1
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 May 3, 1997
-----------------------------------------
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 16, 1997, there were 23,219,572 shares of Class A Common Stock and
5,264,317 shares of Class B Common Stock outstanding.
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THE CATO CORPORATION
FORM 10-Q
MAY 3, 1997
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
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Page 2
PART I FINANCIAL INFORMATION
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
------------------------
MAY 3, May 4,
1997 1996
-------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUES
Retail sales $123,251 $120,028
Other income (principally finance and layaway charges) 4,249 3,511
-------- --------
Total revenues 127,500 123,539
-------- --------
COSTS AND EXPENSES
Cost of goods sold, including occupancy,
distribution and buying 83,056 79,774
Selling, general and administrative 30,732 29,655
Depreciation 1,941 2,074
Interest 63 65
-------- --------
Total expenses 115,792 111,568
-------- --------
INCOME BEFORE INCOME TAXES 11,708 11,971
Income taxes 3,688 4,250
-------- --------
NET INCOME $ 8,020 $ 7,721
======== ========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.28 $ 0.27
======== ========
DIVIDENDS PER SHARE $ 0.04 $ 0.04
======== ========
See accompanying notes to consolidated financial statements.
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Page 3
THE CATO CORPORATION
CONSOLIDATED BALANCE SHEETS
MAY 3, May 4, February 1,
1997 1996 1997
(UNAUDITED) (Unaudited)
----------- ----------- ----------
(IN THOUSANDS)
ASSETS
Current Assets
Cash and cash equivalents $ 25,017 $ 21,756 $ 16,593
Short-term investments 34,790 34,816 33,512
Accounts receivable - net 45,693 39,538 43,192
Merchandise inventories 75,171 69,547 63,968
Deferred income taxes 2,014 1,825 2,014
Prepaid expenses 4,317 4,652 2,181
-------- -------- --------
Total Current Assets 187,002 172,134 161,460
Property and Equipment 50,939 55,118 51,333
Other Assets 5,390 5,186 5,450
-------- -------- --------
Total $243,331 $232,438 $218,243
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 53,272 $ 48,824 $ 38,276
Accrued expenses 15,575 10,591 16,232
Income taxes 5,238 4,352 1,579
-------- -------- --------
Total Current Liabilities 74,085 63,767 56,087
Deferred Income Taxes 3,851 4,491 3,851
Other Noncurrent Liabilities 6,490 7,551 6,402
Stockholders' Equity:
Class A Common Stock, issued 23,394,572 shares, 23,301,275 shares and
23,366,403 shares at May 3, 1997, May 4, 1996 and February 1, 1997,
respectively 779 776 778
Convertible Class B Common Stock, issued and
outstanding 5,264,317 shares at May 3, 1997,
May 4, 1996 and February 1, 1997, respectively 176 176 176
Preferred Stock, none -- -- --
Additional paid-in capital 63,391 63,026 63,272
Retained earnings 95,538 92,874 88,656
-------- -------- --------
159,884 156,852 152,882
Less Class A Common Stock in treasury, at cost (175,000 shares at
May 3, 1997 and February 1, 1997, respectively, and
40,000 shares at May 4, 1996) 979 223 979
-------- -------- --------
Total Stockholders' Equity 158,905 156,629 151,903
-------- -------- --------
Total $243,331 $232,438 $218,243
======== ======== ========
See accompanying notes to consolidated financial statements
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Page 4
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
-------------------------
MAY 3, May 4,
1997 1996
-------- --------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income $ 8,020 $ 7,721
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 1,941 2,074
Amortization of investment premiums 27 35
Changes in operating assets and liabilities which provided (used) cash:
Accounts receivable (2,501) 254
Merchandise inventories (11,203) (11,107)
Other assets (2,076) (2,258)
Accrued income taxes 3,659 3,024
Accounts payable and other liabilities 14,636 12,580
-------- --------
Net cash provided by operating activities 12,503 12,323
-------- --------
INVESTING ACTIVITIES
Expenditures for property and equipment (1,756) (2,836)
Purchases of short-term investments (3,080) (14,140)
Sales of short-term investments 1,775 1,000
-------- --------
Net cash used in investing activities (3,061) (15,976)
-------- --------
FINANCING ACTIVITIES
Dividends paid (1,138) (1,138)
Proceeds from employee stock purchase plan 114 154
Proceeds from stock options exercised 6 210
-------- --------
Net cash used in financing activities (1,018) (774)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 8,424 (4,427)
Cash and Cash Equivalents at Beginning of Year 16,593 26,183
-------- --------
Cash and Cash Equivalents at End of Period $ 25,017 $ 21,756
======== ========
See accompanying notes to consolidated financial statements
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THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MAY 3, 1997 AND MAY 4, 1996
- - --------------------------------------------------------------------------------
NOTE 1 - GENERAL:
The consolidated financial statements have been prepared from the accounting
records of The Cato Corporation (the Company) and all amounts shown at May 3,
1997 and May 4, 1996 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 results of the interim
period may not be indicative of the entire year.
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 28,505,046 shares for the three months ended May 3, 1997 and
28,918,042 shares for the three months ended May 4, 1996.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during each of the three months ended May 3, 1997 and May 4, 1996
was $61,000. Income tax payments, net of refunds received, for the three months
ended May 3, 1997 and May 4, 1996 were $1,133,000 and $1,249,000, respectively.
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THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MAY 3, 1997 AND MAY 4, 1996
- - --------------------------------------------------------------------------------
NOTE 4 - 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 replaced
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.
In May 1997, the unsecured revolving credit agreement was extended until May
2000 and the letter of credit facility renewed for an additional year.
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THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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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
--------------------
MAY 3, May 4,
1997 1996
------ ------
Total retail sales 100.0% 100.0%
Total revenues 103.5 102.9
Cost of goods sold, including occupancy,
distribution and buying 67.4 66.5
Selling, general and administrative 24.9 24.7
Income before income taxes 9.5 10.0
Net income 6.5 6.4
COMPARISON OF FIRST QUARTER 1997 WITH 1996.
OPERATING RESULTS
Total retail sales for the first quarter increased 3% over last year's first
quarter to $123.3 million from $120.0 million. Same-store sales for the first
quarter increased 3%. The increase in retail sales for the first quarter
resulted from the Company's store development activity. The Company operated 669
stores at May 3, 1997 compared to 682 stores operated at the end of last year's
first quarter.
Other income for the first quarter increased 21% over last year's first quarter.
The increase in the current year resulted primarily from increased finance
charge income on the Company's customer accounts receivable and increased
earnings from cash equivalents and short-term investments.
Cost of goods sold, including occupancy, distribution and buying expenses were
67.4% of total retail sales for the current year's first quarter, compared to
66.5% for last year's first three months. The increase in cost of goods sold as
a percent of retail sales resulted primarily from a planned decrease in initial
mark-up in this year's first quarter.
Selling, general and administrative (SG&A) expenses were $30.7 million, or 24.9%
of retail sales, for this year's first quarter, compared to $29.7 million, or
24.7% of retail sales, in last year's first quarter. Expenses remained well
controlled and were under planned levels.
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THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
At May 3, 1997, the Company had working capital of $112.9 million, compared to
$108.4 million at May 4, 1996 and $105.4 million at February 1, 1997. Cash
provided by operating activities was $12.5 million for the three months ended
May 3, 1997, compared to $12.3 million for last year's comparable three-month
period. The Company had no borrowings under its revolving credit agreement at
May 3, 1997 or May 4, 1996. At May 3, 1997, the Company had cash, cash
equivalents, and short-term investments of $59.8 million, compared to $56.6
million at May 4, 1996 and $50.1 million at February 1, 1997.
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 replaced
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.
In May 1997, the unsecured revolving credit agreement was extended until May
2000 and the letter of credit facility renewed for an additional year.
Expenditures for property and equipment totaled $1.8 million for the three
months ended May 3, 1997, compared to $2.8 million of expenditures in last
year's first three months. The Company expects total capital expenditures to be
approximately $8.7 million for the current fiscal year. The Company intends to
open approximately 55 new stores and to relocate or expand 20 stores during the
current fiscal year. For the three months ended May 3, 1997, the Company had
opened 16 new stores, relocated or expanded 4 stores, and closed 2 stores.
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.
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Page 9
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) Exhibits
27 Financial Data Schedule (for SEC use only)
(B) No Reports on Form 8-K were filed during the quarter ended May 3,
1997.
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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
June 9, 1997 /s/ Wayland H. Cato, Jr.
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Date Wayland H. Cato, Jr.
Chairman of the Board of
Directors and Chief Executive Officer
June 9, 1997 /s/ Alan E. Wiley
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Date Alan E. Wiley
Senior Executive Vice President-Secretary,
Chief Financial and Administrative Officer
5
1,000
3-MOS
JAN-31-1998
MAY-03-1997
25,017
34,790
50,077
4,384
75,171
187,002
93,432
42,493
243,331
74,085
0
0
0
955
157,950
243,331
123,251
127,500
83,056
83,056
0
1,048
63
11,708
3,688
8,020
0
0
0
8,020
0.28
0
