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 October 29, 1994

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

       For the transition period from               to

              --------------------------------------------
              Commission file number                0-3747        
              --------------------------------------------

            THE CATO CORPORATION AND SUBSIDIARIES                 
     (Exact name of registrant as specified in its charter)

                         DELAWARE                           
                  (State or other jurisdiciton of 
                  incorporation or organization) 

                     8100 DENMARK ROAD                            
             CHARLOTTE, NORTH CAROLINA  28273-5975 
             (Address of principal executive offices)
                        (Zip Code)

                         56-0484485
              (IRS Employer Identification Number)            
                      
                      (704) 554-8510
        (Registrant's telephone number, including area code)

                         NOT APPLICABLE                           
    (Former name, former address and former fiscal year, 
                    if changed since last report)

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

                         Yes   X    No       

As of November 11, 1994, there were 23,127,144 shares of Class A
Common Stock and 5,264,317 shares of Class B Common Stock
outstanding.

                         THE CATO CORPORATION

                             FORM 10-Q

                          October 29, 1994

                          Table of Contents
Page No. ----- PART I - FINANCIAL INFORMATION (UNAUDITED) Consolidated statements of income 2 Consolidated balance sheets 3 Consolidated statements of cash flows 4 Notes to consolidated financial statements 5-6 Management's discussion and analysis of financial condition and results of operations 7-8 PART II - OTHER INFORMATION 9-10
PART I FINANCIAL INFORMATION THE CATO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended ------------------ ----------------- October 29, October 30, October 29, October 30, 1994 1993 1994 1993 ---------- ----------- ---------- ---------- (In thousands, except per share data) REVENUES: Retail sales . . . . . . . . . . . . . . . . $109,111 $ 94,598 $329,412 $ 284,042 Other income (principally finance and la. . . 3,101 2,926 9,194 8,545 ------- ------ ------ ------ Total revenues . . . . . . . . . . . . . . 112,212 97,524 338,606 292,587 ------- ------ ------- ------- COSTS AND EXPENSES: Costs of goods sold, including occupancy, distribution and buying . . . . . . . . . . . . . . . . 77,505 64,567 225,306 186,274 Selling, general and administrative . . . . . 28,537 24,760 84,025 72,119 Depreciation . . . . . . . . . . . . . . . . 1,762 1,341 5,127 3,789 ------ ------ ------ ------ Total operating expenses . . . . . . . . . 107,804 90,668 314,458 262,182 ------ ------ ------ ------- INCOME BEFORE INCOME TAXES . . . . . . . .. . . 4,408 6,856 24,148 30,405 Income taxes . . . . . . . . . . . . . .. . . 1,609 2,420 8,814 10,733 ------ ------ ------ ------ NET INCOME . . . . . . . . . . . . . . . .. . .$ 2,799 $ 4,436 $ 15,334 $ 19,672 ====== ====== ====== ====== EARNINGS PER SHARE . . . . . . . . . . . .. . .$ 0.10 $ 0.15 $ 0.52 $ 0.66 ====== ====== ====== ====== DIVIDENDS PER SHARE . . . . . . . . . . . .. . .$ 0.040 $ 0.025 $ 0.105 $ 0.063 ====== ====== ====== ======
See notes to unaudited consolidated financial statements. THE CATO CORPORATION UNAUDITED CONSOLIDATED BALANCE SHEETS
October 29, October 29, January 29, 1994 1993 1994 --------- ---------- ----------- ( In thousands ) ASSETS Current Assets: Cash and cash equivalents . . . . . . . .$ 9,507 $ 24,042 $ 22,001 Short-term investments . . . . . . . . . . 23,098 11,262 20,613 Accounts receivable - net . . . . . . . . 40,488 36,086 36,814 Merchandise inventories . . . . . . .. . . 83,573 75,088 55,814 Deferred income taxes. . . . . . . . . . . 1,870 1,966 1,607 Prepaid expenses . . . . . . . . . . . . . 2,001 974 1,935 ------- ------- ------- Total Current Assets . . . . . . . . . 160,537 149,418 138,784 Property and Equipment. . . . . . . . .. . . 51,271 33,148 35,497 Other Assets . . . . . . . . . . . . . .. . . 4,560 4,205 4,322 ------- ------- ------- Total. . . . . . . . . . . . .. . .$ 216,368 $186,771 $ 178,603 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable. . . . . . . . . . . . . . $ 10,400 $ - $ - Accounts payable. . . . . . . . . . .. . . 52,147 48,601 34,547 Accrued expenses. . . . . . . . . . .. . . 10,152 11,711 12,668 Income taxes . . . . . . . . . . . .. . . - 1,484 - ------ ------ ------- Total Current Liabilities. . . .. . . 72,699 61,796 47,215 Deferred Income Taxes . . . . . . . . . . . . 3,482 2,680 3,482 Other Noncurrent Liabilities. . . . . . . . . 263 511 373 Stockholders' Equity: Class A Common Stock, issued 23,127,144 shares, 23,075,358 shares and 23,078,208 shares at October 29, 1994, October 30, 1993 and January 29, 1994, respective. . . 770 769 769 Convertible Class B Common Stock, issued 5,264,317 shares at October 29, 1994, October 30, 1993 and January 29, 1994. 176 176 176 Preferred Stock, none issued. . . . .. . . - - - Additional paid-in capital. . . . . . . . . . 62,246 60,426 61,753 Retained earnings . . . . . . . . . . .. . . 76,732 60,413 64,835 ------ ------- ------- Total Stockholders' Equity. . . . . . . . 139,924 121,784 127,533 ------- ------- -------- Total . . . . . . . . . . . . .. . .$ 216,368 $186,771 $ 178,603 ======= ======= ========
See notes to unaudited consolidated financial statements. THE CATO CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended -------------------------- October 29, October 30 1994 1993 ---------- --------- (In thousands) OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . .. . . . .$ 15,334 $ 19,672 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation . . . . . . . . . . . .. . . . . 5,127 3,789 Loss on disposal of assets. . . . . . . . . . 352 - Amortization of investment premiums .. . . . . 438 247 Changes in assets and liabilities: (Increase) in accounts receivable . . . . . (3,674) (8,349) (Increase) in merchandise inventor. . . . . (27,759) (41,346) (Increase) in other assets . . . .. . . . . (304) (216) Increase in accrued income taxes .. . . . . - 286 Increase in accounts payable and other liabi 15,058 21,090 ------ ------ Net cash provided by (used in) operating. . . . . 4,572 (4,827) ----- ------ INVESTING ACTIVITIES: Expenditures for property and equipment . . . . . (21,715) (13,049) Proceeds from sale of assets. . . . . . . . . . . 378 - Purchases of short-term investments . .. . . . . (10,239) (22,749) Sales of short-term investments . . . .. . . . . 6,594 15,069 ------ ------- Net cash used in investing activities .. . . . . (24,982) (20,729) ----- --- FINANCING ACTIVITIES: Borrowings under credit agreement. . . . . . . . . 10,400 - Cash dividends paid . . . . . . . . . . . . . . . (2,978) (1,791) Proceeds from employee stock purchase pl. . . . . 429 - Proceeds from stock options exercised .. . . . . 65 1,425 Proceeds from issuance of common stock .. . . . . - 24,262 Repayment of life insurance policy loans. . . . . - (203) ------- ------- Net cash provided by financing activitie. . . . . 7,916 23,693 ----- --- Net decrease in Cash and Cash Equivalent. . . . . (12,494) (1,863) Cash and Cash Equivalents at Beginning o. . . . . 22,001 25,905 ------ ------ Cash and Cash Equivalents at End of Peri. . . . .$ 9,507 $ 24,042 ====== =======
See notes to unaudited consolidated financial statements. THE CATO CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THREE MONTHS AND NINE MONTHS ENDED OCTOBER 29, 1994 AND OCTOBER 30, 1993 - - ------------------------------------------------------------------- NOTE 1 - GENERAL: The consolidated financial statements have been prepared from the accounting records of the Company and all amounts shown at October 29, 1994 and October 30, 1993 are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) considered necessary for a fair presentation have been included. Certain reclassifications have been made to the consolidated financial statements as of October 30, 1993 to conform with classifications used as of October 29, 1994. Inventories are stated at the lower of cost (first-in, first-out) or market, determined by the retail inventory method. The provisions for income taxes are based on the Company's estimated annual effective tax rate. NOTE 2 - EARNINGS PER SHARE: Earnings per share is calculated by dividing net income by the weighted average number of Class A and Class B common shares and common stock equivalents outstanding during the respective periods. Common stock equivalents represent the dilutive effect of the assumed exercise of outstanding stock options. The number of shares used in the earnings per share computations were 29,020,713 shares and 29,283,581 shares for the three months and nine months ended October 29, 1994, and 29,802,362 shares and 29,629,077 shares for the three months and nine months ended October 30, 1993. NOTE 3 - SHORT-TERM INVESTMENTS: In accordance with the quidelines set forth under Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities", the Company has determined that short-term investments held by the Company should be classified as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, reported as an adjustment to retained earnings. The adjustment to retained earnings for unrealized losses at October 29, 1994, totalled $459,000. The differences between amortized cost and fair value were immaterial for the prior year's balance sheets presented. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization of premiums, accretion of discounts, investment earnings and realized gains and losses are included in other income. The following if a summary of available-for-sale securities as of October 29, 1994: (In thousands)
Security Type Cost Unrealized Estimated Loss Fair Value - - -------------- ----- ----------- ----------- Obligations of states and political subdivisions $17,272 $(2) $17,270 Corporate debt securities 2,000 (80) 1,920 ------- ------- -------- Subtotal 19,272 (82) 19,190 Equity securities 4,548 (640) 3,908 ------- ------- -------- Total $23,820 $(722) $23,098 ======= ======= ========
The amortized cost and estimated fair value of debt and marketable equity securities at October 29, 1994, by contractual maturity, are shown below: (In thousands)
Security Type Cost Estimated Fair Value - - -------------- ----- ---------- Due in one year or less $14,441 $14,388 Due in one year through five years 4,831 4,802 ------- ------- Subtotal 19,272 19,190 Equity securities 4,548 3,908 ------- -------- Total $23,820 $23,098 ======= ========
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid during the nine months ended October 29, 1994 and October 30, 1993 was $143,000 and $253,000, respectively. Income tax payments for the nine months ended October 29, 1994 and October 30, 1993 were $8,511,000 and $10,450,000, respectively. The Company had noncash investing activities of $722,000 in the nine months ended October 29, 1994, relating to unrealized losses on available-for-sale securities. THE CATO CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - - ------------------------------------------------------------------- RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items in the Company's Unaudited Consolidated Statements of Income as percentages of total retail sales:
Three Months Ended Nine Months Ended ------------------- ----------------- Oct. 29, Oct. 30, Oct. 29, Oct. 30, 1994 1993 1994 1993 -------- -------- -------- -------- Total retail sales 100.0% 100.0% 100.0% 100.0% Total revenues 102.8 103.1 102.8 103.0 Cost of goods sold, including occupancy, distribution and buying 71.0 68.3 68.4 65.6 Selling, general and administrative 26.2 26.2 25.5 25.4 Income before income taxes 4.0 7.3 7.3 10.7 Net income 2.6 4.7 4.7 6.9
Comparison of Third Quarter and First Nine Months of 1994 and 1993. OPERATING RESULTS - - ----------------- Total retail sales for the third quarter increased 15% over last year's third quarter to $109.1 million from $94.6 million last year. Same-store sales increased 1% over the prior year's third quarter. For the nine months ended October 29, 1994, total retail sales increased 16% over the prior year's first nine months, and same-store sales increased 2% over the comparable nine-month period. The Company operated 636 stores at October 29, 1994, compared to 558 stores operated at the end of last year's third quarter. Sales from new, relocated or expanded stores opened within the last year were primarily responsible for the increase in sales recorded for this year's third quarter and first nine months. Other income increased 6% for the third quarter and 8% for this year's first nine months over last year's corresponding periods. The increases in the current year resulted primarily from increased finance charge income on the Company's accounts receivable portfolio and increased earnings from cash equivalents and short- term investments. Cost of goods sold, including occupancy, distribution and buying expenses, were 71.0% and 68.4% of total retail sales for the third quarter and first nine months compared to 68.3% and 65.6% for last year's comparable three- and nine-month periods. The increase in cost of goods sold as a percent of retail sales resulted primarily from increased promotional markdowns brought about by a highly competitive retail climate. As a result of sales not reaching planned levels in the third quarter and first nine months of this year the Company has aggressively marked down seasonal merchandise to keep inventories in line with the sales levels achieved. Inventory levels at the end of this year's third quarter are in line with the modest sales gains planned for the fourth quarter. Selling, general and administrative (SG&A) expenses were $28.5 million, or 26.2% of total retail sales, and $84.0 million, or 25.5% of total retail sales, for the third quarter and first nine months of this year, compared to $24.8 million, or 26.2% of total retail sales, and $72.1 million, or 25.4% of total retail sales, for last year's comparable periods. The overall increases in SG&A resulted primarily from increased selling-related expenses and increased infrastructure expenses brought about by the Company's store development program. The Company has continued to maintain a conservative cost structure and has implemented aggressive expense controls to keep operating expenses in line with planned sales levels. LIQUIDITY AND CAPITAL RESOURCES - - ------------------------------- At October 29, 1994, the Company had working capital of $87.8 million, compared to $87.6 million at October 30, 1993 and $91.6 million at January 29, 1994. Cash provided by operating activities was $4.6 million for the nine months ended October 29, 1994, compared to net cash used in operating activities of $4.8 million for last year's comparable nine-month period. The increase in cash provided by operating activities in the current year resulted primarily from decreased build-up of inventory levels. The Company had $10.4 million of borrowings outstanding under its $35 million revolving credit and term loan agreement at October 29, 1994, compared to no borrowings outstanding at the end of last year's third quarter. Expenditures for property and equipment totaled $21.7 million for the nine months ended October 29, 1994, compared to $13.0 million of expenditures in last year's first nine months. The Company expects total capital expenditures to be approximately $30.5 million for current fiscal year. The Company intends to open approximately 80 new stores in the current fiscal year and to relocate or expand an additional 50 stores. Additional expenditures are planned to expand the Company's distribution facilities and to upgrade management information systems. As of October 29, 1994, the Company had opened 65 new stores, relocated or expanded 39 stores and closed 4 stores this fiscal year. The Company believes that its cash and short-term investments, together with cash flow from operations and borrowings available under a $35 million revolving credit and term loan agreement, will be adequate to fund the Company's proposed capital expenditures and other operating requirements. PART II OTHER INFORMATION THE CATO CORPORATION ITEM 1. LEGAL PROCEEDINGS - - ----------------------------- None ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS - - ------------------------------------------------------------------ None ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES - - ----------------------------------------------------------- Not Applicable ITEM 4. RESULT OF VOTES OF SECURITY HOLDERS - - ---------------------------------------------- None ITEM 5. OTHER INFORMATION - - ---------------------------- None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - - ------------------------------------------- (A) None (B) No Reports on Form 8-K were filed during the quarter ended October 29, 1994. PART II OTHER INFORMATION (CONTINUED) THE CATO CORPORATION 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. THE CATO CORPORATION Date: December 8, 1994 Wayland H. Cato, Jr. ----------------------- Chairman of the Board of Directors and Chief Executive Officer Date: December 8, 1994 Alan E. Wiley ----------------------- Executive Vice President-Secretary, Chief Financial and Administrative Officer
 

5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JAN-28-1995 OCT-29-1994 9,507 23,098 43,613 3,125 83,573 160,537 81,219 29,948 216,368 72,699 0 946 0 0 138,978 216,368 329,412 338,606 225,306 225,306 0 2,217 0 24,148 8,814 15,334 0 0 0 15,334 .52 0