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 August 2, 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 August 18, 1997, there were 22,595,612 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
AUGUST 2, 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 7-9
PART II - OTHER INFORMATION 10-11
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Page 2
PART I FINANCIAL INFORMATION
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
-------------------- --------------------
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
--------- --------- --------- ---------
(In thousands, except per share data)
REVENUES
Retail sales $120,901 $112,747 $244,152 $232,775
Other income (principally finance and layaway charges) 3,550 3,208 7,799 6,719
-------- -------- -------- --------
Total revenues 124,451 115,955 251,951 239,494
-------- -------- -------- --------
COSTS AND EXPENSES
Cost of goods sold, including occupancy,
distribution and buying 85,954 80,549 169,010 160,323
Selling, general and administrative 30,949 29,591 61,681 59,246
Depreciation 1,967 2,123 3,908 4,197
Interest 68 66 131 131
-------- -------- -------- --------
Total expenses 118,938 112,329 234,730 223,897
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 5,513 3,626 17,221 15,597
Income taxes 1,737 1,287 5,425 5,537
-------- -------- -------- --------
NET INCOME $ 3,776 $ 2,339 $ 11,796 $ 10,060
======== ======== ======== ========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.13 $ 0.08 $ 0.41 $ 0.35
======== ======== ======== ========
DIVIDENDS PER SHARE $ 0.04 $ 0.04 $ 0.08 $ 0.08
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
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Page 3
THE CATO CORPORATION
CONSOLIDATED BALANCE SHEETS
August 2, August 3, February 1,
1997 1996 1997
(Unaudited) (Unaudited)
----------- ----------- -----------
(In thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 24,068 $ 24,815 $ 16,593
Short-term investments 34,739 34,617 33,512
Accounts receivable - net 44,689 35,448 43,192
Merchandise inventories 69,401 69,734 63,968
Deferred income taxes 2,014 1,825 2,014
Prepaid expenses 4,026 4,368 2,181
-------- -------- ---------
Total Current Assets 178,937 170,807 161,460
Property and Equipment 50,470 55,504 51,333
Other Assets 5,456 5,261 5,450
-------- -------- ---------
Total $234,863 $231,572 $ 218,243
======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 45,471 $ 46,113 $ 38,276
Accrued expenses 16,729 11,473 16,232
Income taxes 4,616 3,878 1,579
-------- -------- ---------
Total Current Liabilities 66,816 61,464 56,087
Deferred Income Taxes 3,851 4,491 3,851
Other Noncurrent Liabilities 6,471 7,667 6,402
Stockholders' Equity:
Class A Common Stock, issued 23,395,612 shares,
23,340,519 shares and 23,366,403 shares at
August 2, 1997, August 3, 1996 and February 1, 1997,
respectively 779 777 778
Convertible Class B Common Stock, issued and
outstanding 5,264,317 shares at August 2, 1997,
August 3, 1996 and February 1, 1997, respectively 176 176 176
Preferred Stock, none -- -- --
Additional paid-in capital 63,391 63,151 63,272
Retained earnings 98,180 94,069 88,656
-------- -------- ---------
162,526 158,173 152,882
Less Class A Common Stock in treasury,
at cost (800,000 shares at August 2, 1997, 40,000
shares at August 3, 1996, and 175,000 shares at
February 1, 1997) 4,801 223 979
-------- -------- ---------
Total Stockholders' Equity 157,725 157,950 151,903
-------- -------- ---------
Total $234,863 $231,572 $ 218,243
======== ======== =========
See accompanying notes to consolidated financial statements.
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THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
--------------------------
August 2, August 3,
1997 1996
--------------------------
(In thousands)
OPERATING ACTIVITIES
Net income $ 11,796 $ 10,060
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 3,908 4,197
Amortization of investment premiums 51 114
Changes in operating assets and liabilities which
provided (used) cash:
Accounts receivable (1,497) 4,344
Merchandise inventories (5,433) (11,294)
Other assets (1,851) (2,049)
Accrued income taxes 3,037 2,550
Accounts payable and other liabilities 8,073 10,990
-------- --------
Net cash provided by operating activities 18,084 18,912
-------- --------
INVESTING ACTIVITIES
Expenditures for property and equipment (3,357) (5,468)
Purchases of short-term investments (5,103) (18,711)
Sales of short-term investments 3,825 5,691
-------- --------
Net cash used in investing activities (4,635) (18,488)
-------- --------
FINANCING ACTIVITIES
Dividends paid (2,272) (2,282)
Purchase of treasury stock (3,822) --
Proceeds from employee stock purchase plan 114 156
Proceeds from stock options exercised 6 334
-------- --------
Net cash used in financing activities (5,974) (1,792)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 7,475 (1,368)
Cash and Cash Equivalents at Beginning of Year 16,593 26,183
-------- --------
Cash and Cash Equivalents at End of Period $ 24,068 $ 24,815
======== ========
See accompanying notes to consolidated financial statements.
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THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 1997 AND
AUGUST 3, 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 August 2,
1997 and August 3, 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 28,376,044 shares and 28,440,440 shares for the three months
and six months ended August 2, 1997, respectively, and 28,622,744 shares and
28,770,393 shares for the three months and six months ended August 3, 1996,
respectively.
In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings
per Share" (SFAS 128) was issued to simplify the standards for computing
earnings per share (EPS) and make them comparable to international EPS
standards. SFAS 128 is effective for periods ending after December 15, 1997 and
can not be adopted at an earlier date. SFAS 128 will require dual presentation
of basic and diluted EPS on the face of the statement of current earnings and a
reconciliation of the components of the basic and diluted EPS calculations in
the notes to the financial statements. Basic EPS excludes dilution and is
computed by dividing net earnings by the weighted-average number of common
shares outstanding for the period. Diluted EPS is similar to fully diluted EPS
pursuant to Accounting Principles Board (APB) Opinion No. 15. The Company will
adopt SFAS 128 in the quarter and year ending January 31, 1998. Had the new
standard been applied in the quarter ending August 2, 1997, basic and diluted
EPS would have been the same as primary and fully diluted EPS under APB Opinion
No. 15.
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THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 1997 AND
AUGUST 3, 1996
- --------------------------------------------------------------------------------
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION:
- --------------------------------------------
Interest paid during the six months ended August 2, 1997 and August 3, 1996 was
$83,000 and $122,000, respectively. Income tax payments, net of refunds
received, for the six months ended August 2, 1997 and August 3, 1996 were
$2,359,000 and $2,975,000, respectively.
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
- --------------------------------------------------------------------------------
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 2, August 3, August 2, August 3,
1997 1996 1997 1996
--------- --------- --------- ---------
Total retail sales 100.0% 100.0% 100.0% 100.0%
Total revenues 102.9 102.8 103.2 102.9
Cost of goods sold, including occupancy,
distribution and buying 71.1 71.4 69.2 68.9
Selling, general and administrative 25.6 26.2 25.3 25.4
Income before income taxes 4.5 3.2 7.0 6.7
Net income 3.1 2.1 4.8 4.3
Comparison of Second Quarter and First Six Months of 1997 with 1996.
OPERATING RESULTS
- -----------------
Total retail sales for the second quarter were $120.9 million compared to last
year's second quarter sales of $112.7 million, a 7% increase. Same-store sales
increased 8% in this year's second quarter. For the six months ended August 2,
1997, total retail sales increased 5% over the prior year's first six months,
and same-store sales increased 5% for the comparable six month period. The
increase in retail sales for the first six months of 1997 resulted from the
Company's store development activity, an improved customer offering and
commitments to key item basic product at everyday competitive prices. The
Company operated 677 stores at August 2, 1997 compared to 688 stores at the end
of last year's second quarter.
Other income for the second quarter and first six months of 1997 increased 11%
and 16%, respectively, over the prior year's comparable periods. The increase in
the current year resulted primarily from increased finance charge income on the
Company's customer accounts receivable and by increased earnings from cash
equivalents and short-term investments.
Cost of goods sold, including occupancy, distribution and buying expenses were
71.1% and 69.2% of total retail sales for the second quarter and first six
months of 1997, respectively, compared to 71.4% and 68.9% for last year's
comparable three and six month periods. The increase in cost of goods sold as a
percent of retail sales resulted primarily from a planned decrease in initial
mark-up.
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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 $30.9 million and $61.7
million for the second quarter and first six months of this year, respectively,
compared to $29.6 million and $59.2 million for last year's comparable three and
six month periods, respectively. Expenses remained well controlled and were
under planned levels.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At August 2, 1997, the Company had working capital of $112.1 million, compared
to $109.3 million at August 3, 1996 and $105.4 million at February 1, 1997. Cash
provided from operating activities was $18.1 million for the six months ended
August 2, 1997, compared to $18.9 million for last year's comparable six month
period. The Company had no borrowings under its revolving credit agreement at
August 2, 1997 or August 3, 1996. At August 2, 1997, the Company had cash, cash
equivalents, and short-term investments of $58.8 million, compared to $59.4
million at August 3, 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 $3.4 million for the six months
ended August 2, 1997, compared to $5.5 million of expenditures in last year's
first six months. The Company expects total capital expenditures to be
approximately $9.2 million for the current fiscal year. The Company intends to
open approximately 60 new stores and to relocate or expand 20 stores during the
current fiscal year. For the six months ended August 2, 1997, the Company had
opened 31 new stores, relocated or expanded 9 stores, and closed 9 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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THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
- -------------------------------------------
Form 10-Q includes "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. All statements
other than statements of historical facts included in the Form 10-Q and located
elsewhere herein regarding the Company's financial position and business
strategy may constitute forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct.
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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. 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 22, 1997.
Election of Directors:
----------------------
Mr. John P. Derham Cato - For 72,625,876 ; Abstaining 264,893
Mr. Alan E. Wiley - For 72,625,876 ; Abstaining 264,893
Ms. Clarice Cato Goodyear - For 72,625,780 ; Abstaining 264,989
Mr. Paul Fulton - For 72,680,637 ; Abstaining 210,132
Mr. James H. Shaw - For 72,680,637 ; Abstaining 210,132
Ratification of Deloitte & Touche LLP as Independent Auditors
-------------------------------------------------------------
For 72,865,948 ; Abstaining 13,127 ; Against 11,694
ITEM 5. OTHER INFORMATION
- -------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(A) Exhibit 27 - FDS (for SEC use only).
(B) No Reports on Form 8-K were filed during the quarter ended
August 2, 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
September 10, 1997 /s/ Wayland H. Cato, Jr.
- -------------------- -------------------------------------------
Date Wayland H. Cato, Jr.
Chairman of the Board of
Directors and Chief Executive Officer
September 10, 1997 /s/ Alan E. Wiley
- -------------------- -------------------------------------------
Date Alan E. Wiley
Senior Executive Vice President-Secretary,
Chief Financial and Administrative Officer
5
1,000
6-MOS
JAN-31-1998
AUG-02-1997
24,068
34,739
49,050
4,361
69,401
178,937
94,551
44,081
234,863
66,816
0
0
0
955
156,770
234,863
244,152
251,951
169,010
169,010
0
1,787
131
17,221
5,425
11,796
0
0
0
11,796
0.41
0
