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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 May 2, 1998
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
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(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 15, 1998, there were 22,353,671 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 2, 1998
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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PART I FINANCIAL INFORMATION
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
-------------------------
May 2, May 3,
1998 1997
-------- --------
(Dollars in thousands, except per share data)
REVENUES
Retail sales $136,174 $123,251
Other income (principally finance and layaway charges) 4,870 4,249
-------- --------
Total revenues 141,044 127,500
-------- --------
COSTS AND EXPENSES
Cost of goods sold, including occupancy,
distribution and buying 89,179 83,056
Selling, general and administrative 33,090 30,732
Depreciation 1,865 1,941
Interest 66 63
-------- --------
Total expenses 124,200 115,792
-------- --------
INCOME BEFORE INCOME TAXES 16,844 11,708
Income taxes 5,727 3,688
-------- --------
NET INCOME $ 11,117 $ 8,020
======== ========
BASIC EARNINGS PER SHARE $ .40 $ .28
======== ========
DILUTED EARNINGS PER SHARE $ .39 $ .28
======== ========
DIVIDENDS PER SHARE $ .045 $ .04
======== ========
See accompanying notes to consolidated financial statements.
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THE CATO CORPORATION
CONSOLIDATED BALANCE SHEETS
May 2, May 3, January 31,
1998 1997 1998
(Unaudited) (Unaudited)
-------- -------- --------
(Dollars in thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 39,038 $ 25,017 $ 41,644
Short-term investments 43,342 34,790 27,843
Accounts receivable - net 44,212 45,693 47,186
Merchandise inventories 72,968 75,171 64,226
Deferred income taxes 3,001 2,014 2,958
Prepaid expenses 4,034 4,317 1,686
-------- -------- --------
Total Current Assets 206,595 187,002 185,543
Property and Equipment - net 49,821 50,939 49,801
Other Assets 6,176 5,390 6,093
-------- -------- --------
Total $262,592 $243,331 $241,437
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 57,734 $ 53,272 $ 52,931
Accrued expenses 16,672 15,575 17,244
Income taxes 7,751 5,238 2,041
-------- -------- --------
Total Current Liabilities 82,157 74,085 72,216
Deferred Income Taxes 5,296 3,851 5,296
Other Noncurrent Liabilities 6,503 6,490 6,409
Stockholders' Equity:
Class A Common Stock, issued 23,672,371 shares,
23,394,572 shares and 23,502,647 shares at
May 2, 1998, May 3, 1997 and January 31, 1998,
respectively 788 779 783
Convertible Class B Common Stock, issued and
outstanding 5,264,317 shares at May 2, 1998,
May 3, 1997 and January 31, 1998, respectively 176 176 176
Preferred Stock, none -- -- --
Additional paid-in capital 65,404 63,391 64,187
Retained earnings 111,368 95,538 101,537
-------- -------- --------
177,736 159,884 166,683
Less: Class A Common Stock in treasury,
at cost (1,361,500 shares at May 2, 1998, 175,000
shares at May 3, 1997, and 1,371,500 shares
at January 31, 1998, respectively) 9,100 979 9,167
-------- -------- --------
Total Stockholders' Equity 168,636 158,905 157,516
-------- -------- --------
Total $262,592 $243,331 $241,437
======== ======== ========
See accompanying notes to consolidated financial statements.
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THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
--------------------------
May 2, May 3,
1998 1997
-------- --------
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 11,117 $ 8,020
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,865 1,941
Amortization of investment premiums 22 27
Loss on disposal of property and equipment 342 -
Changes in operating assets and liabilities which
provided (used) cash:
Accounts receivable 2,974 (2,501)
Merchandise inventories (8,742) (11,203)
Other assets (2,431) (2,076)
Accrued income taxes 5,710 3,659
Accounts payable and other liabilities 4,455 14,636
-------- --------
Net cash provided by operating activities 15,312 12,503
-------- --------
INVESTING ACTIVITIES
Expenditures for property and equipment (2,227) (1,756)
Purchases of short-term investments (16,234) (3,080)
Sales of short-term investments 600 1,775
-------- --------
Net cash used in investing activities (17,861) (3,061)
-------- --------
FINANCING ACTIVITIES
Dividends paid (1,216) (1,138)
Proceeds from employee stock purchase plan 177 114
Proceeds from stock options exercised 982 6
-------- --------
Net cash used in financing activities (57) (1,018)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (2,606) 8,424
Cash and Cash Equivalents at Beginning of Period 41,644 16,593
-------- --------
Cash and Cash Equivalents at End of Period $ 39,038 $ 25,017
======== ========
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 2, 1998 AND MAY 3, 1997
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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 2,
1998 and May 3, 1997 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.
In the first quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
Total comprehensive income for the quarters ended May 2, 1998 and May 3, 1997
was $11,047,000 and $8,020,000, respectively. Total comprehensive income is
composed of net income and unrealized losses on available-for-sale securities.
Inventories are stated at the lower of cost (first-in, first-out) or market,
determined by the retail inventory method.
In April 1998, the Company transferred 10,000 shares of Class A Common Stock
from treasury stock to its Employee Stock Ownership Plan as the contribution for
the fiscal year ended January 31, 1998.
The provisions for income taxes are based on the Company's estimated annual
effective tax rate.
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131") became effective in the
first quarter of fiscal 1998. Management is currently evaluating the effects of
SFAS 131, if any, on the Company's financial reporting disclosures for the year
ended January 30, 1999.
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THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MAY 2, 1998 AND MAY 3, 1997
- - --------------------------------------------------------------------------------
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 outstanding during the respective
periods. The weighted-average number of shares used in the basic earnings per
share computations was 27,499,658 shares and 28,463,764 shares for the three
months ended May 2, 1998 and May 3, 1997, respectively. The weighted-average
number of shares representing the dilutive effect of stock options was 702,228
and 40,174 for the three months ended May 2, 1998 and May 3, 1997, respectively.
The weighted-average number of shares used in the diluted earnings per share
computations was 28,201,886 and 28,503,938 for the three months ended May 2,
1998 and May 3, 1997, respectively.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the three months ended May 2, 1998 and May 3, 1997 was
$35,000 and $61,000, respectively. Income tax payments, net of refunds received,
for the three months ended May 2, 1998 and May 3, 1997 were $646,000 and
$1,133,000, respectively.
NOTE 4 - FINANCING ARRANGEMENTS:
At May 2, 1998, the Company had an 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
2000 and the letter of credit facility is renewable annually. The revolving
credit agreement contains various financial covenants, including the maintenance
of specific financial ratios. There were no borrowings outstanding under the
agreement at May 2, 1998 or May 3, 1997.
In May 1998, the unsecured credit agreement was amended to add the $15 million
letter of credit facility to the $20 million revolving credit facility. The
entire $35 million dollar unsecured credit facility was extended to May 2001
with no change in financial covenants or maintenance of specific financial
ratios.
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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 a percentage of total
retail sales:
Three Months Ended
---------------------
May 2, May 3,
1998 1997
------ ------
Total retail sales 100.0% 100.0%
Total revenues 103.6 103.5
Cost of goods sold, including occupancy,
distribution and buying 65.5 67.4
Selling, general and administrative 24.3 24.9
Income before income taxes 12.4 9.5
Net income 8.2 6.5
Comparison of First Quarter of 1998 with 1997.
OPERATING RESULTS
Total retail sales for the first quarter were $136.2 million compared to last
year's first quarter sales of $123.3 million, an 11% increase. Same-store sales
increased 7% in this year's first quarter. The increase in retail sales for the
first quarter resulted from the Company's continued everyday low price strategy,
improved merchandise content, and an increase in store development activity. The
Company operated 697 stores at May 2, 1998 compared to 669 stores at the end of
last year's first quarter.
Other income for the first quarter increased 15% over last year's first quarter.
The increase in the current year resulted primarily from increased finance and
late 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
65.5% of total retail sales for the current year's first quarter, compared to
67.4% for last year's first three months. The decrease in cost of goods sold as
a percent of retail sales resulted primarily from much improved merchandise
offerings, more timely and aggressive markdowns and tighter merchandise planning
and control.
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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 $33.1 million, or 24.3%
of retail sales, for this year's first quarter compared to $30.7 million, or
24.9% of retail sales, in last year's first quarter. Expenses remained well
controlled and were under planned levels.
LIQUIDITY AND CAPITAL RESOURCES
At May 2, 1998, the Company had working capital of $124.4 million, compared to
$112.9 million at May 3, 1997 and $113.3 million at January 31, 1998. Cash
provided by operating activities was $15.3 million for the three months ended
May 2, 1998, compared to $12.5 million for last year's comparable three month
period. The Company had no borrowings under its revolving credit agreement at
May 2, 1998 or May 3, 1997. At May 2, 1998, the Company had cash, cash
equivalents, and short-term investments of $82.4 million, compared to $59.8
million at May 3, 1997 and $69.5 million at January 31, 1998.
At May 2, 1998, the Company had an 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
2000 and the letter of credit facility is renewable annually. The revolving
credit agreement contains various financial covenants, including the maintenance
of specific financial ratios.
In May 1998, the unsecured credit agreement was amended to add the $15 million
letter of credit facility to the $20 million revolving credit facility. The
entire $35 million dollar unsecured credit facility was extended to May 2001
with no change in financial covenants or maintenance of specific financial
ratios.
Expenditures for property and equipment totaled $2.2 million for the three
months ended May 2, 1998, compared to $1.8 million of expenditures in last
year's first three months. The Company expects total capital expenditures to be
approximately $13 million for the current fiscal year. The Company intends to
open approximately 65 new stores and to relocate or expand 20 stores during the
current fiscal year. For the three months ended May 2, 1998, the Company had
opened 10 new stores, relocated 7 stores, and closed 6 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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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 May 2,
1998.
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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 11, 1998 /s/ Wayland H. Cato, Jr.
- - ---------------------------- --------------------------------------------
Date Wayland H. Cato, Jr.
Chairman of the Board of
Directors and Chief Executive Officer
June 11, 1998 /s/ Alan E. Wiley
- - ---------------------------- --------------------------------------------
Date Alan E. Wiley
Senior Executive Vice President-Secretary,
Chief Financial and Administrative Officer
5
1,000
3-MOS
JAN-30-1999
MAY-02-1998
39,038
43,342
48,887
4,675
72,968
206,595
97,904
48,083
262,592
82,157
0
0
0
964
167,672
262,592
136,174
141,044
89,179
89,179
0
949
66
16,844
5,727
11,117
0
0
0
11,117
0.40
0.39
