement or otherwise, will not constitute a defense to the enforcement of my obligations hereunder.

4. I hereby acknowledge that upon my breach of any of the covenants contained in this Agreement, the Company will suffer irreparable damages for which the remedy at law will be inadequate. I agree and acknowledge that my violation of any of the provisions of this Agreement shall result in a forfeiture by me of any amounts potentially payable under the Plan, whether vested or otherwise.

5. I recognize that this Agreement does not set forth all terms of my employment by the Company and that during my employment with the Company I will be required to comply with all reasonable rules and regulations relating to such employment as may from time to time be promulgated by the Company. It is my understanding that the Company may terminate my employment by it at any time, with or without Cause (as such term is defined in the Offer of Employment. The Company hereby acknowledges that, except for the express covenants and conditions set forth herein and in the Offer of Employment, I have not agreed to waive or otherwise relinquish any rights I may otherwise have under applicable employment and/or labor laws or pursuant to other agreements with or policies of the Company, regarding or arising out of the termination of my employment.

6. This Agreement contains the entire understanding and agreement between the parties as to the subject matter hereof and cannot be amended, modified or supplemented in any respect, except by a subsequent written agreement entered into by both parties.

7. This Agreement is binding upon and will inure to the benefit of any successor to the Company whether by way of a merger, purchase, consolidation or otherwise. All of the Company’s affiliates and all successors and assigns of the Company are third-party beneficiaries of the covenants contained herein. Such restrictive covenants are intended for the benefit of, and may be enforced by, the Company’s successors and assigns and any of the Company’s affiliates.

8. The Company and I further agree that, in the event of any litigation at law or at equity with regard to the enforcement or interpretation of this Agreement, the prevailing party

shall be entitled to be reimbursed for all reasonable attorneys’ fees and costs incurred, at trial and through all levels of appeal, as a result of such litigation.

9. This Agreement shall be construed in accordance with and governed by the substantive laws of the State of Missouri (regardless of the law that might otherwise govern under applicable Missouri principles of conflicts of laws).

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date shown below.


EXECUTIVE:	CPI CORP.
/s/ Renato Cataldo	By: /s/ David M. Meyer


Renato Cataldo	David M. Meyer
July 25, 2005
	Its: Chairman of the Board


	July 25, 2005

EX-10.105 9 d65232_ex10-105.htm STOCK AWARD & RESTRICTION AGREEMENT

EXHIBIT 10.105

(PAGE NUMBERS REFER TO PAPER DOCUMENT ONLY)

STOCK AWARD AND RESTRICTION AGREEMENT

THIS STOCK AWARD AND RESTRICTION AGREEMENT (“Agreement”), is entered into effective as of the 15^th day of August, 2005, between CPI Corp., a Missouri corporation (the “Company”), and Paul Rasmussen (the “Executive”).

RECITALS

WHEREAS, the Executive commenced his employment with the Company on August 15, 2005 (the “Commencement Date”);

WHEREAS, Executive and the Company entered into a letter agreement dated July 12, 2005, specifying the terms of Executive’s employment with the Company (the “Employment Letter”);

WHEREAS, the Company and the Executive have agreed to enter into this Stock Award and Restriction Agreement pursuant to Paragraph 2 of the Employment Letter; and

NOW, THEREFORE, in consideration of the mutual promises contained herein, and intending to be legally bound hereby, the parties hereto agree as follows:

1. Award of Shares; Deliveries.

(a) As of the date of this Agreement, the Company hereby grants to the Executive an award of 14,085 shares of common stock of the Company, par value $.40 per share (collectively, the “Restricted Shares”), upon the terms and conditions set forth in this Agreement.

(b) Concurrently with the execution of this Agreement:


	(i) subject to Section 5 hereof, the Company shall deliver to the Executive a copy of a share certificate or certificates representing the Restricted Shares which shall contain the legend set forth in Section 5 hereof;

	(ii) the Executive shall deliver to the Company a duly signed stock power, endorsed in blank, relating to the Restricted Shares; and


	(iii) the Executive shall execute and deliver to the Company the Confidentiality, Noncompetition and Nonsolicitation Agreement attached as Exhibit A to this Agreement.

2. Representations and Acknowledgements of Executive. The Executive hereby:


	(i) acknowledges and accepts the Restricted Shares described in Section 1;

	(ii) represents that he is acquiring the Restricted Shares for investment and not with a view to or for resale or distribution thereof;

	(iii) agrees and acknowledges that the Restricted Shares are issued pursuant to, and subject to the terms and conditions set forth in the Plan; and

	(iv) agrees that the Restricted Shares will be held by Executive subject to all of the restrictions, terms and conditions contained in this Agreement, and that the Restricted Shares will be disposed of only in accordance with the terms of this Agreement.

4. Lapse of Restrictions.

(a) The Restrictions shall lapse as to 2,817 of the Restricted Shares on the last day of the Company’s fiscal year ending February, 2006, and shall lapse as to an additional 2,817 of the Restricted Shares on the last day of each fiscal year of the Company thereafter through and including the Company’s fiscal year ending February, 2010, provided that the Executive remains in the continuous employment of the Company as of the last day of each such fiscal year. In the event the Executive’s employment with the Company is terminated for any reason prior to the last day of the Company’s fiscal year ending February, 2010, no further vesting (pro rata or otherwise) shall occur from and after the effective date of such termination.

9. Entire Agreement.

(d) Capitalized terms not otherwise defined in this Agreement shall have the same meaning as set forth in the Plan.

12. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the successors, assigns and heirs of the respective parties.

[Signature page follows]

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.


	CPI CORP.

	By: /s/ David M. Meyer

	David M. Meyer

	Its: Chairman of the Board

The undersigned Executive hereby accepts, and agrees to, all terms and provisions of the foregoing Agreement.


	/s/ Paul Rasmussen

	Paul Rasmussen

	Signature

EX-10.106 10 d65232_10-106.htm NONCOMPETITION AND NONSOLICITATION AGREEMENT

EXHIBIT 10.106

(PAGE NUMBERS REFER TO PAPER DOCUMENT ONLY)

Confidentiality, Noncompetition and Nonsolicitation Agreement

In consideration of my employment by CPI Corp., a Missouri corporation (the “Company”), as reflected in the Offer of Employment between myself and the Company dated July 12, 2005, which is attached hereto, I hereby agree as follows:

	(i) I will abide by any and all policies regarding confidentiality and with the terms and provisions of this Confidentiality, Noncompetition and Nonsolicitation Agreement (the “Agreement”);

	(ii) I will not at any time during the term of this Agreement or thereafter, except in the performance of my duties hereunder, use or permit any third person to use or disclose directly or indirectly any such Confidential Information or any trade secrets (including, but not limited to, using or permitting any third person to use Confidential Information or trade secrets to solicit any customer of the Company or any of its affiliates;

	(iii) I will return promptly upon termination of my employment for whatever reason, or at any time at the request of the board of directors of the Company (or in the event of my death, my personal representative will return promptly) to the board(s) at its direction, all Company property in my possession or control including, without limitation, personal computer(s), keys, credit cards, and records (whether stored electronically or otherwise) and including any and all copies of records, drawings, writings, blueprints, materials, memoranda and other tangible manifestations of and pertaining to Confidential Information or trade secrets, regardless of by or for whom the same were prepared;

	(iv) in the event any of the restrictions contained in the covenants set forth in this Section 1 are deemed unreasonable by any court, the Company and I agree that the court may reduce such restriction(s) to ones it deems reasonable to protect the Company and/or its affiliates; and

	(v) the Company and I agree that the provisions of this Section 1 will be enforced pursuant to Section 3 below.

For purposes of this Agreement, an “affiliate” of the Company means a company which either controls, is controlled by or is under common control with the Company.

2. (a) During the term of my employment with the Company, and for a period ending one (1) year following the effective date of my termination of employment by the Company (the “Non-Compete Period”), I agree that I will not directly or indirectly:

	(i) without the prior written authorization of the Company, whether alone or as an employee, officer, agent, consultant, entrepreneur, venturer, owner, partner or stockholder, engage in any business in direct competition with the Company or any of its affiliates;

	(ii) solicit business from any individual or entity that is a client, customer or supplier of the Company or any affiliate on the date of termination (or who was such a client, customer or supplier of the Company within the one (1) year prior to the effective date of my termination of employment by the Company);

	(iii) request, induce or advise any such customer, or any distributor or supplier of the Company or any affiliate to withdraw, curtail or cancel their business with the Company or any affiliate;

	(iv) request, induce, attempt to induce or advise any employees, consultants, or other personnel to terminate their relationships or breach their agreements with the Company or any affiliate; and

	(v) solicit for employment or employ any individual employed by the Company or any affiliate as of the date of termination; or

	(vi) directly or indirectly, aid or abet any other person or entity to undertake any of the activities described in paragraphs (i) through (v) above.

	(b) Notwithstanding anything stated herein to the contrary, the covenants set forth in this Section 2 will not apply to the passive ownership of up to five percent (5%) of the securities of any publicly-traded corporation listed on a national securities exchange or traded on the over-the-counter markets.


	interpreted, modified or rewritten to include as much of the duration and scope identified in this Section 2 as will render such restrictions valid and enforceable.

(d) The Company and I agree that the provisions of this Section 2 will be enforced pursuant to Section 3 below.

8. The Company and I further agree that, in the event of any litigation at law or at equity with regard to the enforcement or interpretation of this Agreement, the prevailing party

shall be entitled to be reimbursed for all reasonable attorneys’ fees and costs incurred, at trial and through all levels of appeal, as a result of such litigation.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date shown below.

EXECUTIVE:		CPI CORP.
/s/ Paul Rasmussen		By: /s/ David M. Meyer

Paul Rasmussen		David M. Meyer
August 15, 2005
		Its: Chairman of the Board
		August 15, 2005

EX-11.1 11 d65232_ex11-1.htm COMPUTATION OF PER SHARE EARNINGS

Exhibit 11.1

CPI Corp.
Computation of Per Common Share Earnings (Loss) - Diluted
(Unaudited)


	12 Weeks Ended						24 Weeks Ended

*thousands, except share and per share data*	July 23, 2005			July 24, 2004			July 23, 2005			July 24, 2004

Diluted:
Net loss applicable to common shares:
From continuing operations	$	(3,017	)	$	(6,519	)	$	(5,075	)	$	(14,168	)
From discontinued operations		—			(2,588	)		—			(3,737	)

Net loss	$	(3,017	)	$	(9,107	)	$	(5,075	)	$	(17,905	)

Shares:
Weighted average number of common shares outstanding		18,489,481			18,413,448			18,469,316			18,389,738
Shares issuable under employee stock plans - weighted average		—	*		—	**		—	***		—	****
Diluted effect of exercise of certain stock options		—	*		—	**		—	***		—	****
Less: Treasury stock - weighted average		(10,639,543	)		(10,425,262	)		(10,639,543	)		(10,345,359	)

Weighted average number of common and common equivalent shares outstanding		7,849,938			7,988,186			7,829,773			8,044,379

Net loss per common and common equivalent shares:
From continuing operations	$	(0.38	)	$	(0.82	)	$	(0.65	)	$	(1.76	)
From discontinued operations		—			(0.32	)		—			(0.46	)

Net loss	$	(0.38	)	$	(1.14	)	$	(0.65	)	$	(2.22	)


*	The effect of stock options in the amount of 21,525 shares and 17,003 shares issuable under employee stock plans were not considered as the effect is antidilutive.

**	The effect of stock options in the amount of 12,211 shares and 17,003 shares issuable under employee stock plans were not considered as the effect is antidilutive.

***	The effect of stock options in the amount of 15,351 shares and 17,003 shares issuable under employee stock plans were not considered as the effect is antidilutive.

****	The effect of stock options in the amount of 36,526 shares and 17,226 shares issubale under employee stock plans were not considered as the effect is antidilutive.

EX-11.2 12 d65232_ex11-2.htm COMPUTATION OF PER SHARE EARNINGS

Exhibit 11.2

CPI Corp.
Computation of Per Common Share Earnings (Loss) - Basic
(Unaudited)


	12 Weeks Ended						24 Weeks Ended

*thousands, except share and per share data*	July 23, 2005			July 24, 2004			July 23, 2005			July 24, 2004

Basic:
Net loss applicable to common shares:
From continuing operations	$	(3,017	)	$	(6,519	)	$	(5,075	)	$	(14,168	)
From discontinued operations		—			(2,588	)		—			(3,737	)

Net loss	$	(3,017	)	$	(9,107	)	$	(5,075	)	$	(17,905	)

Shares:
Weighted average number of common shares outstanding		18,489,481			18,413,448			18,469,316			18,389,738
Less: Treasury stock - weighted average		(10,639,543	)		(10,425,262	)		(10,639,543	)		(10,345,359	)

Weighted average number of common and common equivalent shares outstanding		7,849,938			7,988,186			7,829,773			8,044,379

Net loss per common and common equivalent shares:
From continuing operations	$	(0.38	)	$	(0.82	)	$	(0.65	)	$	(1.76	)
From discontinued operations		—			(0.32	)		—			(0.46	)

Net loss	$	(0.38	)	$	(1.14	)	$	(0.65	)	$	(2.22	)

EX-31.1 13 d65232_ex31-1.htm CERTIFICATION

EXHIBIT 31.1

CERTIFICATION PURSUANT TO
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934


I, Paul Rasmussen, Chief Executive Officer of CPI Corp., a Delaware Corporation, certify that:

(1)	I have reviewed this quarterly report on Form 10-Q of CPI Corp.;

(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervisions, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

	(d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons fulfilling the equivalent functions):

	(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


	/s/ Paul Rasmussen

	Paul Rasmussen Chief Executive Officer

Date: September 1, 2005

EX-31.2 14 d65232_ex31-2.htm CERTIFICATIONS

EXHIBIT 31.2

CERTIFICATION PURSUANT TO
RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934


I, Gary W. Douglass, Executive Vice President, Finance and Chief Financial Officer of CPI Corp., a Delaware Corporation, certify that:

(1)	I have reviewed this quarterly report on Form 10-Q of CPI Corp.;

(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervisions, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

	(d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons fulfilling the equivalent functions):

	(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


	/s/ Gary W. Douglass

	Gary W. Douglass Executive Vice President, Finance and Chief Financial Officer

Date: September 1, 2005

EX-32.0 15 d65232_ex32-0.htm CERTIFICATION

EXHIBIT 32.0

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


Pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Chief Executive Officer and Chief Financial Officer of CPI Corp., a Delaware corporation (the “Company”), do hereby certify that:

(1)	The Quarterly Report on Form 10-Q for the quarter ended July 23, 2005 (the “Form 10-Q”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

(2)	The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and the results of operations of the Company.


/s/ Paul Rasmussen		/s/ Gary W. Douglass

Paul Rasmussen Chief Executive Officer		Gary W. Douglass Executive Vice President, Finance and Chief Financial Officer

This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

Date: September 1, 2005