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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 April 29, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________to__________________
Commission file number 0-3747
THE CATO CORPORATION AND SUBSIDIARIES
(Exact name of registrant as specified in its charter)
Delaware 56-0484485
(State or other jurisdiction (I.R.S. Employer
of incorporation Identification No.)
8100 Denmark Road, Charlotte, North Carolina 28273-5975
(Address of principal executive offices)
(Zip Code)
(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 May 12, 1995, there were 23,172,796 shares of Class A Common Stock and
5,264,317 shares of Class B Common Stock outstanding.
THE CATO CORPORATION
FORM 10-Q
April 29, 1995
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 5-7
Management's discussion and analysis of
financial condition and results of operations 8-9
PART II - OTHER INFORMATION 10-11
PART I FINANCIAL INFORMATION Page 2
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
April 29, April 30,
1995 1994
(In thousands, except per share data)
REVENUES:
Retail sales . . . . . . . . . . . . . . $114,461 $110,105
Other income (principally finance and layaway charges) 3,294 3,026
Total revenues . . . . . . . . . . . 117,755 113,131
COSTS AND EXPENSES:
Costs of goods sold, including occupancy, distribution
and buying . . . . . . . . . . . . . 75,276 70,781
Selling, general and administrative . . 29,188 27,733
Depreciation. . . . . . . . . . . . . . 1,939 1,608
Interest . . . . . . . . . . . . . . . . 78 80
Total expenses . . . . . . . . . . . 106,481 100,202
INCOME BEFORE INCOME TAXES . . . . . . . . 11,274 12,929
Income taxes . . . . . . . . . . . . . . 3,776 4,719
NET INCOME . . . . . . . . . . . . . . . . $ 7,498 $ 8,210
EARNINGS PER SHARE . . . . . . . . . . . . $ 0.26 $ 0.28
DIVIDENDS PER SHARE . . . . . . . . . . . . $ 0.04 $ 0.025
See notes to unaudited consolidated financial statements.
THE CATO CORPORATION Page 3
UNAUDITED CONSOLIDATED BALANCE SHEETS
April 29, April 30, January 28,
1995 1994 1995
( In thousands )
ASSETS
Current Assets:
Cash and cash equivalents . . . . . .$ 26,378 $ 14,099 $ 23,963
Short-term investments . . . . . . . . 25,423 27,119 22,263
Accounts receivable - net . . . . . . 37,455 38,219 37,926
Merchandise inventories . . . . . . .. 70,101 65,008 54,674
Deferred income taxes. . . . . . . . . 1,914 1,607 2,053
Prepaid expenses . . . . . . . . . . . 2,686 1,854 2,602
Total Current Assets . . . . . . .. 163,957 147,906 143,481
Property and Equipment . . . . . . .. 52,857 38,114 53,146
Other Assets . . . . . . . . . . . . . 4,780 4,380 4,695
Total. . . . . . . . . . . . . .$ 221,594 $190,400 $201,322
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable. . . . . . . . . . .$ 48,467 $ 38,475 $ 36,159
Accrued expenses. . . . . . . . . . .. 9,372 8,747 11,832
Income taxes . . . . . . . . . . . .. 4,365 4,105 909
Total Current Liabilities. . . .. .. 62,204 51,327 48,900
Deferred Income Taxes . . . . . . . . . . 4,192 3,482 4,192
Other Noncurrent Liabilities. . . . . . 7,061 298 6,722
Stockholders' Equity:
Class A Common Stock, issued and outstanding
23,172,796 shares, 23,100,991 shares
and 23,132,327 shares at
April 29, 1995, April 30, 1994
and January 28, 1995, respectively. . . 771 769 770
Convertible Class B Common Stock, issued and
outstanding 5,264,317 shares at April 29, 1995,
April 30, 1994 and January 28, 1995,
respectively 176 176 176
Preferred Stock, none . . . . . . . .. . . - - -
Additional paid-in capital. . . . . . . . 62,343 62,012 62,278
Retained earnings . . . . . . . . . . .. . 84,847 72,336 78,284
Total Stockholders' Equity. . . . . . . 148,137 135,293 141,508
Total . . . . . . . . . . . . .. . .$ 221,594 $ 190,400 $ 201,322
See notes to unaudited consolidated financial statements.
THE CATO CORPORATION Page 4
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
April 29, April 30,
1995 1994
(In thousands)
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . .. . . . .$ 7,498 $ 8,210
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation . . . . . . . . . . . .. . . . . 1,939 1,608
Amortization of investment premiums .. . . . . 50 219
Changes in assets and liabilities:
(Increase) decrease in accounts receivable. 471 (1,405)
(Increase) in merchandise inventories . . . (15,427) (9,194)
(Increase) decrease in other assets . . . . (169) 23
Increase in accrued income taxes .. . . . . 3,456 4,105
Increase (decrease) in accounts payable and
other liabilities . . . . . . . . . . . 10,256 (59)
Net cash provided by operating activities . . . . 8,074 3,507
INVESTING ACTIVITIES:
Expenditures for property and equipment . . . . . (1,719) (4,234)
Purchases of short-term investments . .. . . . . (3,419) (8,028)
Sales of short-term investments . . . .. . . . . 550 1,303
Net cash used in investing activities .. . . . . (4,588) (10,959)
FINANCING ACTIVITIES:
Dividends paid . . . . . . . . . . . . . . . . . (1,137) (709)
Proceeds from employee stock purchase plan. . . . 66 247
Proceeds from stock options exercised .. . . . . - 12
Net cash used in financing activities . . . . . . (1,071) (450)
Net Increase (Decrease)
in Cash and Cash Equivalents . . . . . 2,415 (7,902)
Cash and Cash Equivalents
at Beginning of Year . . . . . 23,963 22,001
Cash and Cash Equivalents at End of Period. . . .$ 26,378 $ 14,099
See notes to unaudited consolidated financial statements.
THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED APRIL 29, 1995 AND APRIL 30, 1994
NOTE 1 - GENERAL:
The consolidated financial statements have been prepared from the accounting
records of the Company and all amounts shown at April 29, 1995 and April 30,
1994 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 April 30, 1994 to conform with classifications used as of
April 29, 1995.
The Company's short-term investments are classified as available for sale
securities, and therefore, are carried at fair value, with unrealized gains and
losses, net of income taxes, reported as an adjustment to retained earnings.
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 28,535,326
shares for the three months ended April 29, 1995 and 29,569,369 shares for the
three months ended April 30, 1994.
THE CATO CORPORATION Page 6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED APRIL 29, 1995 AND APRIL 30, 1994
NOTE 3 - SHORT-TERM INVESTMENTS:
Short-term investments at April 29, 1995 and April 30, 1994 include the
following ( in thousands ):
April 29, 1995 April 30, 1994
Unrealized Estimated Unrealized Estimated
Security Type Cost Gain(Loss) Fair Value Cost Gain(Loss) Fair Value
Obligations of states
and political
subdivisions $19,386 $(20) $19,366 $21,227 - $21,227
Corporate debt
securities 2,000 (130) 1,870 2,000 - 2,000
------ ----- ------- ------ ---- -------
Subtotal 21,386 (150) 21,236 23,227 - 23,227
Equity securities 4,548 (361) 4,187 3,892 - 3,892
------ ----- ------ ------ ----- ------
Total $25,934 $(511) $25,423 $27,119 - $27,119
======= ====== ======= ======= ===== =======
The amortized cost and estimated fair value of debt and marketable equity
securities at April 29, 1995 and April 30, 1994, by contractual maturity,
are shown below ( in thousands ):
April 29, 1995 April 30, 1994
Estimated Estimated
Security Type Cost Fair Value Cost Fair Value
Due in one
year of less $18,880 $18,718 $ 18,774 $18,774
Due in one year
through three
years 2,506 2,518 4,453 4,453
------ ------- ------ ------
Subtotal 21,386 21,236 23,227 23,227
Equity securities 4,548 4,187 3,892 3,892
------ ------ ------ ------
Total $25,934 $25,423 $27,119 $27,119
======= ======= ======= =======
THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED APRIL 29, 1995 AND APRIL 30, 1994
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the three months ended April 29, 1995 and April 30, 1994
was $145,000 and $39,000, respectively. Income tax payments, net of refunds
received, were $318,000 and $44,000 for the three months ended April 29, 1995
and April 30, 1994, respectively.
NOTE 5 - LEASES:
In the three months ended April 29, 1995, the Company entered into an agreement
with a lessor to lease $4,200,000 of store fixtures, POS devices and warehouse
equipment. The operating lease is for a term of seven years but my be canceled
annually upon notice to the lessor. Upon notice of cancellation, the Company
would be obligated to purchase the equipment at a prescribed termination value
from the lessor.
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
April 29, April 30,
1995 1994
Total retail sales 100.0% 100.0%
Total revenues 102.9 102.7
Cost of goods sold, including occupancy,
distribution and buying 65.8 64.3
Selling, general and administrative 25.5 25.2
Income before income taxes 9.8 11.7
Net income 6.5 7.5
Comparison of First Quarter of 1995 with 1994.
OPERATING RESULTS
Total retail sales for the first quarter increased 4% over last year's first
quarter to $114.5 million from $110.1 million. Same-store sales decreased 5% in
this year's first quarter. The Company operated 656 stores at April 29, 1995
compared to 606 stores operated at the end of last year's first quarter. Sales
from new, relocated or expanded stores opened within the last year were
responsible for the increase in first quarter sales.
Other income for the first quarter increased 9% over last year's first quarter.
The increase in the current year resulted primarily from increased earnings from
cash equivalents and short-term investments.
Cost of goods sold, including occupancy, distribution, and buying expenses were
65.8% of total retail sales for the current year's first quarter, compared to
64.3% for last year's first three months. The increase in cost of goods sold as
a percent of retail sales resulted primarily from sales not achieving plan for
the first quarter. Additionally, distribution and occupancy costs rose as a
percent of retail sales. As a result of the continued competitive pressures
being experienced in the apparel industry, the Company is planning its sales and
inventory levels more conservatively for the remainder of the current year.
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Selling, general and administrative (SG&A) expenses were $29.2 million, or 25.5%
of retail sales, for this year's first quarter, compared to $27.7 million, or
25.2% of retail sales, in last year's first quarter. The overall increase in
SG&A resulted primarily from increased selling-related expenses brought about by
the Company's store development activity. The Company has continued to maintain
a conservative cost structure and is continuing to closely monitor all expenses.
LIQUIDITY AND CAPITAL RESOURCES
At April 29, 1995, the Company had working capital of $101.8 million, compared
to $96.6 million at April 30, 1994 and $94.6 million at January 28, 1995. Cash
provided by operating activities was $8.1 million for the three months ended
April 29, 1995, compared to $3.5 million for last year's comparable three-month
period. The Company had no borrowings under its $35 million revolving credit
and term loan agreement at April 29, 1995 or April 30, 1994. At April 29, 1995,
the Company had cash, cash equivalents, and short-term investments of $51.8
million, compared to $41.2 million at April 30, 1994 and $46.2 million at
January 28, 1995.
In this year's first quarter, the Company entered into an agreement with a
lessor to lease $4.2 million of store fixtures, POS devices and warehouse
equipment. The operating lease is for a term of seven years but may be
cancelled annually upon notice to the lessor. Upon notice of cancellation, the
Company would be obligated to purchase the equipment at a prescribed termination
value. Additionally, the Company has the option of leasing up to $10.8 million
more of qualifying assets during the current fiscal year.
Expenditures for property and equipment totaled $1.7 million for the three
months ended April 29, 1995, compared to $4.2 million of expenditures in last
year's first three months. The Company expects total capital expenditures to be
approximately $21.0 million for current fiscal year. The Company intends to
open approximately 63 new stores in the current fiscal year and to relocate or
expand an additional 40 stores. Additional expenditures are planned for
materials handling equipment for the Company's distribution facilities and to
upgrade management information systems. For the quarter ended April 29, 1995,
the Company had opened 12 new stores, relocated or expanded 10 stores and closed
2 stores this fiscal year.
The Company believes that its cash, cash equivalents 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 April 29,
1995.
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
May 31, 1995 /s/ Wayland H. Cato, Jr.
Date Wayland H. Cato, Jr.
Chairman of the Board of
Directors and Chief Executive
Officer
May 31, 1995 /s/ Alan E. Wiley
Date Alan E. Wiley
Executive Vice President-Secretary,
Chief Financial and Administrative
Officer