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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 August 3, 1996
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 August 19, 1996, there were 23,300,519 shares of Class A
Common Stock and 5,264,317 shares of Class B Common Stock
outstanding.
THE CATO CORPORATION
FORM 10-Q
August 3, 1996
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
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF
INCOME
Three Months Six Months
Ended Ended
--------------------- ---------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
--------- -------- --------- --------
(In thousands, except per share data)
REVENUES
Retail sales $ 112,747 $ 114,739 $ 232,775 $ 229,200
Other income
(principally finance
and layaway charges) 3,208 3,111 6,719 6,405
--------- --------- --------- --------
Total revenues 115,955 117,850 239,494 235,605
--------- --------- --------- --------
COSTS AND EXPENSES
Cost of goods sold,
including occupancy,
distribution
and buying 80,549 82,256 160,323 157,532
Selling, general
and administrative 29,591 29,123 59,246 58,311
Depreciation 2,123 1,939 4,197 3,878
Interest 66 78 131 156
--------- --------- --------- --------
Total expenses 112,329 113,396 223,897 219,877
-------- --------- --------- --------
INCOME BEFORE INCOME TAXES 3,626 4,454 15,597 15,728
Income taxes 1,287 1,491 5,537 5,267
-------- --------- --------- --------
NET INCOME $ 2,339 $ 2,963 $ 10,060 $ 10,461
======== ========= ========= ========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.08 $ 0.10 $ 0.35 $ 0.37
DIVIDENDS PER SHARE $ 0.04 $ 0.04 $ 0.08 $ 0.08
See notes to unaudited consolidated financial statements.
THE CATO CORPORATION
UNAUDITED CONSOLIDATED BALANCE
SHEETS
August 3, July 29, February 3,
1996 1995 1996
---------- ---------- ----------
(In thousands)
ASSETS
Current Assets
Cash and cash equivalents $24,815 $ 31,452 $ 26,183
Short-term investments 34,617 23,917 21,711
Accounts receivable - net 35,448 34,747 39,792
Merchandise inventories 69,734 65,202 58,440
Deferred income taxes 1,825 1,814 1,825
Prepaid expenses 4,368 2,493 2,486
--------- ---------- ----------
Total Current Assets 170,807 159,625 150,437
Property and Equipment 55,504 55,011 54,364
Other Assets 5,261 4,885 5,094
--------- ---------- ----------
Total $ 231,572 $ 219,521 $ 209,895
========= ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities
Accounts payable $ 46,113 $ 46,273 $ 36,482
Accrued expenses 11,473 10,870 10,458
Income taxes 3,878 826 1,328
---------- --------- ---------
Total Current Liabilities 61,464 57,969 48,268
Deferred Income Taxes 4,491 4,192 4,491
Other Noncurrent Liabilities 7,667 7,038 7,454
Stockholders' Equity:
Class A Common Stock, issued
23,340,519 shares,
23,173,805 shares and
23,204,647 shares at
August 3, 1996, July
29, 1995 and February 3,
1996, respectively 777 772 773
Convertible Class B Common
Stock, issued and
outstanding 5,264,317
shares at August 3, 1996,
July 29, 1995 and
February 3, 1996, respectively 176 176 176
Preferred Stock, none - - -
Additional paid-in capital 63,151 62,507 62,665
Retained earnings 94,069 86,867 86,291
------- ------- --------
158,173 150,322 149,905
Less Class A Common Stock in
treasury,at cost
(40,000 shares at August 3,
1996 and February 3, 1996) 223 - 223
-------- ------- ---------
Total Stockholders' Equity 157,950 150,322 149,682
-------- ------- ---------
Total $231,572 $ 219,521 $ 209,895
========= ======== ==========
See notes to unaudited consolidated financial statements.
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
----------------------------------------
August 3, July 29,
1996 1995
------------ --------------
(In thousands)
OPERATING ACTIVITIES
Net income $ 10,060 $ 10,461
Adjustments to
reconcile net
income to net cash
provided by operating
activities:
Depreciation 4,197 3,878
Amortization of
investment premiums 114 111
Changes in operating assets
and liabilities:
Decrease in accounts
receivable 4,344 3,179
Increase in merchandise
inventories (11,294) (10,528)
Increase in other assets (2,049) (81)
Increase (decrease) in
accrued income taxes 2,550 (83)
Increase in accounts payable
and other liabilities 10,990 9,682
-------------- -----------
Net cash provided by operating
activities 18,912 16,619
--------------- ------------
INVESTING ACTIVITIES
Expenditures for property and
equipment (5,468) (5,957)
Purchases of short-term
investments (18,711) (3,764)
Sales of short-term investments 5,691 2,635
-------------- ------------
Net cash used in investing
activities (18,488) (7,086)
--------------- ------------
FINANCING ACTIVITIES
Dividends paid (2,282) (2,275)
Proceeds from employee stock
purchase plan 156 231
Proceeds from stock options
exercised 334 -
---------------- ------------
Net cash used in financing
activities (1,792) (2,044)
----------------- ------------
Net Increase (Decrease) in Cash
and Cash Equivalents (1,368) 7,489
Cash and Cash Equivalents at
Beginning of Year 26,183 23,963
----------------- -----------
Cash and Cash Equivalents at End
of Period $ 24,815 $ 31,542
================== =============
See notes to unaudited consolidated financial statements.
THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS AND SIX MONTHS ENDED AUGUST 3, 1996 AND
JULY 29, 1995
NOTE 1 - GENERAL:
The consolidated financial statements have been prepared from the accounting
records of the Company and all amounts shown at August 3, 1996 and July 29,
1995 are unaudited. In the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) considered necessary for a fair
presentation have been included.
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 COMMON AND COMMON EQUIVALENT 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 common and common equivalent share
computations were 28,622,744 shares and 28,770,393 shares for the three months
and six months ended August 3, 1996, respectively, and 28,730,129 shares and
28,632,728 shares for the three months and six months ended July 29, 1995,
respectively.
THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR SIX MONTHS ENDED AUGUST 3, 1996 AND JULY 29, 1995
NOTE 3 - SHORT-TERM INVESTMENTS:
Short-term investments at August 3, 1996 and July 29, 1995 include the
following (in thousands):
August 3, 1996 July 29, 1995
----------------- --------------------
Unrealized Estimated Unrealized Estimated
Security Type Cost Gain Fair Cost Gain Fair
(Loss) Value (Loss) Value
-------- -------- --------- ------ ------- ---------
Obligations of
states and
political
subdivisions $30,176 - $30,176 $17,582 $ 43 $17,625
Corporate debt
securities 2,000 - 2,000 2,000 (63) 1,937
--------- ------- ---------- ------- ------- -------
Subtotal 32,176 - 32,176 19,582 (20) 19,562
Equity securities 2,441 - 2,441 4,548 (193) 4,355
--------- ------- --------- ------- ------- -------
Total $34,617 - $34,617 $24,130 $(213) $23,917
========= ======== ========= ======== ======= =======
The amortized cost and estimated fair value of debt and marketable equity
securities at August 3, 1996 and July 29, 1995, by contractual maturity, are
shown below (in thousands):
August 3, 1996 July 29, 1995
------------------- -----------------
Estimated Estimated
Security Type Cost Fair Cost Fair
Value Value
Due in one year
or less $26,043 $26,043 $16,478 $16,494
Due in one year
through
three years 6,133 6,133 3,104 3,068
------- ------- ------- -------
Subtotal 32,176 32,176 19,582 19,562
Equity securities 2,441 2,441 4,548 4,355
------- ------- --------- --------
Total $34,617 $34,617 $24,130 $23,917
========= ======== ========== ========
THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS AND SIX MONTHS ENDED AUGUST 3, 1996 AND
JULY 29, 1995
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the six months ended August 3, 1996 and July 29, 1995 was
$122,000 and $203,000, respectively. Income tax payments for the six months
ended August 3, 1996 and July 29, 1995 were $2,975,000 and $5,349,000,
respectively.
NOTE 5 - FINANCING ARRANGEMENTS:
In February 1996, the Company entered into a new unsecured revolving credit
agreement which provides for borrowings of up to $20 million and an additional
letter of credit facility of $15 million. The revolving credit agreement is
committed until May 1999 and the letter of credit facility is renewable
annually. The revolving credit agreement contains various financial covenants,
including the maintenance of specific financial ratios. The agreement replaces
an unsecured revolving credit and term loan agreement, which was committed
until May 1998, and provided $35 million of available borrowings and a $15
million letter of credit facility.
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 Six Months Ended
--------------------- ------------------
August July August July
3, 29, 3, 29,
1996 1995 1996 1995
------ ------ ------ ------
Total retail sales 100.0 % 100.0 % 100.0 % 100.0 %
Total revenues 102.8 102.7 102.9 102.8
Cost of goods sold, including
occupancy, distribution
and buying 71.4 71.7 68.9 68.7
Selling, general and
administrative 26.2 25.4 25.4 25.4
Income before income taxes 3.2 3.9 6.7 6.9
Net income 2.1 2.6 4.3 4.6
Comparison of Second Quarter and First Six Months of 1996 with 1995.
OPERATING RESULTS
Total retail sales for the second quarter were $112.7 million compared to last
year's second quarter sales of $114.7 million, a 2% decrease. Same-store sales
decreased 6% in this year's second quarter. For the six months ended August 3,
1996, total retail sales increased 2% over the prior year's first six months,
while same-store sales decreased 3% for the comparable six month period. The
increase in retail sales for the first six months of 1996 resulted from the
Company's store development activity. The Company operated 688 stores at
August 3, 1996 compared to 659 stores at the end of last year's second quarter.
Other income for the second quarter and first six months of 1996 increased 3%
and 5%, respectively, over the prior year's comparable periods. The increase
in the current year resulted primarily from increased finance and late charge
income on the Company's customer accounts receivable portfolio and by increased
earnings from cash equivalents and short-term investments.
Cost of goods sold, including occupancy, distribution and buying expenses were
71.4% and 68.9% of total retail sales for the second quarter and first six
months of 1996, respectively, compared to 71.7% and 68.7% for last year's
comparable three and six month periods. The Company's merchandise margins for
the second quarter and first six months of 1996 continue to show the effects of
the difficult ladies apparel sales environment.
Selling, general and administrative (SG&A) expenses were $29.6 million and
$59.2 million for the second quarter and first six months of this year,
respectively, compared to $29.1 million and $58.3 million for last year's
comparable three and six month periods, respectively. SG&A expenses as a
percent of retail sales were flat for the first half of 1996 compared to last
year's first six months. The Company has continued to aggressively manage
operating expenses to keep them in line with the sales levels achieved.
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At August 3, 1996, the Company had working capital of $109.3 million, compared
to $101.7 million at July 29, 1995 and $102.2 million at February 3, 1996.
Cash provided from operating activities was $18.9 million for the six months
ended August 3, 1996, compared to $16.6 million for last year's comparable six
month period. The Company had no borrowings under its revolving credit
agreement at August 3, 1996 or July 29, 1995. At August 3, 1996, the Company
had cash, cash equivalents, and short-term investments of $59.4 million,
compared to $55.4 million at July 29, 1995 and $47.9 million at February 3,
1996.
In February 1996, the Company entered into a new unsecured revolving credit
agreement which provides for borrowings of up to $20 million and an additional
letter of credit facility of $15 million. The revolving credit agreement is
committed until May 1999 and the letter of credit facility is renewable
annually. The revolving credit agreement contains various financial covenants,
including the maintenance of specific financial ratios. The agreement replaces
an unsecured revolving credit and term loan agreement, which was committed
until May 1998, and provided $35 million of available borrowings and a $15
million letter of credit facility.
Expenditures for property and equipment totaled $5.5 million for the six months
ended August 3, 1996, compared to $6.0 million of expenditures in last year's
first six months. The Company expects total capital expenditures to be
approximately $11.1 million for the current fiscal year. The Company is
currently planning very modest store development in fiscal 1996, pending more
favorable business trends. The Company intends to open approximately 30 new
stores and to relocate or expand 22 stores during the current fiscal year. For
the six months ended August 3, 1996, the Company had opened 18 new stores and
relocated or expanded 9 stores and closed 1 store.
The Company believes that its cash, cash equivalents and short-term
investments, together with cash flow from operations and borrowings available
under its revolving credit 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
Following are the results of the matters voted upon at the Company's
Annual Meeting which was held on
May 23, 1996.
Election of Directors:
Mr. Wayland H. Cato, Jr. - For 70,251,358 ;Abstaining 127,726
Mr. Edgar T. Cato - For 70,166,003 ;Abstaining 213,081
Mr. Howard A. Severson - For 70,166,110 ;Abstaining 212,974
Mr. Robert W. Bradshaw, Jr. - For 70,165,814 ;Abstaining 213,270
Mr. Grant L. Hamrick - For 70,256,610 ;Abstaining 127,474
Ratification of Deloitte & Touche LLP as Independent Auditors
For 70,349,442 ; Abstaining 150 ; Against 10,719
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 August 3,
1996.
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
September 5, 1996 /s/ Wayland H. Cato, Jr.
- - -------------------- ----------------------------
Date Wayland H. Cato, Jr.
Chairman of the Board of
Directors and Chief Executive
Officer
September 5, 1996 /s/ Alan E. Wiley
- - -------------------- -------------------------------
Date Alan E. Wiley
Senior Executive Vice President-
Secretary, Chief Financial
and Administrative Officer