View:
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 28, 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 of other jurisdiction (I.R.S. Employer
of incorporation or organization) 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 November 10, 1995 there were 23,162,959 shares of Class A Common
Stock and 5,264,317 shares of Class B Common Stock outstanding.
THE CATO CORPORATION
FORM 10-Q
October 28, 1995
Table of Contents
Page
No.
PART I - FINANCIAL INFORMATION (UNAUDITED)
Consolidated statements of operations 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
Page 2
PART I FINANCIAL INFORMATION
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
-------------------------- --------------------------
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
------------ ------------ ------------- ------------
(In thousands, except per share data)
REVENUES
Retail sales........... $ 105,825 $ 109,111 $ 335,025 $ 329,412
Other income
(principally finance
and layaway charges).. 3,506 3,101 9,911 9,194
------------ ------------- --------------- ----------
Total revenues........ 109,331 112,212 344,936 338,606
------------ ------------- --------------- ----------
COST AND EXPENSES
Cost of goods sold,
including occupancy,
distribution and
buying ................ 80,097 77,505 237,629 225,306
Selling, general and
administrative......... 29,504 28,454 87,815 83,782
Depreciation........... 1,917 1,762 5,795 5,127
Interest............... 56 83 212 243
------------ ------------- --------------- ----------
Total operating
expenses........... 111,574 107,804 331,451 314,458
------------ ------------- --------------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES.............. (2,243) 4,408 13,485 24,148
Income taxes(benefit).. (751) 1,609 4,516 8,814
------------ ------------- --------------- ----------
NET INCOME (LOSS)....... $ (1,492) $ 2,799 $ 8,969 $ 15,334
============ ============= =============== ==========
EARNINGS (LOSS)
PER SHARE............. $ (0.05) $ 0.10 $ 0.31 $ 0.52
============ ============= =============== ==========
DIVIDENDS
PER SHARE.............. $ 0.04 $ 0.04 $ 0.12 $ 0.105
============ ============= =============== ==========
See notes to unaudited consolidated financial statements.
Page 3
THE CATO CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
October 28, October 29, January 28,
1995 1994 1995
----------- ---------- -----------
(In thousands)
ASSETS
Current Assets
Cash and cash equivalents.......... $ 17,448 $ 9,507 $ 23,963
Short - term investments........... 23,830 23,098 22,263
Accounts receivable - net.......... 37,425 40,488 37,926
Merchandise inventories............ 82,085 83,573 54,674
Deferred income taxes.............. 1,768 1,870 2,053
Prepaid expenses................... 2,381 2,001 2,602
----------- ----------- ----------
Total Current Assets............. 164,937 160,537 143,481
Property and Equipment........... 53,051 51,271 53,146
Other Assets..................... 4,957 4,560 4,695
----------- ----------- ----------
Total................................ $ 222,945 $ 216,368 $ 201,322
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable...................... $ - $ 10,400 $ -
Accounts payable................... 52,507 52,147 36,159
Accrued expenses................... 11,289 10,152 11,832
Income taxes....................... - - 909
----------- ----------- ----------
Total Current Liabilities........ 63,796 72,699 48,900
Deferred Income Taxes.............. 4,192 3,482 4,192
Other Noncurrent Liabilities....... 7,243 263 6,722
Stockholders' Equity:
Class A Common Stock, issued
23,202,959 shares, 23,127,144
shares and 23,132,327 shares
at October 28, 1995,
October 29, 1994 and
January 28, 1995, respectively 773 770 770
Convertible Class B Common
Stock, issued and outstanding
5,264,317 shares at October 28,
1995, October 29, 1994 and
January 28, 1995................ 176 176 176
Preferred Stock, none
issued........................... - - -
Additional paid - in capital....... 62,660 62,246 62,278
Retained earnings.................. 84,328 76,732 78,284
----------- ------------ -----------
147,937 139,924 141,508
Less Class A Common Stock in
treasury, at cost
(40,000 shares at October
28, 1995)......................... 223 - -
----------- ------------ -----------
Total Stockholders' Equity......... 147,714 139,924 141,508
----------- ------------ -----------
Total................................ $ 222,945 $ 216,368 $ 201,322
=========== ============ ===========
See notes to unaudited consolidated financial statements.
Page 4
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
------------------------------
October 28, October 29,
1995 1994
-------------- -----------
(In thousands)
OPERATING ACTIVITIES
Net income........................... $ 8,969 $ 15,334
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation........................ 5,795 5,127
Loss on disposal of assets.......... - 352
Amortization of investment premiums. 159 438
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable......................... 501 (3,674)
(Increase) in merchandise
inventories........................ (27,411) (27,759)
(Increase) in other assets......... (41) (304)
(Decrease) in accrued income taxes. (909) -
Increase in accounts payable
and other liabilities............. 16,566 15,058
--------------- -----------
Net cash provided by operating
activities.......................... 3,629 4,572
--------------- -----------
INVESTING ACTIVITIES
Expenditures for property and
equipment........................... (5,940) (21,715)
Proceeds from sale of assets........ - 378
Purchases of short-term
investments......................... (5,990) (10,239)
Sales of short-term investments..... 5,036 6,594
---------------- ----------
Net cash used in investing
activities.......................... (6,894) (24,982)
---------------- ----------
FINANCING ACTIVITIES
Cash dividends paid................. (3,412) (2,978)
Proceeds from employee stock
purchase plan....................... 379 429
Purchase of treasury stock.......... (223) -
Proceeds from stock options
exercised........................... 6 65
Borrowings under credit agreement... - 10,400
---------------- ----------
Net cash provided by (used in)
financing activities................ (3,250) 7,916
---------------- ----------
Net decrease in Cash and Cash
Equivalents......................... (6,515) (12,494)
Cash and Cash Equivalents at
Beginning of Year................... 23,963 22,001
---------------- ----------
Cash and Cash Equivalents at End
of Period........................ $ 17,448 $ 9,507
================ ==========
See notes to unaudited consolidated financial statements.
Page 5
THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 1995 AND
OCTOBER 29, 1994
NOTE 1 - GENERAL:
The consolidated financial statements have been prepared from the
accounting records of the Company and all amounts shown at October 28, 1995
and October 29, 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 October 29, 1994 to conform with classifications used as
of October 28, 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 (LOSS) PER SHARE:
Earnings (loss) 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 computations
were 28,570,582 shares and 28,612,012 shares for the three months and nine
months ended October 28, 1995, respectively, and 29,020,713 shares and
29,283,581 shares for the three months and nine months ended October 29,
1994, respectively.
Page 6
THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 1995 AND
OCTOBER 29, 1994
NOTE 3 - SHORT-TERM INVESTMENTS:
Short-term investments at October 28, 1995 and October 29, 1994 include the
following (in thousands):
October 28, 1995 October 29, 1994
------------------------------ ---------------------------
Unrealized Estimated Unrealized Estimated
Gain Fair Cost Gain Fair
Security Type Cost (Loss) Value (Loss) Value
- - ------------- ------- ---------- --------- ------ -------- ---------
Obligations of
states and
political
subdivisions $ 18,481 $ 36 $ 18,517 $ 17,272 $ (2) $ 17,270
Corporate debt
securities 2,000 (40) 1,960 2,000 (80) 1,920
--------- ----------- -------- ------- -------- ---------
Subtotal 20,481 (4) 20,477 19,272 (82) 19,190
Equity
securities 3,426 (73) 3,353 4,548 (640) 3,908
--------- ----------- -------- ------- --------- -------
Total $ 23,907 $ (77) $ 23,830 $ 23,820 $ (722) $ 23,098
========= =========== ======== ======= ======== =========
The amortized cost and estimated fair value of debt and marketable equity
securities at October 28, 1995 and October 29, 1994, by contractual
maturity, are shown below (in thousands):
October 28, 1995 October 29, 1994
--------------------- ---------------------
Estimated Estimated
Fair Fair
Security Type Cost Value Cost Value
- - ------------- --------- ---------- ---------- ----------
Due in one year or
less $ 16,704 $ 16,719 $ 14,441 $ 14,388
Due in one year
through three years 3,777 3,758 4,831 4,802
--------- ----------- ---------- ----------
Subtotal 20,481 20,477 19,272 19,190
Equity securities 3,426 3,353 4,548 3,908
--------- ----------- ---------- ----------
Total 23,907 23,830 23,820 23,098
========= =========== ========== ==========
Page 7
THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 1995 AND
OCTOBER 29, 1994
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the nine months ended October 28, 1995 and October 29,
1994 was $234,000 and $143,000, respectively. Income tax payments for the
nine months ended October 28, 1995 and October 29, 1994 were $5,412,000 and
$8,511,000, respectively.
NOTE 5 - LEASES:
In the nine months ended October 28, 1995, the Company entered into lease
agreements with a lessor to lease approximately $9,502,000 of store
fixtures, POS devises and warehouse equipment. The operating lease is for
a term of seven years but may 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.
Page 8
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 Operations as
percentages of total retail sales:
Three Months Ended Nine Months Ended
---------------------- ---------------------
Oct. 28, Oct. 29, Oct. 28, Oct. 29,
1995 1994 1995 1994
-------- -------- -------- --------
Total retail sales 100.0% 100.0% 100.0% 100.0%
Total revenues 103.4 102.8 102.8 103.0
Cost of goods sold,
including occupancy,
distribution and buying 75.7 71.0 70.9 68.4
Selling, general and
administrative 27.9 26.1 26.2 25.4
Income (loss) before
income taxes (2.1) 4.0 4.0 7.3
Net (loss) income (1.4) 2.6 2.7 4.7
Comparison of Third Quarter and First Nine Months of 1995 and 1994.
OPERATING RESULTS
Total retail sales for the third quarter decreased 3% from last year's
third quarter to $105.8 million from $109.1 million last year. Same-store
sales decreased 8% in this year's third quarter. For the nine months ended
October 28, 1995, total retail sales increased 2% over the prior year's
first nine months, and same-store sales decreased 6% for the comparable
nine-month period. The Company operated 671 stores at October 28, 1995,
compared to 636 stores operated at the end of last year's third quarter.
Sales from new, relocated or expanded stores opened within the last twelve
months were responsible for the increase in retail sales for this year's
first nine months.
Other income for the third quarter and first nine months of 1995 increased
13% and 8%, respectively, over the prior year's comparable periods. The
increase in the current year resulted primarily from increased earnings
from cash equivalents and short-term investments partially offset by
decreased layaway service charges.
Cost of goods sold, including occupancy, distribution and buying expenses
were 75.7% and 70.9% of total retail sales for the third quarter and first
nine months of this year, respectively, compared to 71.0% and 68.4% for
last year's third quarter and first nine months, respectively. The
increase in cost of goods sold as a percent of retail sales resulted
primarily from higher levels of promotional markdowns brought about by
sales not reaching planned levels. Competitive pressures from widespread
discounting and inventory liquidation has continued to prevail throughout
the ladies apparel retail sector. The Company has been very aggressive in
taking markdowns in order to turn inventory and keep inventory levels in
line with the sales results being achieved.
Page 9
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS - CONTINUED
Selling, general and administrative (SG&A) expenses were $29.5 million, or
27.9% of total retail sales and $87.8 million, or 26.2% of total retail
sales for the third quarter and first nine months of this year,
respectively. SG&A expenses were $28.5 million, or 26.1% of total retail
sales, and $83.8 million, or 25.4% of total retail sales for last year's
comparable three and nine month periods, respectively. The Company has
continued to maintain a conservative cost structure and is continuing to
closely monitor all operating expenses to keep them in line with the sales
levels achieved.
LIQUIDITY AND CAPITAL RESOURCES
At October 28, 1995, the Company had working capital of $101.1 million,
compared to $87.8 million at October 29, 1994 and $94.6 million at January
28, 1995. Cash provided by operating activities was $3.6 million for the
nine months ended October 28, 1995, compared to $4.6 million in the prior
year's first nine months. The Company had no borrowings under its $35
million revolving credit and term loan agreement at October 28, 1995,
compared to $10.4 million of borrowings at end of last year's third
quarter. At October 28, 1995, the Company had cash, cash equivalents and
short-term investments of $41.3 million, compared to $32.6 million at
October 29, 1994 and $46.2 million at January 28, 1995.
In this year's first nine months, the Company entered into an agreement
with a lessor to lease $9.5 million of store fixtures, POS devices, and
warehouse equipment. The operating lease is for a term of seven years but
may 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. Additionally, the Company has the option to
leasing up to $5.5 million more of qualifying assets during the current
fiscal year.
Expenditures for property and equipment totaled $5.9 million for the nine
months ended October 28, 1995, compared to $21.7 million of expenditures in
last year's first nine months. The Company expects net capital
expenditures to be approximately $8.4 million for current fiscal year. The
Company intends to open approximately 37 new stores in the current fiscal
year and to relocate or expand an additional 28 stores. Additional
expenditures are planned for materials handling equipment for the Company's
distribution facilities and to upgrade management information systems. For
the nine months ended October 28, 1995, the Company had opened 29 new
stores, relocated or expanded 25 stores and closed 4 stores.
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.
Page 10
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. RESULT OF VOTES OF SECURITY HOLDERS
None
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) The Company filed a report on Form 8-K dated August 24, 1995
relating to a change in the Registrant's Certifying Accountant
from Ernst & Young LLP to Deloitte & Touche LLP.
Page 11
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
December 4, 1995 /s/ Wayland H. Cato, Jr.
---------------- ------------------------
Date Wayland H. Cato, Jr.
Chairman of the Board of
Directors and Chief Executive
Officer
December 4, 1995 /s/ Alan E. Wiley
---------------- ------------------------
Date Alan E. Wiley
Executive Vice President-
Secretary, Chief Financial and
Administrative Officer