THE CATO CORPORATION
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended January 29, 2005 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-31340
The Cato Corporation
Registrant
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Delaware
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56-0484485 |
State of Incorporation
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I.R.S. Employer
Identification Number |
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8100 Denmark Road
Charlotte, North Carolina 28273-5975
Address of Principal Executive Offices |
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704/554-8510
Registrants Telephone Number |
Securities registered pursuant to Section 12(b) of the
Act:
Class A Common Stock
Preferred Share Purchase Rights
Securities registered pursuant to Section 12(g) of the
Act:
None
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 þ No o
Indicate by check mark, if
disclosure of delinquent filers pursuant to Item 405 of the
Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. o
Indicate by check mark whether the
registrant is an accelerated filer (as defined in
Rule 12b-2 of the
Act). Yes þ No o
The aggregate market value of the
Registrants Class A Common Stock held by
Non-affiliates of the Registrant as of July 31, 2004, the
last business day of the Companys most recent second
quarter, was $420,193,294 based on the last reported sale price
per share on the New York Stock Exchange (NYSE) on that date.
As of March 29, 2005, there
were 20,367,720 shares of Class A Common Stock and 460,350
shares of Convertible Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy
statement relating to the 2005 annual meeting of shareholders
are incorporated by reference into the following part of this
annual report:
Part III Items 10, 11, 12, 13 and 14
(This page intentionally left blank)
THE CATO CORPORATION
FORM 10-K
TABLE OF CONTENTS
1
Forward-looking Information
The following discussion and analysis should be read along with
the Consolidated Financial Statements, including the
accompanying Notes appearing later in this report. Any of the
following are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended: (1) statements in this Annual Report on
Form 10-K that reflect projections or expectations of our
future financial or economic performance; (2) statements
that are not historical information; (3) statements of our
beliefs, intentions, plans and objectives for future operations,
including those contained in Business,
Properties, Legal Proceedings,
Controls and Procedures and Managements
Discussion and Analysis of Financial Condition and Results of
Operations; (4) statements relating to our operations
or activities for 2005 and beyond; and (5) statements
relating to our future contingencies. Words such as
expects, anticipates,
approximates, believes,
estimates, hopes, intends,
may, plans, should and
variations of such words and similar expressions are intended to
identify such forward-looking statements. No assurance can be
given that actual results or events will not differ materially
from those projected, estimated, assumed or anticipated in any
such forward-looking statements. Forward-looking statements
included in this report are based on information available to us
as of the filing date of this report, and we assume no
obligation to update any such forward-looking information
contained in this report.
Our website is located at www.catocorp.com. We make
available free of charge, through our website, our annual
reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, proxy statements and other
reports (including amendments to these reports) filed or
furnished pursuant to Section 13(a) or 15(d) under the
Securities Exchange Act of 1934. These reports are available as
soon as reasonably practicable after we electronically file
those materials with the SEC. We also post on our website the
charters of our Audit, Compensation and Corporate Governance and
Nominating Committees; our Corporate Governance Guidelines, Code
of Business Conduct and Ethics; and any amendments or waivers
thereto; and any other corporate governance materials
contemplated by SEC or New York Stock Exchange regulations. The
documents are also available in print to any shareholder who
requests by contacting our corporate secretary at our company
offices.
2
PART I
General
The Company, founded in 1946, operated 1,177 womens
fashion specialty stores at January 29, 2005, under the
names Cato, Cato Fashions, Cato
Plus and Its Fashion! in 29 states,
principally in the southeastern United States. The Company
offers quality fashion apparel and accessories at low prices,
every day in junior/ missy and plus sizes. Additionally, the
Company offers clothing for girls sizes 7 to 16 in selected
locations. The Companys stores feature a broad assortment
of apparel and accessories, including casual and dressy
sportswear, dresses, careerwear, coats, shoes, costume jewelry
and handbags. A major portion of the Companys merchandise
is sold under its private labels and is produced by various
vendors in accordance with the Companys specifications.
Most stores range in size from 4,000 to 6,000 square feet and
are located primarily in strip shopping centers anchored by
national discounters or market-dominant grocery stores. The
Company emphasizes friendly customer service and coordinated
merchandise presentations in an appealing store environment. The
Company offers its own credit card and layaway plan. Credit and
layaway sales represented 14% of retail sales in fiscal 2004.
See Note 14 to the Consolidated Financial Statements,
Reportable Segment Information for a discussion of
segment information.
Restatement of Prior Financial Information
We have restated the consolidated balance sheet at
January 31, 2004, and the consolidated statements of
income, cash flows and stockholders equity for the years
ended January 31, 2004 and February 1, 2003 in this
Annual Report on Form 10-K. We have also restated the
quarterly financial information for fiscal 2003 and the first
three quarters of fiscal 2004. See Note 13 to the
accompanying consolidated financial statements. The restatement
also affects periods prior to fiscal 2002. The impact of the
restatement on such prior periods has been reflected as an
adjustment to retained earnings as of February 2, 2002 in
the accompanying consolidated statements of stockholders
equity. We have also restated the applicable financial
information for fiscal 2000, fiscal 2001, fiscal 2002 and fiscal
2003 in Item 6. Selected Financial Data. The
restatement corrects our historical lease accounting practices.
For information with respect to the restatement, see Note 1
to the accompanying consolidated financial statements. We did
not amend our previously filed Annual Report on Form 10-K
or Quarterly Reports on Form 10-Q for the restatement, and
the financial statements and related financial information
contained in such reports should no longer be relied upon.
Throughout this Form 10-K all referenced amounts for prior
periods and prior period comparisons reflect the balances and
amounts on a restated basis.
Business
The Companys primary objective is to be the leading
fashion specialty retailer for fashion and value conscious
females in its markets. Management believes the Companys
success is dependent upon its ability to differentiate its
stores from department stores, mass merchandise discount stores
and competing womens specialty stores. The key elements of
the Companys business strategy are:
Merchandise Assortment. The Companys stores offer a
wide assortment of apparel and accessory items in junior/ missy
and plus sizes and emphasize color, product coordination and
selection.
Value Pricing. The Company offers quality merchandise
that is generally priced below comparable merchandise offered by
department stores and mall specialty apparel chains, but is
generally more fashionable than merchandise offered by discount
stores. Management believes that the Company has positioned
itself as the everyday low price leader in its market segment.
Strip Shopping Center Locations. The Company locates its
stores principally in convenient strip centers anchored by
national discounters or market-dominant grocery stores that
attract large numbers of potential customers.
3
Customer Service. Store managers and sales associates are
trained to provide prompt and courteous service and to assist
customers in merchandise selection and wardrobe coordination.
Credit and Layaway Programs. The Company offers its own
credit card and a layaway plan to make the purchase of its
merchandise more convenient.
Expansion. The Company plans to continue to expand into
northern, midwestern and western adjacent states, as well as
continuing to fill-in existing southeastern core geography.
Merchandising
The Company offers a broad selection of high quality and
exceptional value apparel and accessories to suit the various
lifestyles of the fashion and value conscious females. In
addition, the Company offers on-trend fashion in exciting colors
with consistent fit and quality.
The Companys merchandise lines include dressy, career, and
casual sportswear, dresses, coats, shoes, lingerie, costume
jewelry and handbags. Apparel for girls sizes 7 to 16 is offered
in approximately 1,000 stores. The Company primarily offers
exclusive merchandise with fashion and quality comparable to
mall specialty stores at low prices, every day.
The collaboration of the merchandising team with an expanded
in-house product development and direct sourcing function has
enhanced merchandise offerings delivering quality exclusive
products at lower costs. The product development and direct
sourcing operations provide research on emerging fashion and
color trends, technical services and direct sourcing options.
As a part of its merchandising strategy, members of the
Companys merchandising staff frequently visit selected
stores, monitor the merchandise offerings of other retailers,
regularly communicate with store operations associates and
frequently confer with key vendors. The Company tests most new
fashion-sensitive items in selected stores to aid it in
determining their appeal before making a substantial purchasing
commitment. The Company also takes aggressive markdowns on
slow-selling merchandise and does not carry over merchandise to
the next season.
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Purchasing, Allocation and Distribution |
Although the Company purchases merchandise from approximately
1,500 suppliers, most of its merchandise is purchased from
approximately 100 primary vendors. In fiscal 2004,
purchases from the Companys largest vendor accounted for
approximately 6% of the Companys total purchases. No other
vendor accounted for more than 3% of total purchases. The
Company is not dependent on its largest vendor or any other
vendor for merchandise purchases and the loss of any single
vendor or group of vendors would not have a material adverse
effect on the Companys operating results or financial
condition. A substantial portion of the Companys
merchandise is sold under its private labels and is produced by
various vendors in accordance with the Companys strict
specifications. The Company purchases most of its merchandise
from domestic importers and vendors, which typically minimizes
the time necessary to purchase and obtain shipments in order to
enable the Company to react to merchandise trends in a more
timely fashion. Although a significant portion of the
Companys merchandise is manufactured overseas, principally
in the Far East, any economic, political or social unrest in any
one region is not expected to have a material adverse effect on
the Companys ability to obtain adequate supplies of
merchandise.
An important component of the Companys strategy is the
allocation of merchandise to individual stores based on an
analysis of sales trends by merchandise category, customer
profiles and climatic conditions. A merchandise control system
provides current information on the sales activity of each
merchandise style in each of the Companys stores.
Point-of-sale terminals in the stores collect and transmit sales
and inventory information to the Companys central
database, permitting timely response to sales trends on a
store-by-store basis.
4
All merchandise is shipped directly to the Companys
distribution center in Charlotte, North Carolina, where it is
inspected and then allocated by the merchandise distribution
staff for shipment to individual stores. The flow of merchandise
from receipt at the distribution center to shipment to stores is
controlled by an on-line system. Shipments are made by common
carrier, and each store receives at least one shipment per week.
The Company uses radio, in store signage, graphics and a Company
website as its primary advertising media. The Company uses radio
advertising in selected trade areas. The Companys total
advertising expenditures were approximately .8% of retail sales
in fiscal 2004.
Store Operations
The Companys store operations management team consists of
1 director of stores, 4 territorial managers,
15 regional managers and 120 district managers. Regional
managers receive a salary plus a bonus based on achieving
targeted goals for sales, payroll, shrinkage control and store
profitability. District managers receive a salary plus a bonus
based on achieving targeted objectives for district sales
increases and shrinkage control. Stores are staffed with a
manager, two assistant managers and additional part-time sales
associates depending on the size of the store and seasonal
personnel needs. Store managers receive a salary and all other
store personnel are paid on an hourly basis. Store managers,
assistant managers and sales associates are eligible for monthly
and semi-annual bonuses based on achieving targeted goals for
their stores sales increases and shrinkage control.
The Company is constantly improving its training programs to
develop associates. Over 80% of store and field management are
promoted from within, allowing the Company to internally staff
an expanding store base. The Company has training programs at
each level of store operations. New store managers are trained
in training stores managed by experienced associates who have
achieved superior results in meeting the Companys goals
for store sales, payroll expense and shrinkage control. The type
and extent of district manager training varies depending on
whether the district manager is promoted from within or
recruited from outside the Company. All district managers
receive at a minimum a one-week orientation program at the
Companys corporate office.
Store Locations
Most of the Companys stores are located in the
southeastern United States in a variety of markets ranging from
small towns to large metropolitan areas with trade area
populations of 20,000 or more. Stores range in size from 4,000
to 6,000 square feet and average approximately
4,500 square feet.
All of the Companys stores are leased. Approximately 93%
are located in strip shopping centers and 7% in enclosed
shopping malls. The Company locates stores in strip shopping
centers anchored by a national discounter, primarily Wal-Mart
Supercenters, or market-dominant grocery stores. The
Companys strip center locations provide ample parking and
shopping convenience for its customers.
The Companys store development activities consist of
opening new stores in new and existing markets, and relocating
selected existing stores to more desirable locations in the same
market area. The following table sets forth information with
respect to the Companys development activities since
fiscal 2000.
Store Development
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Number of Stores | |
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Beginning of | |
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Number | |
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Number | |
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Number of Stores | |
Fiscal Year |
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Year | |
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Opened | |
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Closed | |
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End of Year | |
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2000
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809 |
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65 |
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15 |
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859 |
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2001
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859 |
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85 |
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7 |
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937 |
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2002
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937 |
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90 |
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5 |
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1,022 |
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2003
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1,022 |
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87 |
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7 |
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1,102 |
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2004
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1,102 |
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80 |
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5 |
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1,177 |
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5
In Fiscal 2004 the Company relocated 29 stores and remodeled
17 stores.
In Fiscal 2005 the Company plans to open approximately
90 new stores, relocate 20 stores, close 10 stores,
and remodel 15 stores.
The Company periodically reviews its store base to determine
whether any particular store should be closed based on its sales
trends and profitability. The Company intends to continue this
review process to close underperforming stores. The five stores
closed in 2004 were not material to the Companys results
of operations.
Credit and Layaway
The Company offers its own credit card, which accounted for
approximately 9% of retail sales in fiscal 2004. The
Companys net bad debt expense in fiscal 2004 was 7.3% of
credit sales.
Customers applying for the Companys credit card are
approved for credit if they have a satisfactory credit record
and meet minimum income criteria. Customers are required to make
minimum monthly payments based on their account balances. If the
balance is not paid in full each month, the Company assesses the
customer a finance charge. If payments are not received on time,
the customer is assessed a late fee.
Under the Companys layaway plan, merchandise is set aside
for customers who agree to make periodic payments. The Company
adds a nonrefundable administrative fee to each layaway sale. If
no payment is made for four weeks, the customer is considered to
have defaulted, and the merchandise is returned to the selling
floor and again offered for sale, often at a reduced price. All
payments made by customers who subsequently default on their
layaway purchase are returned to the customer upon request, less
the administrative fee and a restocking fee. The Company defers
recognition of layaway sales and its related fees to the
accounting period when the customer picks up layaway
merchandise. Layaway sales represented approximately 5% of
retail sales in fiscal 2004, 2003 and 2002.
Management Information Systems
The Companys systems provide daily financial and
merchandising information that is used by management to enhance
the timeliness and effectiveness of purchasing and pricing
decisions. Management uses a daily report comparing actual sales
with planned sales and a weekly ranking report to monitor and
control purchasing decisions. Weekly reports are also produced
which reflect sales, weeks of supply of inventory and other
critical data by product categories, by store and by various
levels of responsibility reporting. Purchases are made based on
projected sales but can be modified to accommodate unexpected
increases or decreases in demand for a particular item.
Sales information is projected by merchandise category and, in
some cases, is further projected and actual performance measured
by stock keeping unit (SKU). Merchandise allocation models are
used to distribute merchandise to individual stores based upon
historical sales trends, climatic differences, customer
demographic differences and targeted inventory turnover rates.
Competition
The womens retail apparel industry is highly competitive.
The Company believes that the principal competitive factors in
its industry include merchandise assortment and presentation,
fashion, price, store location and customer service. The Company
competes with retail chains that operate similar womens
apparel specialty stores. In addition, the Company competes with
mass merchandise chains, discount store chains and major
department stores. To the extent that the Company opens stores
in larger cities and metropolitan areas, competition is expected
to be more intense in those markets.
6
Regulation
A variety of laws affect the revolving credit program offered by
the Company. The Federal Consumer Credit Protection Act
(Truth-in Lending) and Regulation Z promulgated thereunder
require written disclosure of information relating to such
financing, including the amount of the annual percentage rate
and the finance charge. The Federal Fair Credit Reporting Act
also requires certain disclosures to potential customers
concerning credit information used as a basis to deny credit.
The Federal Equal Credit Opportunity Act and Regulation B
promulgated thereunder prohibit discrimination against any
credit applicant based on certain specified grounds. The Federal
Trade Commission has adopted or proposed various trade
regulation rules dealing with unfair credit and collection
practices and the preservation of consumers claims and
defenses. The Company is also subject to the U.S. Patriot
Act and the Bank Secrecy Act which require the Company to
monitor account holders and account transactions, respectively.
Additionally, the Gramm-Leach-Bliley Act requires the Company to
disclose, initially and annually, to its customers, the
Companys privacy policy as it relates to a customers
non-public personal information.
Associates
As of January 29, 2005, the Company employed approximately
9,600 full-time and part-time associates. The Company also
employs additional part-time associates during the peak
retailing seasons. The Company is not a party to any collective
bargaining agreements and considers that its associate relations
are good.
The Companys distribution center and general offices are
located in a Company-owned building of approximately 492,000
square feet located on a 15-acre tract in Charlotte, North
Carolina. The Companys automated merchandise handling and
distribution activities occupy approximately 418,000 square feet
of this building and its general offices and corporate training
center are located in the remaining 74,000 square feet. A
building of approximately 24,000 square feet located on a 2-acre
tract adjacent to the Companys existing location is used
for receiving and staging shipments prior to processing.
Substantially all of the Companys retail stores are leased
from unaffiliated parties. Most of the leases have an initial
term of five years, with two to three five-year renewal options.
Many of the leases provide for fixed rentals plus a percentage
of sales in excess of a specified volume.
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Item 3. |
Legal Proceedings: |
From time to time, claims are asserted against the Company
arising out of operations in the ordinary course of business.
The Company currently is not a party to any pending litigation
that it believes is likely to have a material adverse effect on
the Companys financial conditions or results of operations.
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Item 4. |
Submission of Matters to a Vote of Security
Holders: |
None.
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Item 4A. |
Executive Officers of the Registrant: |
The executive officers of the Company and their ages as of
March 31, 2005 are as follows:
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Age | |
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Position |
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John P. Derham Cato
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54 |
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Chairman, President and
Chief Executive Officer |
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Michael O. Moore
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54 |
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Executive Vice President,
Chief Financial Officer and Secretary |
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B. Allen Weinstein
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58 |
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Executive Vice President,
Chief Merchandising Officer |
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Howard A. Severson
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57 |
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Executive Vice President, Chief Real Estate and
Store Development Officer |
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Michael T. Greer
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42 |
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Senior Vice President,
Director of Stores |
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Robert C. Brummer
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60 |
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Senior Vice President,
Human Resources |
John P. Derham Cato has been employed as an officer of
the Company since 1981 and has been a director of the Company
since 1986. Since January 2004, he has served as Chairman,
President and Chief Executive Officer. From May 1999 to January
2004, he served as President, Vice Chairman of the Board and
Chief Executive Officer. From June 1997 to May 1999, he served
as President, Vice Chairman of the Board and Chief Operating
Officer. From August 1996 to June 1997, he served as Vice
Chairman of the Board and Chief Operating Officer. From 1989 to
1996, he managed the Companys off-price division, serving
as Executive Vice President and as President and General Manager
of the Its Fashion! Division from 1993 to August 1996.
Mr. John Cato is currently a director of Ruddick
Corporation.
Michael O. Moore has been employed by the Company as
Executive Vice President, Chief Financial Officer and Secretary
since July 1998 and has been a director of the Company since
2002. Mr. Moore served as Vice President, Chief Financial
Officer for Party Experience from 1997 to 1998, Executive Vice
President, Chief Financial Officer of Davids Bridal from
1994 to 1997, and was employed by Bloomingdales from 1984 to
1994 serving as Senior Vice President, Chief Financial Officer
from 1990 to 1994.
B. Allen Weinstein joined the Company as Executive
Vice President, Chief Merchandising Officer of the Cato Division
in August 1997. Since November 2004, he has served as Executive
Vice President, Chief Merchandising Officer of the Company. From
1995 to 1997, he was Senior Vice President Merchandising
of Catherines Stores Corporation. From 1981 to 1995, he served
as Senior Vice President of Merchandising for Bealls, Inc.
Howard A. Severson has been employed by the Company since
1985. Since January 1993, he has served as Executive Vice
President, Chief Real Estate and Store Development Officer and
Assistant Secretary. From 1993 to 2001 Mr. Severson also
served as a director. From August 1989 through January 1993,
Mr. Severson served as Senior Vice President Chief
Real Estate Officer.
Michael T. Greer has been employed by the Company since
1985. Since November 2004, he has served as Senior Vice
President, Director of Stores of the Company. From February 2004
through November 2004, he served as Senior Vice President,
Director of Stores of the Cato Division. From 2002 to 2003
Mr. Greer served as Vice President, Director of Stores of
the Its Fashion! Division. From 1999 to 2001 he served as
Territorial Vice President of Stores of the Cato Division and
from 1996 to 1999 he served as Regional Vice President of Stores
of the Cato Division. From 1985 to 1995, Mr. Greer held
various store operational positions in the Cato Division.
Robert C. Brummer joined the Company as Senior Vice
President, Human Resources and Assistant Secretary in January
2001. From 1999 through 2000, he was employed by Sleepys,
a beddings specialty retailer, as Vice President, Human
Resources and Payroll. From 1997 through 1998, he was Vice
President, Human Resources and Loss Prevention for The Party
Experience, a party supplies specialty retailer. From 1995 until
1997, he was Vice President, Human Resources and Loss Prevention
for No Body Beats The Wiz, an electronics specialty store chain.
8
PART II
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Item 5. |
Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities: |
Market & Dividend Information
The Companys Class A Common Stock trades on the New
York Stock Exchange (NYSE) under the symbol CTR. As required by
Section 3.03A.12(a) of the NYSE listing standards, The Cato
Corporation filed with the NYSE the certification of its Chief
Executive Officer that he is not aware of any violation by the
company of NYSE corporate governance listing standards. Below is
the market range and dividend information for the four quarters
of fiscal 2004 and 2003.
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Price | |
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2004 |
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High | |
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Low | |
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Dividend | |
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First quarter
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$ |
21.60 |
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$ |
19.47 |
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$ |
.16 |
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Second quarter
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22.82 |
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18.90 |
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.175 |
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Third quarter
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23.35 |
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20.35 |
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.175 |
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Fourth quarter
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30.10 |
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23.54 |
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.175 |
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Price | |
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2003 |
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High | |
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Low | |
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Dividend | |
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First quarter
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$ |
20.50 |
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$ |
16.28 |
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$ |
.15 |
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Second quarter
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24.10 |
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18.20 |
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.16 |
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Third quarter
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25.11 |
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19.95 |
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.16 |
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Fourth quarter
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21.57 |
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18.84 |
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.16 |
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As of March 29, 2005 the approximate number of record
holders of the Companys Class A Common Stock was
1,279 and there were 3 record holders of the Companys
Class B Common Stock.
9
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Item 6. |
Selected Financial Data: |
Certain selected financial data for the five fiscal years ended
January 29, 2005 have been derived from the Companys
audited financial statements. The financial statements and
Independent Registered Public Accounting Firms reports for
the three most recent fiscal years are contained elsewhere in
this report. All data set forth below are qualified by reference
to, and should be read in conjunction with, the Companys
Consolidated Financial Statements (including the Notes thereto)
and Managements Discussion and Analysis of Financial
Condition and Results of Operations appearing elsewhere in
this annual report.
The five-year selected consolidated financial data presented in
this Item 6 has been revised to reflect a restatement. For
information with respect to the restatement, see Note 1 to
the accompanying consolidated financial statements.
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|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
(Restated) | |
|
(Restated) | |
|
(Restated) | |
|
|
(Dollars in thousands, except per share data | |
|
|
and selected operating data) | |
STATEMENT OF OPERATIONS DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail sales
|
|
$ |
773,809 |
|
|
$ |
731,770 |
|
|
$ |
732,742 |
|
|
$ |
685,653 |
|
|
$ |
648,482 |
|
Other income
|
|
|
15,795 |
|
|
|
15,497 |
|
|
|
15,589 |
|
|
|
13,668 |
|
|
|
14,055 |
|
Total revenues
|
|
|
789,604 |
|
|
|
747,267 |
|
|
|
748,331 |
|
|
|
699,321 |
|
|
|
662,537 |
|
Cost of goods sold
|
|
|
528,916 |
|
|
|
508,991 |
|
|
|
496,954 |
|
|
|
467,338 |
|
|
|
445,565 |
|
Gross margin
|
|
|
244,893 |
|
|
|
222,779 |
|
|
|
235,788 |
|
|
|
218,315 |
|
|
|
202,917 |
|
Gross margin percent
|
|
|
31.6 |
% |
|
|
30.4 |
% |
|
|
32.2 |
% |
|
|
31.8 |
% |
|
|
31.3 |
% |
Selling, general and administrative
|
|
|
187,618 |
|
|
|
174,202 |
|
|
|
168,914 |
|
|
|
162,082 |
|
|
|
154,150 |
|
Selling, general and administrative percent of retail sales
|
|
|
24.2 |
% |
|
|
23.8 |
% |
|
|
23.1 |
% |
|
|
23.6 |
% |
|
|
23.8 |
% |
Depreciation
|
|
|
20,397 |
|
|
|
18,695 |
|
|
|
14,913 |
|
|
|
10,886 |
|
|
|
9,492 |
|
Interest expense
|
|
|
717 |
|
|
|
306 |
|
|
|
21 |
|
|
|
38 |
|
|
|
3 |
|
Interest and other income
|
|
|
(2,739 |
) |
|
|
(3,614 |
) |
|
|
(3,701 |
) |
|
|
(6,337 |
) |
|
|
(6,557 |
) |
Income before income taxes
|
|
|
54,695 |
|
|
|
48,687 |
|
|
|
71,230 |
|
|
|
65,314 |
|
|
|
59,884 |
|
Income tax expense
|
|
|
19,854 |
|
|
|
17,673 |
|
|
|
25,785 |
|
|
|
22,852 |
|
|
|
20,960 |
|
Net income
|
|
$ |
34,841 |
|
|
$ |
31,014 |
|
|
$ |
45,445 |
|
|
$ |
42,462 |
|
|
$ |
38,924 |
|
Basic earnings per share
|
|
$ |
1.69 |
|
|
$ |
1.34 |
|
|
$ |
1.78 |
|
|
$ |
1.69 |
|
|
$ |
1.56 |
|
Diluted earnings per share
|
|
$ |
1.66 |
|
|
$ |
1.32 |
|
|
$ |
1.75 |
|
|
$ |
1.64 |
|
|
$ |
1.53 |
|
Cash dividends paid per share
|
|
$ |
.685 |
|
|
$ |
.63 |
|
|
$ |
.585 |
|
|
$ |
.53 |
|
|
$ |
.425 |
|
SELECTED OPERATING DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores open at end of year
|
|
|
1,177 |
|
|
|
1,102 |
|
|
|
1,022 |
|
|
|
937 |
|
|
|
859 |
|
Average sales per store(1)
|
|
$ |
682,000 |
|
|
$ |
692,000 |
|
|
$ |
753,000 |
|
|
$ |
767,000 |
|
|
$ |
781,000 |
|
Average sales per square foot of selling space
|
|
$ |
170 |
|
|
$ |
171 |
|
|
$ |
184 |
|
|
$ |
186 |
|
|
$ |
187 |
|
Comparable store sales increase (decrease)
|
|
|
0 |
% |
|
|
(7 |
)% |
|
|
0 |
% |
|
|
1 |
% |
|
|
3 |
% |
BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$ |
107,228 |
|
|
$ |
71,402 |
|
|
$ |
106,936 |
|
|
$ |
84,695 |
|
|
$ |
83,112 |
|
Working capital
|
|
|
133,791 |
|
|
|
117,403 |
|
|
|
166,264 |
|
|
|
143,101 |
|
|
|
129,437 |
|
Total assets
|
|
|
394,134 |
|
|
|
356,284 |
|
|
|
387,272 |
|
|
|
335,708 |
|
|
|
314,637 |
|
Total stockholders equity
|
|
|
211,175 |
|
|
|
186,075 |
|
|
|
262,505 |
|
|
|
227,428 |
|
|
|
201,110 |
|
|
|
(1) |
Calculated using an estimated annual sales volume for new stores. |
10
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations: |
Restatement of Prior Financial Information
We have restated the consolidated balance sheet at
January 31, 2004, and the consolidated statements of
income, cash flows and stockholders equity for the years
ended January 31, 2004 and February 1, 2003 in this
Annual Report on Form 10-K to correct our historical lease,
inbound freight capitalization and vendor allowance accounting
practices. We have also restated our quarterly financial
information for fiscal 2003 and the first three quarters of
fiscal 2004. See Note 13 to the accompanying consolidated
financial statements. The restatement also affects periods prior
to fiscal 2002. The impact of the restatement on such prior
periods has been reflected as an adjustment of $7.3 million
to retained earnings as of February 2, 2002 in the
accompanying consolidated statement of stockholders
equity. We have also restated the applicable financial
information for fiscal 2000, fiscal 2001, fiscal 2002 and fiscal
2003 in Item 6. Selected Financial Data.
After the staff of the Securities and Exchange Commission issued
a letter on February 7, 2005 we, like many other retailers,
reviewed our lease accounting practices and determined that
certain corrections were needed. As a result, we corrected our
lease accounting practices for fiscal 2004 and restated certain
historical financial information. The restatement corrections
did not impact cash payments and had no impact on revenues,
comparable store sales or operating cash flows.
The Company corrected its lease accounting practices to
recognize lease expense on a straight-line basis over the
expected lease term (as that term is defined by Statement of
Financial Accounting No. 13, as amended
SFAS No. 13) beginning on the date the
Company takes possession of the leased property, including lease
renewal periods that are required to be included in the lease
term because of economic penalties that result in the renewal
being reasonably assured. Likewise, the Company corrected its
practices to recognize landlord allowances on a straight-line
basis over the lease term.
The restatement includes adjustments to cost of goods sold,
gross margin, operating income, income before taxes, income tax
provision, net income and earnings per share. This correction to
our lease accounting practices reduced net income by $484,000
and diluted earnings per share by $0.02 in fiscal 2004. The
corrections decreased net income by $775,000 or $0.03 per
diluted share in fiscal year 2003 and by $366,000 or $0.02 per
diluted share in fiscal 2002. In addition, the Company increased
net income by $400,000 or $0.01 per diluted share in fiscal 2003
and decreased net income by $22,000 in fiscal 2002 to properly
capitalize inbound freight on domestic purchases and to properly
account for vendor allowances.
For information with respect to the restatement adjustments, see
Note 1 to the accompanying consolidated financial
statements.
We did not amend our previously filed Annual Reports on
Form 10-K for fiscal years 2003 and 2002 or Quarterly
Reports on Form 10-Q for fiscal year 2004 for the
restatement, and, accordingly, the financial statements and
related financial information contained in such reports should
no longer be relied upon.
Throughout Managements Discussion and Analysis of
Financial Condition and Results of Operations, all
referenced amounts for prior periods and prior period
comparisons reflect the balances and amounts on a restated basis.
11
Results of Operations
The table below sets forth certain financial data of the Company
expressed as a percentage of retail sales for the years
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29, | |
|
January 31, | |
|
February 1, | |
Fiscal Year Ended |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
(Restated) | |
Retail sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Other income
|
|
|
2.0 |
|
|
|
2.1 |
|
|
|
2.1 |
|
Total revenues
|
|
|
102.0 |
|
|
|
102.1 |
|
|
|
102.1 |
|
Cost of goods sold
|
|
|
68.4 |
|
|
|
69.6 |
|
|
|
67.8 |
|
Selling, general and administrative
|
|
|
24.2 |
|
|
|
23.8 |
|
|
|
23.1 |
|
Depreciation
|
|
|
2.6 |
|
|
|
2.6 |
|
|
|
2.0 |
|
Interest expense
|
|
|
0.1 |
|
|
|
0.0 |
|
|
|
0.0 |
|
Interest and other income
|
|
|
(0.4 |
) |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
Income before income taxes
|
|
|
7.1 |
|
|
|
6.6 |
|
|
|
9.7 |
|
Net income
|
|
|
4.5 |
% |
|
|
4.2 |
% |
|
|
6.2 |
% |
Fiscal 2004 Compared to Fiscal 2003
Retail sales increased by 6% to $773.8 million in fiscal
2004 compared to $731.8 million in fiscal 2003. Total
revenues, comprised of retail sales and other income
(principally finance charges and late fees on customer accounts
receivable and layaway fees), increased by 6% to
$789.6 million in fiscal 2004 compared to
$747.3 million in fiscal 2003. The Company operated
1,177 stores at January 29, 2005 compared to 1,102
stores operated at January 31, 2004.
The increase in retail sales in fiscal 2004 was attributable to
improved merchandise offerings and an increase in store
development activity. In fiscal 2004, the Company opened 80 new
stores, relocated 29 stores, remodeled 17 stores and closed
5 stores.
Credit revenue of $14.2 million, represented 1.8% of total
revenue in fiscal 2004. This is comparable to 2003 credit
revenue of $14.5 million or 1.9% of total revenue. Credit
revenue is comprised of interest earned on the Companys
private label credit card portfolio and related fee income.
Related expenses include principally bad debt expense, payroll,
postage and other administrative expenses and totaled
$8.7 million in fiscal 2004 compared to $9.7 million
in fiscal 2003. The decrease in costs was principally due to
lower bad debt expense in fiscal 2004. See Note 14 of the
Consolidated Financial Statements for a schedule of credit
related expenses. Total credit income before taxes increased
$0.7 million from $4.7 million in 2003 to
$5.4 million in 2004 due to the decreased bad debt expense,
partially offset by decreased credit revenue. Total credit
income in 2004 represented 9.9% of income before taxes of
$54.7 million.
Other income in total, as included in total revenues in fiscal
2004, increased slightly to $15.8 million from
$15.5 million in fiscal 2003. The increase resulted
primarily from an increase in late charges.
Cost of goods sold was $528.9 million, or 68.4% of retail
sales, in fiscal 2004 compared to $509.0 million, or 69.6%
of retail sales, in fiscal 2003. The decrease in cost of goods
sold as a percent of retail sales resulted primarily from
reduced markdowns. Cost of goods sold includes merchandise
costs, net of discounts and allowances, buying costs,
distribution costs, occupancy costs, freight and inventory
shrinkage. Net merchandise costs and in-bound freight are
capitalized as inventory costs. Buying and distribution costs
include payroll, payroll-related costs and operating expenses
for the buying departments and distribution center. Occupancy
expenses include rent, real estate taxes, insurance, common area
maintenance, utilities and maintenance for stores and
distribution facilities. Total gross margin dollars (retail
sales less cost of goods sold) increased by 10% to
$244.9 million in fiscal 2004 from $222.8 million in
fiscal 2003. Gross margin as presented may not be comparable to
those of other entities. For example, others may include
internal transfer costs in selling, general and administrative
expenses while the Company classifies them as cost of goods sold.
12
Selling, general and administrative expenses (SG&A)
primarily include corporate and store payroll, related payroll
taxes and benefits, insurance, supplies, advertising, bank and
credit card processing fees and bad debts and were
$187.6 million in fiscal 2004 compared to
$174.2 million in fiscal 2003, an increase of 8%. As a
percent of retail sales, SG&A was 24.2% compared to 23.8% in
the prior year. The overall increase in SG&A resulted
primarily from increased incentive and discretionary bonuses and
increased infrastructure expenses attributable to the
Companys store development activities.
Depreciation expense was $20.4 million in fiscal 2004
compared to $18.7 million in fiscal 2003. The 9% increase
in fiscal 2004 resulted primarily from the Companys store
development activity.
Interest and other income was $2.7 million in fiscal 2004
compared to $3.6 million in fiscal 2003. The 25% decrease
in fiscal 2004 resulted primarily from the Companys lower
cash and short-term investment position following the repurchase
of $98.3 million of Company stock in fiscal 2003.
Income tax expense was $19.9 million, or 2.6% of retail
sales in fiscal 2004 compared to $17.7, or 2.4% of retail sales
in fiscal 2003. The increase resulted from higher pre-tax
income. The effective tax rate was 36.3% in both fiscal 2004 and
fiscal 2003. The Company expects the effective rate in 2005 to
be in the range of 36% to 37%.
Fiscal 2003 Compared to Fiscal 2002
Retail sales were flat at $731.8 million in fiscal 2003
compared to $732.7 million in fiscal 2002. Total revenues
were flat at $747.3 million in fiscal 2003 compared to
$748.3 million in fiscal 2002. The Company operated 1,102
stores at January 31, 2004 compared to 1,022 stores
operated at February 1, 2003.
The flat retail sales in fiscal 2003 were attributable to the
soft economy. In fiscal 2003, the Company increased its number
of stores 8% by opening 87 new stores, relocating 28 stores,
remodeling 15 stores and closing 7 stores.
Credit revenues increased $0.5 million from
$14.0 million in 2002 to $14.5 million in 2003 mainly
due to increased finance charges and late fees. Credit revenues
represented 1.9% of total revenues in both 2003 and 2002.
Related expenses totaled $9.7 million in 2003 compared to
$8.5 million in 2002 principally due to higher bad debt
expenses in 2003. Total credit income before taxes decreased
$0.8 million from $5.5 million in 2002 to
$4.7 million in 2003 as a result of the increased costs
partially offset by increased credit revenue. Total credit
income in 2003 represented 9.7% of income before taxes of
$48.7 million.
Other income in total, as included in total revenues in fiscal
2003, decreased slightly to $15.5 million from
$15.6 million in fiscal 2002. The decrease resulted
primarily from a decline in layaway fees.
Cost of goods sold was $509.0 million, or 69.6% of retail
sales, in fiscal 2003 compared to $497.0 million, or 67.8%
of retail sales, in fiscal 2002. The increase in cost of goods
sold as a percent of retail sales resulted primarily from lower
than planned sales and additional markdowns.
SG&A expenses were $174.2 million in fiscal 2003
compared to $168.9 million in fiscal 2002, an increase of
3%. As a percent of retail sales, SG&A was 23.8% compared to
23.1% in the prior year. The overall increase in SG&A
resulted primarily from increased selling-related expenses and
increased infrastructure expenses attributable to the
Companys store development activities.
Depreciation expense was $18.7 million in fiscal 2003
compared to $14.9 million in fiscal 2002. The 25% increase
in fiscal 2003 resulted primarily from the Companys store
development and the implementation of an enterprise-wide
information system.
Interest and other income was $3.6 million in fiscal 2003
compared to $3.7 million in fiscal 2002. The 3% decrease in
fiscal 2003 resulted primarily from the Companys lower
cash and short-term investment position following the repurchase
of $98.3 million of Company stock in fiscal 2003.
Income tax expense was $17.7 million, or 2.4% of retail
sales in fiscal 2003 compared to $25.8 million, or 3.5% of
retail sales in fiscal 2002. The decrease resulted from lower
pre-tax income.
13
Off Balance Sheet Arrangements
The Company is not a party to any off-balance sheet arrangements
that have, or are reasonably likely to have, a current or future
material effect on the Companys financial condition,
revenues, expenses, results of operations, liquidity, capital
expenditures or capital resources.
Critical Accounting Policies
The Companys accounting policies are more fully described
in Note 1 to the Consolidated Financial Statements. As
disclosed in Note 1 of Notes to Consolidated Financial
Statements, the preparation of the Companys financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
about future events that affect the amounts reported in the
financial statements and accompanying notes. Future events and
their effects cannot be determined with absolute certainty.
Therefore, the determination of estimates requires the exercise
of judgment. Actual results inevitably will differ from those
estimates, and such differences may be material to the financial
statements. The most significant accounting estimates inherent
in the preparation of the Companys financial statements
include the allowance for doubtful accounts receivable, reserves
relating to workers compensation, general and auto
insurance liabilities, reserves for inventory markdowns,
calculation of asset impairment, shrink accrual and tax
contingency reserves.
The Companys critical accounting policies and estimates
are discussed with the Audit Committee.
|
|
|
Allowance for Doubtful Accounts |
The Company evaluates the collectibility of accounts receivable
and records an allowance for doubtful accounts based on
estimates of actual write-offs and the accounts receivable aging
roll rates over a period of up to 12 months. The allowance
is reviewed for adequacy and adjusted, as necessary, on a
monthly basis. The Company also provides for estimated
uncollectible late fees charged based on historical write-offs.
The Companys financial results can be significantly
impacted by changes in bad debt write-off experience and the
aging of the accounts receivable portfolio.
The Company is primarily self-insured for health care, property
loss, workers compensation and general liability costs.
These costs are significant primarily due to the large number of
the Companys retail locations and employees. The
Companys self-insurance liabilities are based on the total
estimated costs of claims filed and estimates of claims incurred
but not reported, less amounts paid against such claims, and are
not discounted. Management reviews current and historical claims
data in developing its estimates. The Company also uses
information provided by outside actuaries with respect to
workers compensation and general liability claims. If the
underlying facts and circumstances of the claims change or the
historical experience upon which insurance provisions are
recorded is not indicative of future trends, then the Company
may be required to make adjustments to the provision for
insurance costs that could be material to the Companys
reported financial condition and results of operations.
Historically, actual results have not significantly deviated
from estimates.
While the Companys recognition of revenue is predominantly
derived from routine retail transactions and does not involve
significant judgement, revenue recognition represents an
important accounting policy of the Company. As discussed in
Note 1 to the Consolidated Financial Statements, the
Company recognizes sales at the point of purchase when the
customer takes possession of the merchandise and pays for the
purchase, generally with cash or credit. Sales from purchases
made with Cato credit, gift cards and layaway sales are also
recorded when the customer takes possession of the merchandise.
Gift cards, layaway deposits and merchandise credits granted to
customers are recorded as deferred revenue until they are
redeemed or forfeited. A provision is made for estimated product
returns based on sales volumes and the Companys
experience; actual returns have not varied materially from
amounts provided historically.
14
Credit revenue on the Companys private label credit card
portfolio is recognized as earned under the interest method.
Late fees are recognized as earned, less provisions for
estimated uncollectible fees.
|
|
|
Impairment of Long-Lived Assets |
The Company primarily invests in property and equipment in
connection with the opening and remodeling of stores and in
computer software and hardware. Most of the Companys store
leases give the Company the option to terminate the lease if
certain specified sales volumes are not achieved during the
first few years of the lease although we have exercised this
right infrequently. The Company periodically reviews its store
locations and estimates the recoverability of its assets,
recording an impairment charge, if necessary, when the Company
decides to close the store or otherwise determines that future
undiscounted cash flows associated with those assets will not be
sufficient to recover the carrying value. This determination is
based on a number of factors, including the stores
historical operating results and cash flows, estimated future
sales growth, real estate development in the area and perceived
local market conditions that can be difficult to predict and may
be subject to change. In addition, the Company regularly
evaluates its computer-related and other long-lived assets and
may accelerate depreciation over the revised useful life if the
asset is expected to be replaced or has limited future value.
When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation or amortization are removed
from the accounts, and any resulting gain or loss is reflected
in income for that period.
The Company provides for estimated liabilities for potential
income and other tax assessments for which actual settlement may
differ materially from amounts provided.
The Companys inventory is valued using the retail method
of accounting and is stated at the lower of cost (first-in,
first-out method) or market. Under the retail inventory method,
the valuation of inventory at cost and resulting gross margin
are calculated by applying an average cost to retail ratio to
the retail value of inventory. The retail inventory method is an
averaging method that has been widely used in the retail
industry. Inherent in the retail method are certain significant
estimates including initial merchandise markup, markdowns and
shrinkage, which significantly impact the ending inventory
valuation at cost and the resulting gross margins. Physical
inventories are conducted throughout the year to calculate
actual shrinkage and inventory on hand. Estimates based on
actual shrinkage results are used to estimate inventory
shrinkage, which is accrued for the period between the last
inventory and the financial reporting date. The Company
continuously reviews its inventory levels to identify slow
moving merchandise and uses markdowns to clear slow moving
inventory. The general economic environment for retail apparel
sales could result in an increase in the level of markdowns,
which would result in lower inventory values and increases to
cost of goods sold as a percentage of net sales in future
periods. Management makes estimates regarding markdowns based on
inventory levels on hand and customer demand, which may impact
inventory valuations. Markdown exposure with respect to
inventories on hand is limited due to the fact that seasonal
merchandise is not carried forward. Historically, actual results
have not significantly deviated from those determined using the
estimates described above.
The Company recognizes rent expense on a straight-line basis
over the lease term as defined in SFAS No. 13. Our
lease agreements generally provide for scheduled rent increases
during the lease term or rent holidays, including rental
payments commencing at a date other than the date of initial
occupancy. We include any rent escalation and rent holidays in
our straight-line rent expense. In addition, we record landlord
allowances for normal tenant improvements as deferred rent,
which is included in other non-current liabilities in the
consolidated balance sheets. This deferred rent is amortized
over the lease term as a reduction of rent expense. Also,
leasehold improvements are amortized using the straight-line
method over the shorter of their estimated useful lives or the
related lease term. See Note 1 to the Consolidated
Financial Statements for further information on the
Companys accounting for its leases.
15
Liquidity, Capital Resources and Market Risk
The Company has consistently maintained a strong liquidity
position. Cash provided by operating activities during fiscal
2004 was $79.9 million as compared to $59.3 million in
fiscal 2003. These amounts have enabled the Company to fund its
regular operating needs, capital expenditure program, cash
dividend payments and any repurchase of the Companys
Common Stock. In addition, the Company maintains
$35 million of unsecured revolving credit facilities for
short-term financing of seasonal cash needs.
The Company believes that its cash, cash equivalents and
short-term investments, together with cash flows from operations
and borrowings available under its revolving credit agreement,
will be adequate to fund the Companys proposed capital
expenditures and other operating requirements over the next
twelve months and for the foreseeable future beyond twelve
months.
At January 29, 2005, the Company had working capital of
$133.8 million compared to $117.4 million at
January 31, 2004. The increase in net cash provided by
operating activities in fiscal 2004 is primarily the result of
an increase in net income of $3.8 million; an increase in
depreciation expense of $1.7 million due to store
expansion; a reduction in accounts receivable from strong
collection efforts of $1.4 million; a reduction of
merchandise inventories of $1.2 million; a reduction of
prepaid expense of $4.7 million; and an increase in
accounts payable, accrued expenses and other liabilities of
$15.0 million. Offsetting these increases in net cash
provided by operating activities was a decrease in deferred
income taxes of $5.6 million and decrease of
$1.5 million in accrued income taxes.
Additionally, the Company had $1.8 million invested in
privately managed investment funds at January 31, 2005,
which are reported under other assets of the consolidated
balance sheets.
At January 29, 2005, the Company had an unsecured revolving
credit agreement, which provided for borrowings of up to
$35 million. The revolving credit agreement is committed
until August 2006. This agreement replaced a prior revolving
credit agreement which was due to expire in October 2004. The
credit agreement contains various financial covenants and
limitations, including the maintenance of specific financial
ratios with which the Company was in compliance as of
January 29, 2005. There were no borrowings outstanding
under these credit facilities during the fiscal year ended
January 29, 2005 or January 31, 2004.
The Company had approximately $3.5 million and
$5.4 million at January 29, 2005 and January 31,
2004, respectively, of outstanding irrevocable letters of credit
relating to purchase commitments.
Expenditures for property and equipment totaled
$25.3 million, $20.6 million and $29.0 million in
fiscal 2004, 2003 and 2002, respectively. The expenditures for
fiscal 2004 were primarily for store development, store remodels
and investments in new technology. In fiscal 2005, the Company
is planning to invest approximately $33 million in capital
expenditures. This includes expenditures to open 90 new stores,
relocate 20 stores and close 10 stores. In addition, the Company
plans to remodel 15 stores and has planned for additional
investments in technology scheduled to be implemented over the
next 12 months.
During 2003, the Company repurchased 5,137,484 shares of
Class B Common Stock from a limited partnership and trust
affiliated with Wayland H. Cato, Jr., a Company founder and
then Chairman of the Board, and a limited partnership affiliated
with Edgar T. Cato, a Company founder and then a member of the
Board of Directors. Shares were purchased at $18.50 per share
for a total cost of $95,043,454. Including related expenses of
$520,000 for investment banking and related professional fees,
the total cost was $95,563,454 or an average purchase price of
$18.60 per share. The repurchase was funded by the Company
through a new $30 million five-year term loan facility and
approximately $65 million of cash and liquidated short-term
investments. Payments on the new term loan were due in monthly
installments of $500,000 plus accrued interest, based on LIBOR.
The LIBOR rate at January 29, 2005 was 2.59%.
During 2003, the Company entered into retirement agreements with
Mr. Wayland H. Cato, Jr., a Company founder and
Chairman of the Board and Mr. Edgar T. Cato, a Company
founder and a member of the Board of Directors. The agreements
provided for the retirement of Mr. Wayland Cato and
Mr. Edgar Cato from the Company and the Board of Directors
effective January 31, 2004. The Company recognized an
expense of $2.8 million representing the present value of
certain payments and benefits under the terms of the
16
agreements. The after-tax charge was $1.8 million or $.08
per diluted share in fiscal 2003. Additionally, during 2003, the
Company repurchased 165,000 shares of Class A Common Stock
for $2,740,619, or an average market price of $16.61 per share.
Over the course of 2003, the Board of Directors increased the
quarterly dividend by 7% from $.15 per share to $.16 per share.
During fiscal 2004, the Company increased its quarterly dividend
by 9% from $.16 per share to $.175 per share.
On April 5, 2005, the Company repaid the remaining balance
of $20.5 million on the $30 million five-year term
loan facility. With the early retirement of this loan, the
Company had no outstanding debt as of April 5, 2005.
The Company does not use derivative financial instruments. At
January 29, 2005, the Companys investment portfolio
was invested in governmental and other debt securities with
maturities of up to 36 months. These securities are
classified as available-for-sale and are recorded on the balance
sheet at fair value with unrealized gains and temporary losses
reported net of taxes as accumulated other comprehensive income.
Other than temporary declines in fair value of investments are
recorded as a reduction in the cost of investments in the
accompanying Consolidated Balance Sheets and as a reduction of
interest and other income in the accompanying Statements of
Consolidated Income.
The following table shows the Companys obligations and
commitments as of January 29, 2005, to make future payments
under contractual obligations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due During One Year Fiscal Period Ending | |
|
|
| |
Contractual Obligations |
|
Total | |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010+ | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Merchandise letters of credit
|
|
$ |
3,469 |
|
|
$ |
3,469 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Operating leases
|
|
|
138,490 |
|
|
|
46,769 |
|
|
|
38,375 |
|
|
|
28,757 |
|
|
|
17,370 |
|
|
|
6,990 |
|
|
|
229 |
|
Loan payment
|
|
|
22,000 |
|
|
|
6,000 |
|
|
|
6,000 |
|
|
|
6,000 |
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations
|
|
$ |
163,959 |
|
|
$ |
56,238 |
|
|
$ |
44,375 |
|
|
$ |
34,757 |
|
|
$ |
21,370 |
|
|
$ |
6,990 |
|
|
$ |
229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement No. 123R (SFAS
123R), Share-Based Payment, a revision
of FASB issued Statement No. 123 (SFAS 123),
Accounting for Stock-Based Compensation. SFAS
123R required the measurement of all stock-based payments to
employees, including grants of employee stock options and stock
purchase rights granted pursuant to certain employee stock
purchase plans, using a fair-value based method and the
recording of such expense in the Companys consolidated
statements of operations. The accounting provisions of SFAS 123R
are effective for reporting periods beginning after
December 15, 2005. Accordingly, we are required to adopt
SFAS 123R in the first quarter of 2006. The pro forma
disclosures previously permitted under SFAS 123 will no longer
be an alternative to financial statement recognition. See
Note 1 to the accompanying consolidated financial
statements for the pro forma net income and earnings per share
amounts for fiscal 2002 through fiscal 2004, as if we had used a
fair-value based method similar to the methods required under
SFAS 123R to measure compensation expense for employee
stock-based compensation awards. We are currently evaluating the
provisions of SFAS 123R. The adoption of this standard is not
expected to have a material effect on our consolidated financial
statements. Based on our current projections, we expect the
future expense to be recognized as a result of the adoption of
SFAS 123R to be similar to the pro forma amounts disclosed for
fiscal 2004 in the notes to our consolidated financial
statements.
In November 2004, the FASB issued Statement No. 151
(SFAS 151), Inventory Costs.
SFAS 151 amends the guidance in Accounting Research
Bulletin No. 43, Inventory Pricing, to
clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material
(spoilage). SFAS 151 requires that those items be
recognized as current period changes and that the allocation of
fixed production overheads to the cost of converting work in
process to finished goods be based on the normal capacity of the
production facilities. This statement is effective for inventory
costs incurred during fiscal years
17
beginning after June 15, 2005. The adoption of this
statement is not expected to have a material impact on our
consolidated financial statements.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk:
The Company is subject to market rate risk from exposure to
changes in interest rates based on its financing, investing and
cash management.
18
|
|
Item 8. |
Financial Statements and Supplementary Data: |
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
|
|
|
|
|
|
|
Page | |
|
|
| |
Report of Independent Registered Public Accounting Firm
|
|
|
20-21 |
|
Report of Independent Registered Public Accounting Firm
|
|
|
22 |
|
Consolidated Statements of Income for the fiscal years ended
January 29, 2005, January 31, 2004 (as restated) and
February 1, 2003 (as restated)
|
|
|
23 |
|
Consolidated Balance Sheets at January 29, 2005 and
January 31, 2004 (as restated)
|
|
|
24 |
|
Consolidated Statements of Cash Flows for the fiscal years ended
January 29, 2005, January 31, 2004 (as restated) and
February 1, 2003 (as restated)
|
|
|
25 |
|
Consolidated Statements of Stockholders Equity for the
fiscal years ended January 29, 2005, January 31, 2004
(as restated) and February 1, 2003 (as restated)
|
|
|
26 |
|
Notes to Consolidated Financial Statements
|
|
|
27 |
|
Schedule I Independent Registered Public Accounting
Firms Consent
|
|
|
S-1 |
|
Schedule II Valuation and Qualifying Accounts and
Reserves for the fiscal years ended January 29, 2005,
January 31, 2004 and February 1, 2003
|
|
|
S-2 |
|
19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
The Cato Corporation:
We have completed an integrated audit of The Cato
Corporations 2004 consolidated financial statements and of
its internal control over financial reporting as of
January 29, 2005 and audits of its 2003 consolidated
financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our
opinions, based on our audits, are presented below.
|
|
|
Consolidated financial statements and financial statement
schedule |
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of The Cato
Corporation and its subsidiaries at January 29, 2005 and
January 31, 2004, and the results of their operations and
their cash flows for each of the two years in the period ended
January 29, 2005 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule for the years
ended January 29, 2005 and January 31, 2004, listed in
the index appearing under Item 8 presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. These financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit of financial statements includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As described in Note 1, Restatement of Prior Financial
Information, the Company restated its previously issued
financial statements for year ended January 31, 2004.
|
|
|
Internal control over financial reporting |
Also, in our opinion, managements assessment, included in
Managements Report on Internal Control Over Financial
Reporting appearing under Item 9A, that the Company
maintained effective internal control over financial reporting
as of January 29, 2005 based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of January 29, 2005,
based on criteria established in Internal Control
Integrated Framework issued by the COSO. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on managements
assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM (Continued)
purposes in accordance with generally accepted accounting
principles. A companys internal control over financial
reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
April 28, 2005
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
The Cato Corporation
We have audited the accompanying consolidated statements of
income, stockholders equity, and cash flows of The Cato
Corporation and subsidiaries (the Company) for the
year ended February 1, 2003. Our audit also included the
financial statement schedule listed in the index at
Item 15(a) for the year ended February 1, 2003. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and the financial
statement schedule based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as, evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the results of the operations
and cash flows for the fiscal year ended February 1, 2003
in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set
forth herein.
As discussed in Note 1 to the consolidated financial
statements, the accompanying consolidated statements of income,
stockholders equity and cash flows for the year ended
February 1, 2003 have been restated.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
April 21, 2003 (April 25, 2005 as to the effects of
the restatement discussed in Note 1)
22
THE CATO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
January 29, | |
|
January 31, | |
|
February 1, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
(Restated) | |
|
|
(Dollars in thousands, except per share data) | |
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail sales
|
|
$ |
773,809 |
|
|
$ |
731,770 |
|
|
$ |
732,742 |
|
Other income (principally finance charges, late fees and layaway
charges)
|
|
|
15,795 |
|
|
|
15,497 |
|
|
|
15,589 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
789,604 |
|
|
|
747,267 |
|
|
|
748,331 |
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
528,916 |
|
|
|
508,991 |
|
|
|
496,954 |
|
Selling, general and administrative
|
|
|
187,618 |
|
|
|
174,202 |
|
|
|
168,914 |
|
Depreciation
|
|
|
20,397 |
|
|
|
18,695 |
|
|
|
14,913 |
|
Interest expense
|
|
|
717 |
|
|
|
306 |
|
|
|
21 |
|
Interest and other income
|
|
|
(2,739 |
) |
|
|
(3,614 |
) |
|
|
(3,701 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
734,909 |
|
|
|
698,580 |
|
|
|
677,101 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
54,695 |
|
|
|
48,687 |
|
|
|
71,230 |
|
Income tax expense
|
|
|
19,854 |
|
|
|
17,673 |
|
|
|
25,785 |
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
34,841 |
|
|
$ |
31,014 |
|
|
$ |
45,445 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
1.69 |
|
|
$ |
1.34 |
|
|
$ |
1.78 |
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
|
|
|
20,584,262 |
|
|
|
23,140,581 |
|
|
|
25,465,543 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$ |
1.66 |
|
|
$ |
1.32 |
|
|
$ |
1.75 |
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
20,985,374 |
|
|
|
23,559,541 |
|
|
|
25,947,457 |
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
$ |
.685 |
|
|
$ |
.63 |
|
|
$ |
.585 |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
34,841 |
|
|
$ |
31,014 |
|
|
$ |
45,445 |
|
Unrealized gains (losses) on available-for-sale securities, net
of deferred income tax liability or benefit
|
|
|
13 |
|
|
|
(195 |
) |
|
|
820 |
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive income
|
|
$ |
34,854 |
|
|
$ |
30,819 |
|
|
$ |
46,265 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
23
THE CATO CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29, | |
|
January 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
(Dollars in thousands) | |
ASSETS |
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
18,640 |
|
|
$ |
23,857 |
|
Short-term investments
|
|
|
88,588 |
|
|
|
47,545 |
|
Accounts receivable, net of allowance for doubtful accounts of
$6,122 at January 29, 2005 and $6,335 at January 31,
2004
|
|
|
50,889 |
|
|
|
52,714 |
|
Merchandise inventories
|
|
|
100,538 |
|
|
|
97,292 |
|
Deferred income taxes
|
|
|
5,781 |
|
|
|
4,995 |
|
Prepaid expenses
|
|
|
1,986 |
|
|
|
5,708 |
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
266,422 |
|
|
|
232,111 |
|
Property and equipment net
|
|
|
117,590 |
|
|
|
114,367 |
|
Other assets
|
|
|
10,122 |
|
|
|
9,806 |
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
394,134 |
|
|
$ |
356,284 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
82,828 |
|
|
$ |
76,387 |
|
Accrued expenses
|
|
|
39,338 |
|
|
|
27,815 |
|
Accrued income taxes
|
|
|
4,465 |
|
|
|
4,506 |
|
Current portion of long-term debt
|
|
|
6,000 |
|
|
|
6,000 |
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
132,631 |
|
|
|
114,708 |
|
Deferred income taxes
|
|
|
10,172 |
|
|
|
10,203 |
|
Long-term debt
|
|
|
16,000 |
|
|
|
21,500 |
|
Other noncurrent liabilities (primarily deferred rent)
|
|
|
24,156 |
|
|
|
23,798 |
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $100 par value per share, 100,000 shares
authorized, none issued
|
|
|
|
|
|
|
|
|
Class A common stock, $.033 par value per share, 50,000,000
shares authorized; 26,249,178 and 26,015,868 shares issued at
January 29, 2005 and January 31, 2004, respectively
|
|
|
875 |
|
|
|
867 |
|
Convertible Class B common stock, $.033 par value per
share, 15,000,000 shares authorized; 5,597,834 and 5,607,834
shares issued at January 29, 2005 and January 31,
2004, respectively
|
|
|
187 |
|
|
|
187 |
|
Additional paid-in capital
|
|
|
103,366 |
|
|
|
99,676 |
|
Retained earnings
|
|
|
265,499 |
|
|
|
244,792 |
|
Accumulated other comprehensive income
|
|
|
71 |
|
|
|
58 |
|
Unearned compensation restricted stock awards
|
|
|
(911 |
) |
|
|
(1,593 |
) |
|
|
|
|
|
|
|
|
|
|
369,087 |
|
|
|
343,987 |
|
Less Class A and Class B common stock in treasury, at
cost (5,906,179 Class A and 5,137,484 Class B shares
at January 29, 2005 and January 31, 2004, respectively)
|
|
|
(157,912 |
) |
|
|
(157,912 |
) |
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
211,175 |
|
|
|
186,075 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$ |
394,134 |
|
|
$ |
356,284 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
24
THE CATO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
January 29, | |
|
January 31, | |
|
February 1, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
(Restated) | |
|
|
(Dollars in thousands) | |
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
34,841 |
|
|
$ |
31,014 |
|
|
$ |
45,445 |
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
20,397 |
|
|
|
18,695 |
|
|
|
14,913 |
|
|
Amortization of investment premiums
|
|
|
|
|
|
|
4 |
|
|
|
66 |
|
|
Provision for doubtful accounts
|
|
|
5,096 |
|
|
|
6,098 |
|
|
|
4,764 |
|
|
Write-down of investments
|
|
|
|
|
|
|
|
|
|
|
1,800 |
|
|
Deferred income taxes
|
|
|
(817 |
) |
|
|
4,779 |
|
|
|
(159 |
) |
|
Compensation expense related to restricted stock awards
|
|
|
682 |
|
|
|
782 |
|
|
|
750 |
|
|
Loss on disposal of property and equipment
|
|
|
1,554 |
|
|
|
798 |
|
|
|
870 |
|
|
Changes in operating assets and liabilities which provided
(used) cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,271 |
) |
|
|
(4,696 |
) |
|
|
(6,587 |
) |
|
|
Merchandise inventories
|
|
|
(3,246 |
) |
|
|
(4,463 |
) |
|
|
(13,016 |
) |
|
|
Prepaid and other assets
|
|
|
3,406 |
|
|
|
(1,312 |
) |
|
|
(470 |
) |
|
|
Accrued income taxes
|
|
|
(41 |
) |
|
|
1,412 |
|
|
|
2,074 |
|
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
21,250 |
|
|
|
6,236 |
|
|
|
13,279 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
79,851 |
|
|
|
59,347 |
|
|
|
63,729 |
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property and equipment
|
|
|
(25,301 |
) |
|
|
(20,553 |
) |
|
|
(28,953 |
) |
Purchases of short-term investments
|
|
|
(122,380 |
) |
|
|
(18,462 |
) |
|
|
(46,281 |
) |
Sales of short-term investments
|
|
|
81,350 |
|
|
|
45,589 |
|
|
|
13,735 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) in investing activities
|
|
|
(66,331 |
) |
|
|
6,574 |
|
|
|
(61,499 |
) |
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash overdrafts included in accounts payable
|
|
|
(2,800 |
) |
|
|
6,400 |
|
|
|
|
|
Dividends paid
|
|
|
(14,134 |
) |
|
|
(14,465 |
) |
|
|
(14,890 |
) |
Purchases of treasury stock
|
|
|
|
|
|
|
(98,304 |
) |
|
|
(1,187 |
) |
Proceeds of long term debt
|
|
|
|
|
|
|
30,000 |
|
|
|
|
|
Payments to settle long term debt
|
|
|
(5,500 |
) |
|
|
(2,500 |
) |
|
|
|
|
Proceeds from employee stock purchase plan
|
|
|
478 |
|
|
|
507 |
|
|
|
509 |
|
Proceeds from stock options exercised
|
|
|
3,219 |
|
|
|
4,233 |
|
|
|
3,631 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(18,737 |
) |
|
|
(74,129 |
) |
|
|
(11,937 |
) |
|
|
|
|
|
|
|
|
|
|
Net (decrease) in cash and cash equivalents
|
|
|
(5,217 |
) |
|
|
(8,208 |
) |
|
|
(9,707 |
) |
Cash and cash equivalents at beginning of year
|
|
|
23,857 |
|
|
|
32,065 |
|
|
|
41,772 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
18,640 |
|
|
$ |
23,857 |
|
|
$ |
32,065 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
25
THE CATO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible | |
|
|
|
|
|
Accumulated | |
|
Unearned | |
|
|
|
|
|
|
Class A | |
|
Class B | |
|
Additional | |
|
|
|
Other | |
|
Compensation | |
|
|
|
Total | |
|
|
Common | |
|
Common | |
|
Paid-in | |
|
Retained | |
|
Comprehensive | |
|
Restricted | |
|
Treasury | |
|
Stockholders | |
|
|
Stock | |
|
Stock | |
|
Capital | |
|
Earnings | |
|
Income (Loss) | |
|
Stock Awards | |
|
Stock | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(Restated) | |
|
|
|
|
|
|
|
(Restated) | |
|
|
(Dollars in thousands) | |
Balance February 2, 2002.
|
|
|
833 |
|
|
|
194 |
|
|
|
86,948 |
|
|
|
204,961 |
|
|
|
(567 |
) |
|
|
(394 |
) |
|
|
(57,277 |
) |
|
|
234,698 |
|
Restatement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,273 |
) |
|
Balance February 2, 2002 (Restated)
|
|
|
833 |
|
|
|
194 |
|
|
|
86,948 |
|
|
|
197,688 |
|
|
|
(567 |
) |
|
|
(394 |
) |
|
|
(57,277 |
) |
|
|
227,425 |
|
*Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,445 |
|
|
Unrealized gains on available-for-sale securities, net of
deferred income tax liability of $448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
820 |
|
|
|
|
|
|
|
|
|
|
|
820 |
|
Dividends paid ($.585 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,890 |
) |
Class A common stock sold through employee stock purchase
plan 32,487 shares
|
|
|
1 |
|
|
|
|
|
|
|
508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
509 |
|
Class A common stock sold through stock option
plans 171,600 shares
|
|
|
6 |
|
|
|
|
|
|
|
1,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,553 |
|
Class B common stock sold through stock option
plans 172,500 shares
|
|
|
|
|
|
|
6 |
|
|
|
1,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,316 |
|
Income tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
1,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,906 |
|
Purchase of treasury shares 66,000 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,187 |
) |
|
|
(1,187 |
) |
Surrender of shares for stock options 48,681 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,144 |
) |
|
|
(1,144 |
) |
Restricted stock awards 100,000 shares
|
|
|
|
|
|
|
3 |
|
|
|
2,728 |
|
|
|
|
|
|
|
|
|
|
|
(2,731 |
) |
|
|
|
|
|
|
|
|
Unearned compensation restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750 |
|
|
|
|
|
|
|
750 |
|
|
Balance February 1, 2003 (Restated)
|
|
|
840 |
|
|
|
203 |
|
|
|
94,947 |
|
|
|
228,243 |
|
|
|
253 |
|
|
|
(2,375 |
) |
|
|
(59,608 |
) |
|
|
262,503 |
|
*Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,014 |
|
|
Unrealized losses on available-for-sale securities, net of
deferred income tax benefit of $111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195 |
) |
|
|
|
|
|
|
|
|
|
|
(195 |
) |
Dividends paid ($.63 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,465 |
) |
Class A common stock sold through employee stock purchase
plan 28,306 shares
|
|
|
1 |
|
|
|
|
|
|
|
506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
507 |
|
Class A common stock sold through stock option
plans 288,250 shares
|
|
|
10 |
|
|
|
|
|
|
|
2,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,867 |
|
Income tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
1,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,366 |
|
Purchase of treasury shares 5,302,484 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98,304 |
) |
|
|
(98,304 |
) |
Shares reclassified from Class B to
Class A 477,315 shares
|
|
|
16 |
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned compensation restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
782 |
|
|
|
|
|
|
|
782 |
|
|
Balance January 31, 2004 (Restated)
|
|
|
867 |
|
|
|
187 |
|
|
|
99,676 |
|
|
|
244,792 |
|
|
|
58 |
|
|
|
(1,593 |
) |
|
|
(157,912 |
) |
|
|
186,075 |
|
*Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,841 |
|
|
Unrealized gains on available-for-sale securities, net of
deferred income tax liability of $7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
Dividends paid ($.685 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,134 |
) |
Class A common stock sold through employee stock purchase
plan 27,310 shares
|
|
|
1 |
|
|
|
|
|
|
|
477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
478 |
|
Class A common stock sold through stock option
plans 196,000 shares
|
|
|
7 |
|
|
|
|
|
|
|
2,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,361 |
|
Income tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
859 |
|
Unearned compensation restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
682 |
|
|
|
|
|
|
|
682 |
|
|
Balance January 29, 2005
|
|
|
875 |
|
|
|
187 |
|
|
|
103,366 |
|
|
|
265,499 |
|
|
|
71 |
|
|
|
(911 |
) |
|
|
(157,912 |
) |
|
|
211,175 |
|
|
|
* |
Total comprehensive income for the year ended January 29,
2005 was $34,854. Total restated comprehensive income for the
years ended January 31, 2004 and February 1, 2003 was
$30,819 and $46,265, respectively. |
See notes to consolidated financial statements.
26
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant
Accounting Policies:
Principles of Consolidation: The consolidated financial
statements include the accounts of The Cato Corporation and
its wholly-owned subsidiaries (the Company). All
significant intercompany accounts and transactions have been
eliminated.
Description of Business and Fiscal Year: The Company has
two business segments the operation of womens
fashion specialty stores and a credit card division. The apparel
specialty stores operate under the names Cato,
Cato Fashions, Cato Plus and
Its Fashion! and are located primarily in
strip shopping centers in the southeastern United States. The
Companys fiscal year ends on the Saturday nearest
January 31.
Use of Estimates: The preparation of the Companys
financial statements in conformity with accounting principles
generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Significant accounting estimates reflected in the Companys
financial statements include the allowance for doubtful accounts
receivable, reserves relating to self insured workers
compensation liabilities, general and auto insurance
liabilities, reserves for inventory markdowns, calculation of
asset impairment, shrink accrual and tax contingency reserves.
Restatement of Prior Financial Information: The Company
historically straight-lined lease expense over the period from
the open date of the store through the initial non-cancelable
lease term expiration. However, in accordance with FASB issued
Statement No. 13 (SFAS 13),
Accounting for leases, as amended, FASB
issued Technical Bulletin No. 88-1 (FTB
88-1), Issues Relating to Accounting for
Leases, and FASB issued Technical
Bulletin No. 85-3 (FTB 85-3),
Accounting for Operating Leases with Scheduled Rent
Increases, the Company corrected its lease accounting
practices to recognize lease expense on a straight-line basis
over the lease term which begins on the date we obtain control
of the property and includes any renewal periods for which
failure to renew imposes a penalty on the lessee such that
renewal is determined to be reasonably assured. Likewise, the
Company corrected its practices to amortize landlord allowances
on a straight-line basis over the lease term. These corrections
to our lease accounting practices reduced net income by $484,000
and diluted earnings per share by $0.02 in fiscal 2004. The
corrections decreased net income by $775,000 or $0.03 diluted
share in fiscal year 2003 and by $366,000 or $0.02 per diluted
share in fiscal 2002.
In connection with this restatement of prior financial
statements, the Company recorded certain adjustments in prior
periods in order to conform its accounting for the
capitalization of inbound freight on domestic purchases and
certain discounts from vendors to the Companys current
practices. Historically, the Company fully expensed inbound
freight and domestic purchases and certain discounts from
vendors through cost of goods sold. These adjustments had the
effect of increasing net income by $400,000 or $0.01 per diluted
share in fiscal 2003 and decreasing net income by $22,000 in
fiscal 2002.
The Company restated its consolidated balance sheet at
January 31, 2004 and its consolidated statements of income,
cash flows and stockholders equity for the years ended
January 31, 2004 and February 1, 2003. The Company
also restated its quarterly financial information for fiscal
2003 and the first three quarters of fiscal 2004, as disclosed
in Note 13. The restatement also affects periods prior to
fiscal 2002. The impact of the restatement on such prior periods
has been reflected as an adjustment of $7.3 million to
retained earnings as of February 2, 2002 in the
consolidated statement of stockholders equity.
27
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a result of this restatement, the Companys financial
results have been restated as follows (in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously | |
|
|
|
|
|
|
Reported | |
|
|
|
As Restated | |
|
|
| |
|
|
|
| |
|
|
January 31, | |
|
|
|
January 31, | |
|
|
2004 | |
|
Adjustments | |
|
2004 | |
|
|
| |
|
| |
|
| |
Deferred income taxes
|
|
$ |
284 |
|
|
$ |
4,711 |
|
|
$ |
4,995 |
|
Current Assets
|
|
|
227,400 |
|
|
|
4,711 |
|
|
|
232,111 |
|
Total Assets
|
|
|
351,573 |
|
|
|
4,711 |
|
|
|
356,284 |
|
Accrued income tax
|
|
|
4,290 |
|
|
|
216 |
|
|
|
4,506 |
|
Current Liabilities
|
|
|
114,492 |
|
|
|
216 |
|
|
|
114,708 |
|
Other noncurrent liabilities
|
|
|
11,267 |
|
|
|
12,531 |
|
|
|
23,798 |
|
Total Liabilities
|
|
|
157,462 |
|
|
|
12,747 |
|
|
|
170,209 |
|
Retained earnings
|
|
|
252,828 |
|
|
|
(8,036 |
) |
|
|
244,792 |
|
Total Stockholders Equity
|
|
|
194,111 |
|
|
|
(8,036 |
) |
|
|
186,075 |
|
Total Liabilities and Stockholders Equity
|
|
$ |
351,573 |
|
|
$ |
4,711 |
|
|
$ |
356,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously | |
|
|
|
|
|
|
Reported | |
|
|
|
As Restated | |
|
|
| |
|
|
|
| |
|
|
January 31, | |
|
|
|
January 31, | |
|
|
2004 | |
|
Adjustments | |
|
2004 | |
|
|
| |
|
| |
|
| |
Revenues
|
|
$ |
747,267 |
|
|
$ |
0 |
|
|
$ |
747,267 |
|
|
Cost of Goods Sold
|
|
|
508,401 |
|
|
|
590 |
|
|
|
508,991 |
|
|
Income before taxes
|
|
|
49,277 |
|
|
|
(590 |
) |
|
|
48,687 |
|
Income tax provision
|
|
|
17,888 |
|
|
|
(215 |
) |
|
|
17,673 |
|
|
Net income (loss)
|
|
$ |
31,389 |
|
|
$ |
(375 |
) |
|
$ |
31,014 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
1.36 |
|
|
$ |
(.02 |
) |
|
$ |
1.34 |
|
Diluted earnings per share
|
|
$ |
1.33 |
|
|
$ |
(.01 |
) |
|
$ |
1.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously | |
|
|
|
|
|
|
Reported | |
|
|
|
As Restated | |
|
|
| |
|
|
|
| |
|
|
February 1, | |
|
|
|
February 1, | |
|
|
2003 | |
|
Adjustments | |
|
2003 | |
|
|
| |
|
| |
|
| |
Revenues
|
|
$ |
748,331 |
|
|
$ |
0 |
|
|
$ |
748,331 |
|
|
Cost of Goods Sold
|
|
|
496,345 |
|
|
|
609 |
|
|
|
496,954 |
|
|
Income before taxes
|
|
|
71,839 |
|
|
|
(609 |
) |
|
|
71,230 |
|
Income tax provision
|
|
|
26,006 |
|
|
|
(221 |
) |
|
|
25,785 |
|
|
Net income (loss)
|
|
$ |
45,833 |
|
|
$ |
(388 |
) |
|
$ |
45,445 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
1.80 |
|
|
$ |
(.02 |
) |
|
$ |
1.78 |
|
Diluted earnings per share
|
|
$ |
1.77 |
|
|
$ |
(.02 |
) |
|
$ |
1.75 |
|
All referenced amounts for prior periods in these financial
statements and the notes thereto reflect the balances and
amounts on a restated basis.
Cash and Cash Equivalents and Short-Term Investments:
Cash equivalents consist of highly liquid investments with
original maturities of three months or less. Investments with
original maturities beyond three months are classified as
short-term investments. The fair values of short-term
investments are based on quoted market prices.
28
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys short-term investments are all classified as
available-for-sale. As they are available for current
operations, they are classified in consolidated balance sheets
as current assets. Available-for-sale securities are carried at
fair value, with unrealized gains and temporary losses, net of
income taxes, reported as a component of accumulated other
comprehensive income. Other than temporary declines in fair
value of investments are recorded as a reduction in the cost of
the investments in the accompanying Consolidated Balance Sheets
and a reduction of interest and other income in the accompanying
Statements of Consolidated Income. The cost of debt securities
is adjusted for amortization of premiums and accretion of
discounts to maturity. The amortization of premiums, accretion
of discounts and realized gains and losses are included in
Interest and other income.
Concentration of Credit Risk: Financial instruments that
potentially subject the Company to a concentration of credit
risk principally consist of cash equivalents and accounts
receivable. The Company places its cash equivalents with high
credit qualified institutions and, by practice, limits the
amount of credit exposure to any one institution. Concentrations
of credit risks with respect to accounts receivable are limited
due to the dispersion across different geographies of the
Companys customer base.
Supplemental Cash Flow Information: Income tax payments,
net of refunds received, for the fiscal years ended
January 29, 2005, January 31, 2004 and
February 1, 2003 were $18,454,000, $12,643,000 and
$21,982,000, respectively. Cash paid for interest for the fiscal
years ended January 29, 2005, January 31, 2004 and
February 1, 2003 were $610,000, $306,400 and $21,000,
respectively.
Inventories: Merchandise inventories are stated at the
lower of cost (first-in, first-out method) or market as
determined by the retail method.
Property and Equipment: Property and equipment are
recorded at cost. Maintenance and repairs are charged to
operations as incurred; renewals and betterments are
capitalized. The Company accounts for its software development
costs in accordance with the American Institute of Certified
Public Accountants Statement of Position
(SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.
Depreciation is provided on the straight-line method over the
estimated useful lives of the related assets excluding leasehold
improvements. Leasehold improvements are amortized over the
shorter of the estimated useful life or lease term. Typical
estimated useful lives are as follows:
|
|
|
|
|
|
|
Estimated | |
Classification |
|
Useful Lives | |
|
|
| |
Land improvements
|
|
|
10 years |
|
Buildings
|
|
|
30 40 years |
|
Leasehold improvements
|
|
|
5 10 years |
|
Fixtures, equipment and software
|
|
|
3 10 years |
|
Impairment of Long-Lived Assets
The Company primarily invests in property and equipment in
connection with the opening and remodeling of stores and in
computer software and hardware. Most of the Companys store
leases give the Company the option to terminate the lease if
certain specified sales volumes are not achieved during the
first few years of the lease. The Company periodically reviews
its store locations and estimates the recoverability of its
assets, recording an impairment charge, if necessary, when the
Company decides to close the store or otherwise determines that
future undiscounted cash flows associated with those assets will
not be sufficient to recover the carrying value. This
determination is based on a number of factors, including the
stores historical operating results and cash flows,
estimated future sales growth, real estate development in the
area and perceived local market conditions that can be difficult
to predict and may be subject to change. In addition, the
Company regularly evaluates its computer-related and other
long-lived assets and may accelerate depreciation over the
revised useful life if the asset is expected to be replaced or
has limited future value.
29
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation or amortization are removed
from the accounts, and any resulting gain or loss is reflected
in income for that period.
Revenue Recognition
The Company recognizes sales at the point of purchase when the
customer takes possession of the merchandise and pays for the
purchase, generally with cash or credit. Sales from purchases
made with Cato credit, gift cards and layaway sales are
also recorded when the customer takes possession of the
merchandise. Gift cards, layaway deposits and merchandise
credits granted to customers are recorded as deferred revenue
until they are redeemed or forfeited. A provision is made for
estimated product returns based on sales volumes and the
Companys experience; actual returns have not varied
materially from amounts provided historically.
Credit revenue on the Companys private label credit card
portfolio is recognized as earned under the interest method.
Late fees are recognized as earned, less provisions for
estimated uncollectible fees.
Cost of Goods Sold: Cost of goods sold includes
merchandise costs, net of discounts and allowances, buying
costs, distribution costs, occupancy costs, freight, and
inventory shrinkage. Net merchandise costs and in-bound freight
are capitalized as inventory costs. Buying and distribution
costs include payroll, payroll-related costs and operating
expenses for our buying departments and distribution center.
Occupancy expenses include rent, real estate taxes, insurance,
common area maintenance, utilities and maintenance for stores
and distribution facilities. Buying, distribution, occupancy and
internal transfer costs are treated as period costs and are not
capitalized as part of inventory.
Credit Sales: The Company offers its own credit card to
customers. All credit activity is performed by the
Companys wholly-owned subsidiaries. None of the credit
card receivables are secured. Finance income is recognized as
earned under the interest method and late charges are recognized
in the month in which they are assessed, net of provisions for
estimated uncollectible amounts. The Company evaluates the
collectibility of accounts receivable and records an allowance
for doubtful accounts based on estimates of actual write-offs
and the accounts receivable.
Advertising: Advertising costs are expensed in the period
in which they are incurred. Advertising expense was $5,504,000,
$5,638,000 and $5,299,000 for the fiscal years ended
January 29, 2005, January 31, 2004 and
February 1, 2003, respectively.
Earnings Per Share: FASB No. 128 requires dual
presentation of basic EPS and diluted EPS on the face of all
income statements for all entities with complex capital
structures. Basic EPS is computed as net income divided by the
weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could
occur from common shares issuable through stock options,
warrants and other convertible securities. Unvested restricted
stock is included in the computation of diluted EPS using the
treasury stock method for fiscal 2004 and 2003, and had no
impact on fiscal 2002. The weighted-average number of
shares used in the basic earnings per share computations
was 20,584,262, 23,140,581, and 25,465,543 for the fiscal years
ended January 29, 2005, January 31, 2004, and
February 1, 2003, respectively. The weighted-average number
of shares representing the dilutive effect of stock options was
401,112, 418,960 and 481,914 for the fiscal years ended
January 29, 2005, January 31, 2004 and
February 1, 2003, respectively. The weighted-average number
of shares used in the diluted earnings per share computations
was 20,985,374, 23,559,541, and 25,947,457 for the fiscal years
ended January 29, 2005, January 31, 2004 and
February 1, 2003, respectively. There were an immaterial
number of shares withheld in the computation of diluted earnings
per share due to potential anti-dilutive effects for the fiscal
years 2004, 2003 and 2002.
Vendor Allowances: The Company receives certain
allowances from vendors primarily related to purchase discounts
and markdown and damage allowances. All allowances are reflected
in cost of goods sold
30
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
as earned, generally as the related products are sold. The
Company does not receive cooperative advertising allowances.
In January 2003, the Emerging Issues Task Force
(EITF) issued EITF 02-16, Accounting by a
Customer (Including a Reseller) for Certain Consideration
Received from a Vendor. Under this EITF, cash
consideration received from a vendor is presumed to be a
reduction of the purchase cost of merchandise and should be
reflected as a reduction of cost of sales or revenue unless it
can be demonstrated this consideration offsets an incremental
expense, in which case it can be netted against that expense.
The adoption of EITF 02-16 did not have a material effect
on the Companys financial position or results of
operations for fiscal year ended January 29, 2005 or
January 31, 2004.
Income Taxes: The Company files a consolidated federal
income tax return. Income taxes are provided based on the asset
and liability method of accounting, whereby deferred income
taxes are provided for temporary differences between the
financial reporting basis and the tax basis of the
Companys assets and liabilities.
Store Opening and Closing Costs: Costs relating to the
opening of new stores or the relocating or expanding of existing
stores are expensed as incurred. A portion of construction,
design, and site selection costs are capitalized to new,
relocated and remodeled stores.
Closed Store Lease Obligations: At the time stores are
closed, provisions are made for the rentals required to be paid
over the remaining lease terms, reduced by expected sublease
rentals.
Insurance: The Company is self-insured with respect to
employee healthcare, workers compensation and general
liability. The Companys self-insurance liabilities are
based on the total estimated cost of claims filed and estimates
of claims incurred but not reported, less amounts paid against
such claims, and are not discounted. Management reviews current
and historical claims data in developing its estimates. The
Company has stop-loss insurance coverage for individual claims
in excess of $250,000 for employee healthcare, $350,000 for
workers compensation and $200,000 for general liability.
Employee health claims are funded through a VEBA trust to which
the Company makes periodic contributions. Contributions to the
VEBA trust were $11,205,000, $8,995,000 and $8,970,000 in
fiscal 2004, 2003 and 2002, respectively. Accrued healthcare was
$1,318,000 and $1,380,000 and assets held in VEBA trust
were $731,000 and $924,000 at January 29, 2005 and
January 31, 2004, respectively. The Company paid
workers compensation and general liability claims of
$3,227,000, $3,019,000 and $2,609,000 in fiscal years 2004, 2003
and 2002, respectively. Including claims incurred, but not yet
paid, the Company recognized an expense of $3,513,000,
$3,764,000 and $3,284,000 in fiscal 2004, 2003 and 2002,
respectively. Accrued workers compensation and general
liabilities was $4,254,000 and $3,968,000 at January 29,
2005 and January 31, 2004, respectively. The Company had no
outstanding letters of credit relating to such claims at
January 29, 2005 or at January 31, 2004.
Fair Value of Financial Instruments: The Companys
carrying values of financial instruments, such as cash, cash
equivalents, and debt, approximate their fair values due to
their short terms to maturity and/or their variable interest
rates.
Stock-based Compensation: The Company applies APB Opinion
No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for
its stock option plans. The exercise price for all options
awarded under the Companys Stock Option Plans has been
equal to the fair market value of the underlying common stock on
the date of grant. Accordingly, no compensation expense has been
recognized for options granted under the Plans. Had compensation
expense for fiscal 2004, 2003, and 2002 stock options granted
been determined consistent with SFAS No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure, the Companys net income
and basic and diluted earnings per
31
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
share amounts for fiscal 2004, 2003 and 2002 would approximate
the following proforma amounts (dollars in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29, | |
|
January 31, | |
|
February 1, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
(Restated) | |
Net Income as Reported
|
|
$ |
34,841 |
|
|
$ |
31,014 |
|
|
$ |
45,445 |
|
|
Add: Stock-Based employee compensation expense included in
reported net income, net of related tax effects
|
|
|
435 |
|
|
|
498 |
|
|
|
479 |
|
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects
|
|
|
(499 |
) |
|
|
(1,024 |
) |
|
|
(1,219 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma Net Income
|
|
$ |
34,777 |
|
|
$ |
30,488 |
|
|
$ |
44,705 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$ |
1.69 |
|
|
$ |
1.34 |
|
|
$ |
1.78 |
|
|
Basic pro forma
|
|
$ |
1.69 |
|
|
$ |
1.32 |
|
|
$ |
1.76 |
|
|
Diluted as reported
|
|
$ |
1.66 |
|
|
$ |
1.32 |
|
|
$ |
1.75 |
|
|
Diluted pro forma
|
|
$ |
1.66 |
|
|
$ |
1.29 |
|
|
$ |
1.72 |
|
The weighted-average fair value of each option granted during
fiscal 2004, 2003 and 2002 is estimated at $6.35, $5.84 and
$8.29 per share, respectively. The fair value of each option
grant is estimated using the Black-Scholes option-pricing model
with the following assumptions for grants issued in 2004, 2003
and 2002, respectively: expected dividend yield of 3.00%, 3.01%
and 3.29%; expected volatility of 38.13%, 44.34% and 57.06%,
adjusted for expected dividends; risk-free interest rate of
3.74%, 3.29% and 2.60%; and an expected life of 5 years for
2004, 2003 and 2002. The effects of applying SFAS 148 in this
proforma disclosure are not indicative of future amounts.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement No. 123R
(SFAS 123R), Share-Based
Payment, a revision of FASB issued Statement
No. 123 (SFAS 123), Accounting
for Stock-Based Compensation. SFAS 123R requires
the measurement of all stock-based payments to employees,
including grants of employee stock options and stock purchase
rights granted pursuant to certain employee stock purchase
plans, using a fair-value based method and the recording of such
expense in our consolidated statements of operations. The
accounting provisions of SFAS 123R are effective for
reporting periods beginning after December 15, 2005.
Accordingly, we are required to adopt SFAS 123R in the
first quarter of 2006. The pro forma disclosures previously
permitted under SFAS 123 will no longer be an alternative
to financial statement recognition. See Note 1 to the
accompanying consolidated financial statements for the pro forma
net income and earnings per share amounts for fiscal 2002
through fiscal 2004, as if we had used a fair-value based method
similar to the methods required under SFAS 123R to measure
compensation expense for employee stock-based compensation
awards. We are currently evaluating the provisions of
SFAS 123R. The adoption of this standard is not expected to
have a material effect on our consolidated financial statements.
Based on our current projections, we expect the future expense
to be recognized as a result of the adoption of SFAS 123R
to be similar to the pro forma amounts disclosed for fiscal 2004
in the notes to our consolidated financial statements.
In November 2004, the FASB issued Statement No. 151
(SFAS 151), Inventory Costs.
SFAS 151 amends the guidance in Accounting Research
Bulletin No. 43, Inventory Pricing, to
clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage).
32
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SFAS 151 requires that those items be recognized as current
period changes and that the allocation of fixed production
overheads to the cost of converting work in process to finished
goods be based on the normal capacity of the production
facilities. This statement is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005.
The adoption of this statement is not expected to have a
material impact on our consolidated financial statements.
Reclassifications: Certain reclassifications have been
made to the consolidated financial statements for prior fiscal
years to conform with the current year presentation.
2. Interest and Other Income:
The components of Interest and other income are shown below in
gross amounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29, | |
|
January 31, | |
|
February 1, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Dividend income
|
|
$ |
(20 |
) |
|
$ |
(2 |
) |
|
$ |
(10 |
) |
Interest income
|
|
|
(1,499 |
) |
|
|
(1,704 |
) |
|
|
(3,046 |
) |
Miscellaneous income
|
|
|
(1,473 |
) |
|
|
(1,235 |
) |
|
|
(2,342 |
) |
(Gain)/loss investment sales
|
|
|
253 |
|
|
|
(673 |
) |
|
|
1,697 |
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
$ |
(2,739 |
) |
|
$ |
(3,614 |
) |
|
$ |
(3,701 |
) |
|
|
|
|
|
|
|
|
|
|
3. Short-Term Investments:
Short-Term investments at January 29, 2005 and
January 31, 2004 include the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29, 2005 | |
|
January 31, 2004 | |
|
|
| |
|
| |
|
|
|
|
Unrealized | |
|
Estimated | |
|
|
|
Unrealized | |
|
Estimated | |
Security Type: |
|
Cost | |
|
Gain/(Loss) | |
|
Fair Value | |
|
Cost | |
|
Gain/(Loss) | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Debt Securities issued by U.S. Treasury & other U.S.
government corporations and agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With unrealized (loss)
|
|
$ |
3,603 |
|
|
$ |
(5 |
) |
|
$ |
3,598 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Debt Securities issued by states of the United States and
political subdivisions of the states:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With unrealized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,777 |
|
|
|
146 |
|
|
|
37,923 |
|
|
With unrealized (loss)
|
|
|
85,087 |
|
|
|
(97 |
) |
|
|
84,990 |
|
|
|
7,500 |
|
|
|
(345 |
) |
|
|
7,155 |
|
Corporate debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With unrealized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With unrealized (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
(33 |
) |
|
|
2,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
88,690 |
|
|
$ |
(102 |
) |
|
$ |
88,588 |
|
|
$ |
47,777 |
|
|
$ |
(232 |
) |
|
$ |
47,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated unrealized losses in short-term investments at
January 29, 2005 of $65,000, net of a deferred income tax
benefit of $37,000 offset by the accumulated unrealized gains in
equity investments of $136,000, net of a deferred income tax
liability of $77,000 and the accumulated unrealized losses of
January 31, 2004 of $148,000, net of a deferred income tax
benefit of $84,000 offset by the accumulated unrealized gains in
equity investments of $206,000 net of a deferred income tax
liability of $117,000 are reflected in accumulated other
comprehensive gains (losses) in the Consolidated Balance Sheets.
All unrealized losses disclosed were in a loss position for less
than 12 months.
33
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys short-term investments are all classified as
available-for-sale. As they are available for current
operations, they are classified in the consolidated balance
sheets as current assets. Available-for-sale securities are
carried at fair value, with unrealized gains and temporary
losses, net of income taxes, reported as a component of
accumulated other comprehensive income. Other than temporary
declines in fair value of investments are recorded as a
reduction in the cost of the investments in the accompanying
Consolidated Balance Sheets and a reduction of interest and
other income in the accompanying Statements of Consolidated
Income. The cost of debt securities is adjusted for amortization
of premiums and accretion of discounts to maturity. The
amortization of premiums, accretion of discounts and realized
gains and losses are included in Interest and other income.
As reported in Note 2, the Company had realized losses of
$253,000 in fiscal 2004, realized gains of $673,000 in fiscal
2003 and realized losses of $1,697,000 in fiscal 2002.
The amortized cost and estimated fair value of debt securities
at January 29, 2005, by contractual maturity, are shown
below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated | |
Security Type |
|
Cost | |
|
Fair Value | |
|
|
| |
|
| |
Due in one year or less
|
|
$ |
85,087 |
|
|
$ |
84,990 |
|
Due in one year through three years
|
|
|
3,603 |
|
|
|
3,598 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
88,690 |
|
|
$ |
88,588 |
|
|
|
|
|
|
|
|
Additionally, the Company had $1.8 million invested in
privately managed investment funds at January 29, 2005 and
$1.6 million at January 31, 2004, which are reported
under other assets in the Consolidated Balance Sheets.
4. Accounts Receivable:
Accounts receivable consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 29, | |
|
January 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Customer accounts principally deferred payment
accounts
|
|
$ |
53,337 |
|
|
$ |
55,480 |
|
Miscellaneous trade receivables
|
|
|
3,674 |
|
|
|
3,569 |
|
|
|
|
|
|
|
|
Total
|
|
|
57,011 |
|
|
|
59,049 |
|
Less allowance for doubtful accounts
|
|
|
6,122 |
|
|
|
6,335 |
|
|
|
|
|
|
|
|
Accounts receivable net
|
|
$ |
50,889 |
|
|
$ |
52,714 |
|
|
|
|
|
|
|
|
Finance charge and late charge revenue on customer deferred
payment accounts totaled $13,918,000, $14,169,000 and
$13,672,000 for the fiscal years ended January 29, 2005,
January 31, 2004 and February 1, 2003, respectively,
and the allowance for doubtful accounts was $5,096,000,
$6,098,000 and $4,763,000 for the fiscal years ended
January 29, 2005, January 31, 2004 and
February 1, 2003, respectively. Expenses charged relating
to the allowance for doubtful accounts are classified as a
component of selling, general and administrative expenses in the
accompanying Consolidated Statements of Income.
34
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
5. Property and Equipment:
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 29, | |
|
January 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Land and improvements
|
|
$ |
2,019 |
|
|
$ |
2,019 |
|
Buildings
|
|
|
17,751 |
|
|
|
17,751 |
|
Leasehold improvements
|
|
|
43,317 |
|
|
|
39,354 |
|
Fixtures, equipment and software
|
|
|
170,367 |
|
|
|
155,394 |
|
Construction in progress
|
|
|
4,015 |
|
|
|
2,534 |
|
|
|
|
|
|
|
|
Total
|
|
|
237,469 |
|
|
|
217,052 |
|
Less accumulated depreciation
|
|
|
119,879 |
|
|
|
102,685 |
|
|
|
|
|
|
|
|
Property and equipment net
|
|
$ |
117,590 |
|
|
$ |
114,367 |
|
|
|
|
|
|
|
|
Construction in progress primarily represents costs related to a
warehouse management system to be implemented in 2005.
6. Accrued Expenses:
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 29, | |
|
January 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Accrued bonus and retirement savings plan contributions
|
|
$ |
8,103 |
|
|
$ |
2,784 |
|
Accrued payroll and related items
|
|
|
7,189 |
|
|
|
4,348 |
|
Accrued advertising
|
|
|
963 |
|
|
|
976 |
|
Closed store lease obligations
|
|
|
487 |
|
|
|
616 |
|
Property and other taxes
|
|
|
10,539 |
|
|
|
8,719 |
|
Accrued insurance
|
|
|
5,572 |
|
|
|
5,348 |
|
Other
|
|
|
6,485 |
|
|
|
5,024 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
39,338 |
|
|
$ |
27,815 |
|
|
|
|
|
|
|
|
7. Financing Arrangements:
At January 29, 2005, the Company had an unsecured revolving
credit agreement which provided for borrowings of up to
$35 million. A new revolving credit agreement was entered
into on August 22, 2003 and is committed until August 2006.
The credit agreement contains various financial covenants and
limitations, including the maintenance of specific financial
ratios with which the Company was in compliance as of
January 29, 2005. There were no borrowings outstanding
during the fiscal year ended January 29, 2005 or
January 31, 2004. Interest is based on LIBOR, which was
2.59% on January 29, 2005.
On August 22, 2003, the Company entered into a new
unsecured $30 million five-year term loan facility, the
proceeds of which were used to purchase Class B Common
Stock from the Companys founders. Payments are due in
monthly installments of $500,000 plus accrued interest. Interest
is based on LIBOR, which was 2.59% on January 29, 2005.
On April 5, 2005, the Company repaid the remaining balance
of $20.5 million on this loan facility. With the early
retirement of this loan, the Company had no outstanding debt as
of April 5, 2005.
35
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company had approximately $3,469,000 and $5,365,000 at
January 29, 2005 and January 31, 2004, respectively,
of outstanding irrevocable letters of credit relating to
purchase commitments.
8. Stockholders Equity:
The holders of Class A Common Stock are entitled to one
vote per share, whereas the holders of Class B Common Stock
are entitled to ten votes per share. Each share of Class B
Common Stock may be converted at any time into one share of
Class A Common Stock. Subject to the rights of the holders
of any shares of Preferred Stock that may be outstanding at the
time, in the event of liquidation, dissolution or winding up of
the Company, holders of Class A Common Stock are entitled
to receive a preferential distribution of $1.00 per share of the
net assets of the Company. Cash dividends on the Class B
Common Stock cannot be paid unless cash dividends of at least an
equal amount are paid on the Class A Common Stock.
The Companys charter provides that shares of Class B
Common Stock may be transferred only to certain Permitted
Transferees consisting generally of the lineal descendants
of holders of Class B Stock, trusts for their benefit,
corporations and partnerships controlled by them and the
Companys employee benefit plans. Any transfer of
Class B Common Stock in violation of these restrictions,
including a transfer to the Company, results in the automatic
conversion of the transferred shares of Class B Common
Stock held by the transferee into an equal number of shares of
Class A Common Stock.
During 2003, the Company repurchased 5,137,484 shares of
Class B Common Stock from a limited partnership and trust
affiliated with Wayland H. Cato, Jr., a Company
founder and then Chairman of the Board, and a limited
partnership affiliated with Edgar T. Cato, a Company founder and
a then member of the Board of Directors. Shares were purchased
at $18.50 per share for a total cost of $95,043,454.
Including related expenses of $520,000 for investment banking
and related professional fees, the total cost was $95,563,454 or
an average purchase price of $18.60 per share. The
repurchase was funded by the Company through a new
$30 million five-year term loan facility and approximately
$65 million of cash and liquidated short-term investments.
Additionally, during 2003, the Company repurchased 165,000
shares of Class A Common Stock for $2,740,619, or an
average market price of $16.61 per share.
In October 1993, the Company registered 250,000 shares of
Class A Common Stock available for issuance under an
Employee Stock Purchase Plan (the Plan). In May
1998, the shareholders approved an amendment to the Plan to
increase the maximum number of Class A shares of Common
Stock authorized to be issued from 250,000 to 500,000 shares.
The 1993 Plan expired October 1, 2003. In May
2003, the shareholders approved a new 2003 Employee Stock
Purchase Plan with 250,000 Class A shares of Common Stock
authorized. Under the terms of the Plan, substantially all
employees may purchase Class A Common Stock through payroll
deductions of up to 10% of their salary, up to a maximum market
value of $25,000 per year. The Class A Common Stock is
purchased at the lower of 85% of market value on the first or
last business day of a six-month payment period. Additionally,
each April 15, employees are given the opportunity to make
a lump sum purchase of up to $10,000 of Class A Common
Stock at 85% of market value. The number of shares purchased by
participants through the plan were 27,310 shares, 28,306 shares
and 32,487 shares for the years ended January 29, 2005,
January 31, 2004 and February 1, 2003, respectively.
In December 2003, the Board of Directors authorized a dividend
of one preferred share purchase right (a Right) for
each share of Class A Common Stock and Class B Common
Stock, each par value
$.031/3 per
share (Common Shares), of the Company outstanding at
the close of business on January 7, 2004 (the Record
Date). In connection with the authorization of Rights, the
Company entered into a Rights Agreement, dated as of
December 18, 2003 (the Rights Agreement), with
Wachovia Bank, National Association, a national banking
association, as Rights Agent (the Rights Agent).
The Company has an Incentive Stock Option Plan and a
Non-Qualified Stock Option Plan for key employees of the
Company. Total shares issuable under the plans are 3,900,000, of
which 825,000 shares are
36
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
issuable under the Incentive Stock Option Plan and 3,075,000
shares are issuable under the Non-Qualified Stock Option Plan.
The purchase price of the shares under the option must be at
least 100 percent of the fair market value of Class A
Common Stock at the date of the grant. Options granted under
these plans vest over a 5-year period and expire 10 years
after the date of the grant unless otherwise expressly
authorized by the Board of Directors.
In August 1999, the Board of Directors adopted the 1999
Incentive Compensation Plan, of which 1,000,000 shares are
issuable. No awards may be granted after July 31, 2004 and
shares must be exercised within 10 years of the grant date
unless otherwise authorized by the Board of Directors.
In August 1999, the Board of Directors granted under the 1999
Incentive Compensation Plan, restricted stock awards of 100,000
shares of Class B Common Stock, with a per share fair value
of $11.81 to a key executive. In May 2002, the Board of
Directors approved and granted under the 1999 Incentive
Compensation Plan restricted stock awards of 100,000 shares of
Class B Common Stock, with a per share fair value of $27.31
to a key executive. These stock awards cliff vest after four
years and the unvested portion is included in stockholders
equity as unearned compensation in the accompanying financial
statements. The charge to compensation expense for these stock
awards was $682,000, $782,000 and $750,000 in fiscal 2004, 2003
and 2002, respectively.
In April 2004, the Board of Directors adopted the 2004 Incentive
Compensation Plan, of which 900,000 shares are issuable. As of
January 29, 2005, 33,000 shares had been granted from this
Plan.
Option plan activity for the three fiscal years ended
January 29, 2005 is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
|
|
Range of | |
|
Average | |
|
|
Options | |
|
Option Prices | |
|
Price | |
|
|
| |
|
| |
|
| |
Outstanding options,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2002
|
|
|
1,755,250 |
|
|
$ |
4.94 $18.91 |
|
|
$ |
10.39 |
|
|
Granted
|
|
|
45,500 |
|
|
|
18.05 26.76 |
|
|
|
20.89 |
|
|
Exercised
|
|
|
(344,100 |
) |
|
|
4.94 17.63 |
|
|
|
8.11 |
|
|
Cancelled
|
|
|
(14,700 |
) |
|
|
8.25 12.28 |
|
|
|
11.27 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding options,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1, 2003
|
|
|
1,441,950 |
|
|
|
4.94 26.76 |
|
|
|
11.20 |
|
|
Granted
|
|
|
19,500 |
|
|
|
16.65 21.29 |
|
|
|
17.66 |
|
|
Exercised
|
|
|
(288,250 |
) |
|
|
4.94 18.86 |
|
|
|
9.94 |
|
|
Cancelled
|
|
|
(18,800 |
) |
|
|
8.25 18.86 |
|
|
|
12.75 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding options,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2004
|
|
|
1,154,400 |
|
|
|
5.13 26.76 |
|
|
|
11.54 |
|
|
Granted
|
|
|
75,750 |
|
|
|
19.64 23.13 |
|
|
|
21.55 |
|
|
Exercised
|
|
|
(196,000 |
) |
|
|
5.13 21.01 |
|
|
|
11.97 |
|
|
Cancelled
|
|
|
(30,600 |
) |
|
|
9.59 21.90 |
|
|
|
17.27 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding options,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29, 2005
|
|
|
1,003,550 |
|
|
$ |
7.69 $26.76 |
|
|
$ |
12.08 |
|
|
|
|
|
|
|
|
|
|
|
37
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables summarize stock option information at
January 29, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
|
|
|
| |
|
|
|
|
|
|
Weighted Average | |
|
Weighted | |
|
|
Range of | |
|
|
|
Remaining | |
|
Average | |
|
|
Exercise Prices | |
|
Options | |
|
Contractual Life | |
|
Exercise Price | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
$ 7.69 $ 9.59 |
|
|
|
376,750 |
|
|
|
2.30 years |
|
|
$ |
8.19 |
|
|
|
|
12.22 14.13 |
|
|
|
508,750 |
|
|
|
3.94 years |
|
|
|
12.98 |
|
|
|
|
16.65 19.64 |
|
|
|
36,700 |
|
|
|
7.97 years |
|
|
|
18.05 |
|
|
|
|
20.13 26.76 |
|
|
|
81,350 |
|
|
|
8.92 years |
|
|
|
21.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 7.69 $26.76 |
|
|
|
1,003,550 |
|
|
|
3.87 years |
|
|
$ |
12.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable | |
|
|
|
|
| |
|
|
|
|
|
|
Weighted | |
|
|
Range of | |
|
|
|
Average | |
|
|
Exercise Prices | |
|
Options | |
|
Exercise Price | |
|
|
| |
|
| |
|
| |
|
|
$ |
7.69 $ 9.59 |
|
|
|
374,250 |
|
|
$ |
8.18 |
|
|
|
|
12.22 14.13 |
|
|
|
503,750 |
|
|
|
12.98 |
|
|
|
|
16.65 19.64 |
|
|
|
7,300 |
|
|
|
17.79 |
|
|
|
|
20.13 26.76 |
|
|
|
5,700 |
|
|
|
22.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7.69 $26.76 |
|
|
|
891,000 |
|
|
$ |
11.07 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding options at January 29, 2005 covered 702,000
shares of Class B Common Stock and 301,550 shares of
Class A Common Stock. Outstanding options at
January 31, 2004 covered 702,000 shares of Class B
Common Stock and 452,400 shares of Class A Common Stock.
Options available to be granted under the option plans were
880,318 at January 29, 2005 and 406,600 at January 31,
2004.
In May 2004, the Board of Directors increased the quarterly
dividend by 9% from $.16 per share to $.175 per share.
Total comprehensive income for the years ended January 29,
2005, January 31, 2004 and February 1, 2003 is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29, | |
|
January 31, | |
|
February 1, | |
Fiscal Year Ended |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
(Restated) | |
Net income
|
|
$ |
34,841 |
|
|
$ |
31,014 |
|
|
$ |
45,445 |
|
Unrealized gains (losses) on available-for-sale securities
|
|
|
20 |
|
|
|
(306 |
) |
|
|
1,268 |
|
Income tax effect
|
|
|
7 |
|
|
|
(111 |
) |
|
|
(448 |
) |
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) net of taxes
|
|
|
13 |
|
|
|
(195 |
) |
|
|
820 |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$ |
34,854 |
|
|
$ |
30,819 |
|
|
$ |
46,265 |
|
|
|
|
|
|
|
|
|
|
|
The net unrealized gain/loss on investments held reflected in
comprehensive income for the periods presented were net of
reclassification adjustments for gains/(losses) reported in
income in the amounts of ($161,000), $429,000 and ($1,083,000)
for fiscal years 2004, 2003 and 2002, respectively, net of
income taxes.
9. Employee Benefit Plans:
The Company has a defined contribution retirement savings plan
(401(k)) which covers all employees who meet minimum age and
service requirements. The 401(k) plan allows participants to
contribute up to 60% of their annual compensation up to the
maximum elective deferral, designated by the IRS. The Company
38
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
is obligated to make a minimum contribution to cover plan
administrative expenses. Further Company contributions are at
the discretion of the Board of Directors. The Companys
contributions for the years ended January 29, 2005,
January 31, 2004 and February 1, 2003 were
approximately $1,663,000, $1,764,000 and $1,906,000,
respectively.
The Company has an Employee Stock Ownership Plan (ESOP), which
covers substantially all employees who meet minimum age and
service requirements. The Board of Directors determines
contributions to the ESOP. No contributions were made to the
ESOP for the years ended January 29, 2005, January 31,
2004 or February 1, 2003.
The Company is primarily self-insured for healthcare,
workers compensation and general liability costs. These
costs are significant primarily due to the large number of the
Companys retail locations and employees. The
Companys self-insurance liabilities are based on the total
estimated costs of claims filed and estimates of claims incurred
but not reported, less amounts paid against such claims, and are
not discounted. Management reviews current and historical claims
data in developing its estimates. If the underlying facts and
circumstances of the claims change or the historical trend is
not indicative of future trends, then the Company may be
required to record additional expense or a reduction to expense
which could be material to the reported financial condition and
results of operations. The Company has stop-loss insurance
coverage for individual claims in excess of $250,000. Employee
health claims are funded through a VEBA trust to which the
Company makes periodic contributions. Contributions to the VEBA
trust were $11,205,000, $8,995,000 and $8,970,000 in fiscal
2004, 2003 and 2002, respectively. Accrued liabilities for
healthcare costs were $1,318,000 and $1,380,000 and assets held
in the VEBA trust were $731,000 and $924,000 at January 29,
2005 and January 31, 2004, respectively.
10. Leases:
The Company has operating lease arrangements for store
facilities and equipment. Facility leases generally are fixed
rate for periods of five years with renewal options and most
provide for additional contingent rentals based on a percentage
of store sales in excess of stipulated amounts. For leases with
landlord capital improvement funding, the funded amount is
recorded as a deferred liability and amortized over the term of
the lease as a reduction to rent expense on the Consolidated
Statements of Income. Equipment leases are generally for one to
three year periods.
The minimum rental commitments under non-cancelable operating
leases are (in thousands):
|
|
|
|
|
Fiscal Year |
|
|
|
|
|
2005
|
|
$ |
46,769 |
|
2006
|
|
|
38,375 |
|
2007
|
|
|
28,757 |
|
2008
|
|
|
17,370 |
|
2009
|
|
|
6,990 |
|
2010 +
|
|
|
229 |
|
|
|
|
|
Total minimum lease payments
|
|
$ |
138,490 |
|
|
|
|
|
The following schedule shows the composition of total rental
expense for all leases (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29, | |
|
January 31, | |
|
February 1, | |
Fiscal Year Ended |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Minimum rentals
|
|
$ |
44,493 |
|
|
$ |
39,998 |
|
|
$ |
37,848 |
|
Contingent rent
|
|
|
85 |
|
|
|
165 |
|
|
|
389 |
|
|
|
|
|
|
|
|
|
|
|
Total rental expense
|
|
$ |
44,578 |
|
|
$ |
40,163 |
|
|
$ |
38,237 |
|
|
|
|
|
|
|
|
|
|
|
39
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
11. Related Party
Transactions:
The Company leases certain stores from entities in which
Mr. George S. Currin, a director of the Company has a
controlling or non-controlling ownership interest. Rent expense
and related charges totaling $286,860, $261,660 and $221,584
were paid to entities controlled by Mr. Currin or his
family in fiscal 2004, 2003, and 2002, respectively, under these
leases. Rent expense and related charges totaling $800,929,
$610,947, and $661,783 were paid to entities in which
Mr. Currin or his family had a non-controlling ownership
interest in fiscal 2004, 2003, and 2002, respectively, under
these leases.
12. Income Taxes:
The provision for income taxes consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29, | |
|
January 31, | |
|
February 1, | |
Fiscal Year Ended |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
(Restated) | |
Current income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
20,142 |
|
|
$ |
12,806 |
|
|
$ |
24,529 |
|
|
State
|
|
|
535 |
|
|
|
337 |
|
|
|
1,364 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20,677 |
|
|
|
13,143 |
|
|
|
25,893 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(735 |
) |
|
|
4,048 |
|
|
|
(91 |
) |
|
State
|
|
|
(88 |
) |
|
|
482 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(823 |
) |
|
|
4,530 |
|
|
|
(108 |
) |
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$ |
19,854 |
|
|
$ |
17,673 |
|
|
$ |
25,785 |
|
|
|
|
|
|
|
|
|
|
|
Significant components of the Companys deferred tax assets
and liabilities as of January 29, 2005 and January 31,
2004 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29, | |
|
January 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(Restated) | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
2,338 |
|
|
$ |
2,426 |
|
|
Inventory valuation
|
|
|
1,643 |
|
|
|
946 |
|
|
Restricted stock options
|
|
|
684 |
|
|
|
428 |
|
|
Deferred rent
|
|
|
4,998 |
|
|
|
4,712 |
|
|
Capital loss carryover
|
|
|
446 |
|
|
|
669 |
|
|
Accrued expenses
|
|
|
4,856 |
|
|
|
3,872 |
|
Other
|
|
|
830 |
|
|
|
763 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
15,795 |
|
|
|
13,816 |
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
19,442 |
|
|
|
17,974 |
|
|
Unrealized gains on short-term investments
|
|
|
40 |
|
|
|
33 |
|
Other
|
|
|
704 |
|
|
|
1,017 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
20,186 |
|
|
|
19,024 |
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$ |
4,391 |
|
|
$ |
5,208 |
|
|
|
|
|
|
|
|
40
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Capital loss carryovers included in the Companys deferred
tax assets have a limited life and realization of these assets
is not assured and will expire in 2008.
The reconciliation of the Companys effective income tax
rate with the statutory rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29, | |
|
January 31, | |
|
February 1, | |
Fiscal Year Ended |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Federal income tax rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income taxes
|
|
|
1.3 |
|
|
|
1.3 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
36.3 |
% |
|
|
36.3 |
% |
|
|
36.2 |
% |
|
|
|
|
|
|
|
|
|
|
13. Quarterly Financial Data
(Unaudited):
Summarized quarterly financial results are as follows (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2004 |
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
|
|
|
|
|
|
|
|
|
|
|
(As Previously |
|
|
|
(As Previously |
|
|
|
(As Previously |
|
|
|
|
(Restated) |
|
Reported) |
|
(Restated) |
|
Reported) |
|
(Restated) |
|
Reported) |
|
|
Retail sales
|
|
$ |
205,193 |
|
|
$ |
205,193 |
|
|
$ |
197,068 |
|
|
$ |
197,068 |
|
|
$ |
163,611 |
|
|
$ |
163,612 |
|
|
$ |
207,937 |
|
Total revenues
|
|
|
209,201 |
|
|
|
209,201 |
|
|
|
200,884 |
|
|
|
200,884 |
|
|
|
167,514 |
|
|
|
167,514 |
|
|
|
212,005 |
|
Cost of goods sold
|
|
|
132,398 |
|
|
|
132,344 |
|
|
|
136,185 |
|
|
|
136,051 |
|
|
|
115,640 |
|
|
|
115,481 |
|
|
|
144,693 |
|
Gross margin
|
|
|
72,795 |
|
|
|
72,849 |
|
|
|
60,883 |
|
|
|
61,017 |
|
|
|
47,971 |
|
|
|
48,131 |
|
|
|
63,244 |
|
Income before income taxes
|
|
|
26,372 |
|
|
|
26,399 |
|
|
|
12,777 |
|
|
|
12,844 |
|
|
|
2,825 |
|
|
|
2,904 |
|
|
|
12,721 |
|
Net income
|
|
|
16,799 |
|
|
|
16,816 |
|
|
|
8,139 |
|
|
|
8,182 |
|
|
|
1,800 |
|
|
|
1,850 |
|
|
|
8,103 |
|
Basic earnings per share
|
|
$ |
0.82 |
|
|
$ |
0.82 |
|
|
$ |
0.39 |
|
|
$ |
0.40 |
|
|
$ |
0.09 |
|
|
$ |
0.09 |
|
|
$ |
0.39 |
|
Diluted earnings per share
|
|
$ |
0.81 |
|
|
$ |
0.81 |
|
|
$ |
0.38 |
|
|
$ |
0.39 |
|
|
$ |
0.09 |
|
|
$ |
0.09 |
|
|
$ |
0.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2003 |
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
|
|
|
|
|
|
|
|
|
|
|
(As Previously |
|
|
|
(As Previously |
|
|
|
(As Previously |
|
|
|
(As Previously |
|
|
(Restated) |
|
Reported) |
|
(Restated) |
|
Reported) |
|
(Restated) |
|
Reported) |
|
(Restated) |
|
Reported) |
Retail sales
|
|
$ |
197,304 |
|
|
$ |
197,304 |
|
|
$ |
188,218 |
|
|
$ |
188,218 |
|
|
$ |
153,171 |
|
|
$ |
153,171 |
|
|
$ |
193,077 |
|
|
$ |
193,077 |
|
Total revenues
|
|
|
201,210 |
|
|
|
201,210 |
|
|
|
191,993 |
|
|
|
191,993 |
|
|
|
157,129 |
|
|
|
157,129 |
|
|
|
196,935 |
|
|
|
196,935 |
|
Cost of goods sold
|
|
|
127,316 |
|
|
|
126,998 |
|
|
|
132,782 |
|
|
|
132,616 |
|
|
|
109,003 |
|
|
|
108,557 |
|
|
|
139,890 |
|
|
|
140,230 |
|
Gross margin
|
|
|
69,988 |
|
|
|
70,306 |
|
|
|
55,436 |
|
|
|
55,602 |
|
|
|
44,168 |
|
|
|
44,614 |
|
|
|
53,187 |
|
|
|
52,847 |
|
Income before income taxes
|
|
|
27,126 |
|
|
|
27,444 |
|
|
|
11,971 |
|
|
|
12,137 |
|
|
|
805 |
|
|
|
1,251 |
|
|
|
8,785 |
|
|
|
8,445 |
|
Net income
|
|
|
17,280 |
|
|
|
17,482 |
|
|
|
7,625 |
|
|
|
7,731 |
|
|
|
513 |
|
|
|
797 |
|
|
|
5,596 |
|
|
|
5,379 |
|
Basic earnings per share
|
|
$ |
0.68 |
|
|
$ |
0.69 |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
|
$ |
0.02 |
|
|
$ |
0.04 |
|
|
$ |
0.27 |
|
|
$ |
0.26 |
|
Diluted earnings per share
|
|
$ |
0.67 |
|
|
$ |
0.68 |
|
|
$ |
0.29 |
|
|
$ |
0.30 |
|
|
$ |
0.02 |
|
|
$ |
0.04 |
|
|
$ |
0.27 |
|
|
$ |
0.26 |
|
41
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
14. Reportable Segment
Information:
The Company has two reportable segments: retail and credit. The
Company operates its womens fashion specialty retail
stores in 29 states, principally in southeastern United States.
The Company offers its own credit card to its customers and all
credit authorizations, payment processing, and collection
efforts are performed by a separate subsidiary of the Company.
The following schedule summarizes certain segment information
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2004 |
|
Retail | |
|
Credit | |
|
Total | |
|
|
| |
|
| |
|
| |
Revenues
|
|
$ |
775,421 |
|
|
$ |
14,183 |
|
|
$ |
789,604 |
|
Depreciation
|
|
|
20,320 |
|
|
|
77 |
|
|
|
20,397 |
|
Interest and other income
|
|
|
(2,739 |
) |
|
|
0 |
|
|
|
(2,739 |
) |
Income before taxes
|
|
|
49,268 |
|
|
|
5,427 |
|
|
|
54,695 |
|
Total assets
|
|
|
329,010 |
|
|
|
65,124 |
|
|
|
394,134 |
|
Capital expenditures
|
|
|
25,102 |
|
|
|
199 |
|
|
|
25,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2003 |
|
Retail | |
|
Credit | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(Restated) | |
|
|
|
(Restated) | |
Revenues
|
|
$ |
732,796 |
|
|
$ |
14,471 |
|
|
$ |
747,267 |
|
Depreciation
|
|
|
18,617 |
|
|
|
78 |
|
|
|
18,695 |
|
Interest and other income
|
|
|
(3,614 |
) |
|
|
0 |
|
|
|
(3,614 |
) |
Income before taxes
|
|
|
43,963 |
|
|
|
4,724 |
|
|
|
48,687 |
|
Total assets
|
|
|
293,911 |
|
|
|
62,373 |
|
|
|
356,284 |
|
Capital expenditures
|
|
|
20,549 |
|
|
|
4 |
|
|
|
20,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2002 |
|
Retail | |
|
Credit | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(Restated) | |
|
|
|
(Restated) | |
Revenues
|
|
$ |
734,352 |
|
|
$ |
13,979 |
|
|
$ |
748,331 |
|
Depreciation
|
|
|
14,851 |
|
|
|
62 |
|
|
|
14,913 |
|
Interest and other income
|
|
|
(3,701 |
) |
|
|
0 |
|
|
|
(3,701 |
) |
Income before taxes
|
|
|
65,766 |
|
|
|
5,464 |
|
|
|
71,230 |
|
Capital expenditures
|
|
|
28,953 |
|
|
|
0 |
|
|
|
28,953 |
|
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The
Company evaluates performance based on profit or loss from
operations before income taxes. The Company does not allocate
certain corporate expenses or income taxes to the segments.
The following schedule summarizes the credit segment and related
direct expenses which are reflected in selling, general and
administrative expenses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 29, | |
|
January 31, | |
|
February 1, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Bad debt expense
|
|
$ |
5,096 |
|
|
$ |
6,098 |
|
|
$ |
4,764 |
|
Payroll
|
|
|
1,142 |
|
|
|
1,101 |
|
|
|
1,117 |
|
Postage
|
|
|
1,075 |
|
|
|
1,131 |
|
|
|
1,121 |
|
Other expenses
|
|
|
1,366 |
|
|
|
1,339 |
|
|
|
1,451 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$ |
8,679 |
|
|
$ |
9,669 |
|
|
$ |
8,453 |
|
|
|
|
|
|
|
|
|
|
|
42
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
15. Commitments and
Contingencies:
Workers compensation and general liability claims are settled
through a claims administrator and are limited by stop-loss
insurance coverage for individual claims in excess of $350,000
and $200,000, respectively. The Company paid claims of
$3,227,000, $3,019,000 and $2,609,000 in fiscal 2004, 2003 and
2002, respectively. Including claims incurred, but not yet paid,
the Company recognized an expense of $3,513,000, $3,764,000 and
$3,284,000 in fiscal 2004, 2003 and 2002, respectively. Accrued
workers compensation and general liabilities was
$4,254,000 and $3,968,000 at January 29, 2005 and
January 31, 2004, respectively. The Company had no
outstanding letters of credit relating to such claims at
January 29, 2005 or at January 31, 2004. See
Note 7 for letters of credit related to purchase
commitments, Note 9 for 401(k) plan contribution
obligations and Note 10 for lease commitments.
The Company does not have any guarantees with third parties. The
Company has placed a $2 million deposit with Cedar Hill
National Bank (Cedar Hill), a wholly owned
subsidiary, as security and collateral for the payment of
amounts due from CatoWest LLC, a wholly owned subsidiary, to
Cedar Hill. The deposit has no set term. The deposit was made at
the request of the Office of the Comptroller of the Currency
because the receivable is not settled immediately and Cedar Hill
has a risk of loss until payment is made. CatoWest LLC
purchases receivables from Cedar Hill on a daily basis
(generally one day in arrears). In the event CatoWest LLC
fails to transfer to Cedar Hill the purchase price for any
receivable within two business days, Cedar Hill has the right to
withdraw any amount necessary from the account established by
the Company to satisfy the amount due Cedar Hill from
CatoWest LLC. Although the amount of potential future
payments is limited to the amount of the deposit, Cedar Hill may
require, at its discretion, the Company to increase the amount
of the deposit with no limit on the increase. The deposit is
based upon the amount of payments that would be due from
CatoWest LLC to Cedar Hill for the highest credit card
sales weekends of the year that would remain unpaid until the
following business day. The Company has no obligations related
to the deposit at year-end. No recourse provisions exist nor are
any assets held as collateral that would reimburse the Company
if Cedar Hill withdraws a portion of the deposit.
The Company is a defendant in legal proceedings considered to be
in the normal course of business and none of which, singularly
or collectively, are considered to be material to the Company as
a whole.
43
|
|
Item 9. |
Changes in and Disagreements with Independent Registered
Public Accounting Firm on Accounting and Consolidated Financial
Disclosure: |
As previously reported on a Form 8-K/A filed
October 6, 2003, on September 16, 2003, the Company
engaged the accounting firm of PricewaterhouseCoopers LLP as
independent accountants to audit the Companys financial
statements for the fiscal year ending January 31, 2004 to
succeed Deloitte & Touche LLP as the Companys
principal independent accountants.
|
|
Item 9A. |
Controls and Procedures: |
Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures
We carried out an evaluation, with the participation of our
principal executive officer and principal financial officer, of
the effectiveness of our disclosure controls and procedures as
of January 29, 2005. Based on this evaluation, our
principal executive officer and principal financial officer
concluded that, as of January 29, 2005, our disclosure
controls and procedures, as defined in Rule 13a-15(e), were
effective to ensure that information required to be disclosed by
the issuer in the reports that it files or submits under the
Securities Exchange Act of 1934 (the Exchange Act)
are recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms.
Managements Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined
in Exchange Act Rule 13a-15(f). Under the supervision and
with the participation of our management, including our
principal executive officer and principal financial officer, we
carried out an evaluation of the effectiveness of our internal
control over financial reporting as of January 29, 2005
based on the Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Based on this evaluation, our management concluded that our
internal control over financial reporting was effective as of
January 29, 2005.
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, has audited our managements assessment of
the effectiveness of our internal control over financial
reporting as of January 29, 2005 as stated in their report
which is included herein.
Changes in Internal Control Over Financial Reporting
No change was made in the Companys internal control over
financial reporting during the Companys most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over
financial reporting.
Managements Consideration of the Restatement
In coming to the conclusion that our internal control over
financial reporting was effective as of January 29, 2005,
our management considered, among other things, the control
deficiency related to periodic review of the application of
generally accepted accounting principles, which resulted in the
need to restate our previously issued financial statements as
disclosed in Note 1 to the accompanying consolidated
financial statements included in this Form 10-K. After
reviewing and analyzing the Securities and Exchange
Commissions Staff Accounting Bulletin (SAB)
No. 99, Materiality, Accounting
Principles Board Opinion No. 28, Interim Financial
Reporting, paragraph 29 and
SAB Topic 5F, Accounting Changes Not
Retroactively Applied Due to Immateriality, and taking
into consideration (i) that the restatement adjustments did
not have a material impact on the financial statements of prior
interim or annual periods taken as a whole; (ii) that the
cumulative impact of the restatement adjustments on
stockholders equity was not material to the financial
statements of prior interim or annual periods; and
(iii) that we decided to restate our previously issued
financial statements solely because the cumulative impact of the
error, if recorded in the current period, would have been
material to the current years reported net income, our
management concluded that the control deficiency that resulted
in the restatement of the prior period financial statements was
not in itself a material weakness and that when aggregated with
other deficiencies did not constitute a material weakness.
44
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant: |
Information contained under the captions Election of
Directors, Meetings and Committees,
Corporate Governance Matters and
Section 16(a) Beneficial Ownership Reporting and
Compliance in the Registrants Proxy Statement for
its 2005 annual stockholders meeting (the 2005
Proxy Statement) is incorporated by reference in response
to this Item 10. The information in response to this
Item 10 regarding executive officers of the Company is
contained in Item 4A, Part I hereof under the caption
Executive Officers of the Registrant.
|
|
Item 11. |
Executive Compensation: |
Information contained under the captions Summary
Compensation Table, Employment and Severance
Agreements, Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values in the
Companys 2005 Proxy Statement is incorporated by
reference in response to this Item.
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
Equity Compensation Plan Information.
The following table provides information about stock options
outstanding and shares available for future awards under all of
Catos equity compensation plans. The information is as of
January 29, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | |
|
(b) | |
|
(c) | |
|
|
|
|
|
|
Number of securities | |
|
|
|
|
|
|
remaining available for | |
|
|
|
|
|
|
future issuance under | |
|
|
Number of securities to be | |
|
Weighted-average | |
|
equity compensation | |
|
|
issued upon exercise of | |
|
exercise price of | |
|
plans (excluding | |
|
|
outstanding options, | |
|
outstanding options, | |
|
securities reflected in | |
Plan Category |
|
warrants and rights(1) | |
|
warrants and rights(1) | |
|
column (a)(2) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holder
|
|
|
1,003,550 |
|
|
$ |
12.08 |
|
|
|
1,102,086 |
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,003,550 |
|
|
$ |
12.08 |
|
|
|
1,102,086 |
|
|
|
(1) |
This column contains information regarding employee stock
options only; there are no outstanding warrants or stock
appreciation rights. |
|
(2) |
Includes the following: |
|
|
|
867,000 shares available for grant under the Companys
stock incentive plan, referred to as the 2004 Incentive
Compensation Plan. Under this plan, non-qualified stock options
may be granted to key employees. Additionally,
13,318 shares available for grant under the Companys
stock incentive plan, referred to as the 1987
Non-qualified Stock Option Plan. Stock options have terms of
10 years, vest evenly over 5 years, and are assigned
an exercise price of not less than the fair market value of the
Companys stock on the date of grant; and |
|
|
221,768 shares available under the 2003 Employee Stock
Purchase Plan. Eligible employees may participate in the
purchase of designated shares of the Companys common
stock. The purchase price of this stock is equal to 85% of the
lower of the closing price at the beginning or the end of each
semi-annual stock purchase period. |
Information contained under Security Ownership of Certain
Beneficial Owners and Management in the 2005 Proxy Statement is
incorporated by reference in response to this Item.
45
|
|
Item 13. |
Certain Relationships and Related Transactions: |
Information contained under the caption Certain
Transactions in the 2005 Proxy Statement is incorporated
by reference in response to this Item.
|
|
Item 14. |
Principal Accountant Fees and Services: |
The information required by this Item is incorporated herein by
reference to the section entitled Audit Fees and
Policy on Audit Committee Pre-Approval of Audit and
Permissible Non-Audit Service by the Independent Auditor
in the 2005 Proxy Statement.
PART IV
|
|
Item 15. |
Exhibits and Financial Statement Schedules: |
(a) The following documents are filed as part of this
report:
(1) Financial Statements:
|
|
|
|
|
|
|
Page | |
|
|
| |
Report of Independent Registered Public Accounting Firm
|
|
|
20-21 |
|
Report of Independent Registered Public Accounting Firm
|
|
|
22 |
|
Consolidated Statements of Income for the fiscal years ended
January 29, 2005, January 31, 2004 (as restated) and
February 1, 2003 (as restated)
|
|
|
23 |
|
Consolidated Balance Sheets at January 29, 2005 and
January 31, 2004 (as restated)
|
|
|
24 |
|
Consolidated Statements of Cash Flows for the fiscal years ended
January 29, 2005, January 31, 2004 (as restated) and
February 1, 2003 (as restated)
|
|
|
25 |
|
Consolidated Statements of Stockholders Equity for the
fiscal years ended January 29, 2005, January 31, 2004
(as restated) and February 1, 2003 (as restated)
|
|
|
26 |
|
Notes to Consolidated Financial Statements
|
|
|
27 |
|
(2) Financial Statement Schedules: The following report and
financial statement schedules are filed herewith:
|
|
|
|
|
Independent Registered Public Accounting Firms Consent
|
|
|
S-1 |
|
Schedule II Valuation and Qualifying Accounts and
Reserves
|
|
|
S-2 |
|
All other schedules are omitted as the required information is
inapplicable or the information is presented in the consolidated
financial statements or related notes thereto.
46
(3) Index to Exhibits: The following exhibits are filed
with this report or, as noted, incorporated by reference herein.
|
|
|
|
|
Exhibit | |
|
|
Number | |
|
Description of Exhibit |
| |
|
|
|
3.1 |
|
|
Registrants Restated Certificate of Incorporation of the
Registrant dated March 6, 1987, incorporated by reference
to Form S-8 of the Registrant filed February 7, 2000. |
|
3.2 |
|
|
Registrants By Laws incorporated by reference to
Form S-8 of the Registrant Filed February 7, 2000. |
|
4.1 |
|
|
Share Rights Agreement dated December 18, 2003,
incorporated by reference to Form 8-A12G of the Registrant
filed December 22, 2003 and as amended in
Form 8-A12B/A filed on January 6, 2004. |
|
10.1 |
|
|
Employment Agreement dated May 20, 1999 between The Cato
Corporation and John P. Derham Cato, incorporated by
reference to Form 10-K of the Registrant for the fiscal
year ended January 29, 2000. |
|
10.2 |
|
|
1999 Incentive Compensation Plan dated August 26, 1999,
incorporated by reference to Form S-8 of the Registrant
filed February 7, 2000. |
|
10.3 |
|
|
Agreement, dated as of August 29, 2003, between the
Registrant and Wayland H. Cato, Jr., incorporated by
reference to Form 8-K of the Registrant filed on
July 22, 2003. |
|
10.4 |
|
|
Agreement, dated as of August 29, 2003, between the
Registrant and Edgar T. Cato, incorporated by reference to
Form 8-K of the Registrant filed on July 22, 2003. |
|
10.5 |
|
|
Retirement Agreements between Registrant and Wayland H.
Cato, Jr. and Edgar T. Cato dated August 29, 2003
incorporated by reference to Form 10-Q of the Registrant
for quarter ended August 2, 2003. |
|
16.1 |
|
|
Change in the Registrants Independent Accountants from Deloitte
& Touche, LLP to PricewaterhouseCoopers, LLP effective
September 16, 2003, incorporated by reference to
Form 8-K of the Registrant filed September 23, 2003
and as amended in Form 8-K/A filed on October 6, 2003. |
|
21 |
|
|
Subsidiary of Registrant. |
|
23.1 |
|
|
Consent of Independent Registered Public Accounting Firm. |
|
23.2 |
|
|
Consent of Independent Registered Public Accounting Firm. |
|
31.1 |
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer. |
|
31.2 |
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer. |
|
32.1 |
|
|
Section 1350 Certification of Chief Executive Officer. |
|
32.2 |
|
|
Section 1350 Certification of Chief Financial Officer. |
47
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
Designation | |
|
|
|
|
of Exhibit | |
|
|
|
Page | |
| |
|
|
|
| |
|
21 |
|
|
Subsidiaries of the Registrant |
|
|
49 |
|
|
23.1 |
|
|
Consent of Independent Registered Public Accounting Firm |
|
|
50 |
|
|
23.2 |
|
|
Consent of Independent Registered Public Accounting Firm |
|
|
S-1 |
|
|
31.1 |
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer |
|
|
52 |
|
|
31.2 |
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer |
|
|
53 |
|
|
32.1 |
|
|
Section 1350 Certification of Chief Executive Officer |
|
|
54 |
|
|
32.2 |
|
|
Section 1350 Certification of Chief Financial Officer |
|
|
55 |
|
48
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
|
|
|
|
|
|
|
State of |
|
|
Name of Subsidiary |
|
Incorporation/Organization |
|
Name under which Subsidiary does Business |
|
|
|
|
|
CHW LLC
|
|
Delaware |
|
CHW LLC
|
Providence Insurance Company, Limited
|
|
A Bermudian Company |
|
Providence Insurance Company, Limited
|
CatoSouth LLC
|
|
North Carolina |
|
CatoSouth LLC
|
Cato of Texas L.P.
|
|
Texas |
|
Cato of Texas L.P.
|
Cato Southwest, Inc.
|
|
Delaware |
|
Cato Southwest, Inc.
|
CaDel LLC
|
|
Delaware |
|
CaDel LLC
|
CatoWest LLC
|
|
Nevada |
|
CatoWest LLC
|
Cedar Hill National Bank
|
|
A Nationally Chartered Bank |
|
Cedar Hill National Bank
|
catocorp.com, LLC
|
|
Delaware |
|
catocorp.com, LLC
|
49
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the
Registration Statement No. 333-119300 on Form S-8
pertaining to The Cato Corporation 2004 Incentive Compensation
Plan, in Registration Statement No. 333-119299 pertaining
to The Cato Corporation 2003 Employee Stock Purchase Plan,
Registration Statement No. 333-96283 on Form S-8
pertaining to The Cato Corporation 1999 Incentive Compensation
Plan, in Registration Statement No. 33-41314 on
Form S-8 pertaining to The Cato Corporation 1987 Incentive
Stock Option Plan, in Registration Statement No. 33-41315
on Form S-8 pertaining to The Cato Corporation 1987
Nonqualified Stock Option Plan, and in Registration Statement
Nos. 33-69844 and 333-96285 on Forms S-8 pertaining to
The Cato Corporation 1993 Employee Stock Purchase Plan, of our
report dated April 28, 2005 relating to the financial
statements, financial statement schedule, managements
assessment of the effectiveness of internal control over
financial reporting and the effectiveness of internal control
over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
April 28, 2005
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Cato has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
The Cato Corporation
|
|
|
|
|
|
By |
|
/s/ John P. Derham
Cato
John
P. Derham Cato
Chairman, President and
Chief Executive Officer |
By |
/s/ Michael O.
Moore
Michael
O. Moore
Executive Vice President
Chief Financial Officer and Secretary |
|
By |
|
/s/ Robert M.
Sandler
Robert
M. Sandler
Senior Vice President
Controller |
|
|
Date: April 28, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
date indicated:
|
|
|
|
|
|
|
/s/ John P. Derham Cato
John
P. Derham Cato
(Director) |
|
/s/ Grant L. Hamrick
Grant
L. Hamrick
(Director) |
|
|
|
/s/ Michael O. Moore
Michael
O. Moore
(Director) |
|
/s/ James H. Shaw
James
H. Shaw
(Director) |
|
|
|
/s/ Robert W. Bradshaw,
Jr.
Robert
W. Bradshaw, Jr.
(Director) |
|
/s/ A.F. (Pete) Sloan
A.F.
(Pete) Sloan
(Director) |
|
|
|
/s/ George S. Currin
George
S. Currin
(Director) |
|
/s/ D. Harding Stowe
D.
Harding Stowe
(Director) |
|
|
|
/s/ William H. Grigg
William
H. Grigg
(Director) |
|
|
51
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration
Statement No. 333-96283 on Form S-8 pertaining to The
Cato Corporation 1999 Incentive Compensation Plan, in
Registration Statement No. 33-41314 on Form S-8
pertaining to The Cato Corporation 1987 Incentive Stock Option
Plan, in Registration Statement No. 33-41315 on
Form S-8 pertaining to The Cato Corporation 1987
Nonqualified Stock Plan, and in Registration Statement
No. 33-69844 and 333-96285 on Forms S-8 pertaining to
The Cato Corporation 1993 Employee Stock Purchase Plan, of our
report dated April 21, 2003 (April 25, 2005 as to the
effects of the restatement discussed in Note 1) (which
report expresses an unqualified opinion and includes an
explanatory paragraph relating to the restatement discussed in
Note 1) relating to the consolidated financial statements
and financial statement schedule of The Cato Corporation
appearing in and incorporated by reference in the Annual Report
on Form 10-K for the year ended January 29, 2005.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
April 26, 2005
S-1
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance | |
|
|
|
|
|
|
for | |
|
Reserve for | |
|
Allowance | |
|
|
Doubtful | |
|
Rental | |
|
for Sales | |
|
|
Accounts(a) | |
|
Commitments(b) | |
|
Returns(c) | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance at February 2, 2002
|
|
$ |
5,968 |
|
|
$ |
1,077 |
|
|
$ |
|
|
|
Additions charged to costs and expenses
|
|
|
4,763 |
|
|
|
1,000 |
|
|
|
390 |
|
|
Additions charged to other accounts
|
|
|
887 |
(d) |
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
(5,519 |
)(e) |
|
|
(1,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 1, 2003
|
|
|
6,099 |
|
|
|
956 |
|
|
|
390 |
|
|
Additions charged to costs and expenses
|
|
|
6,098 |
|
|
|
1,062 |
|
|
|
10 |
|
|
Additions charged to other accounts
|
|
|
858 |
(d) |
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
(6,720 |
)(e) |
|
|
(1,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2004
|
|
|
6,335 |
|
|
|
616 |
|
|
|
400 |
|
|
Additions charged to costs and expenses
|
|
|
5,096 |
|
|
|
1,373 |
|
|
|
22 |
|
|
Additions charged to other accounts
|
|
|
1,069 |
(d) |
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
(6,378 |
)(e) |
|
|
(1,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 29, 2005
|
|
$ |
6,122 |
|
|
$ |
487 |
|
|
$ |
422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Deducted from trade accounts receivable. |
|
(b) |
Provision for the difference between costs and revenues from
non-cancelable subleases over the lease terms of closed stores. |
|
(c) |
Gross margin revenue on return sales. |
|
(d) |
Recoveries of amounts previously written off. |
|
(e) |
Uncollectible accounts written off. |
S-2
EX-21
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
|
|
|
|
|
|
|
State of |
|
|
Name of Subsidiary |
|
Incorporation/Organization |
|
Name under which Subsidiary does Business |
|
|
|
|
|
CHW LLC
|
|
Delaware |
|
CHW LLC
|
Providence Insurance Company, Limited
|
|
A Bermudian Company |
|
Providence Insurance Company, Limited
|
CatoSouth LLC
|
|
North Carolina |
|
CatoSouth LLC
|
Cato of Texas L.P.
|
|
Texas |
|
Cato of Texas L.P.
|
Cato Southwest, Inc.
|
|
Delaware |
|
Cato Southwest, Inc.
|
CaDel LLC
|
|
Delaware |
|
CaDel LLC
|
CatoWest LLC
|
|
Nevada |
|
CatoWest LLC
|
Cedar Hill National Bank
|
|
A Nationally Chartered Bank |
|
Cedar Hill National Bank
|
catocorp.com, LLC
|
|
Delaware |
|
catocorp.com, LLC
|
49
EX-23.1
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the
Registration Statement No. 333-119300 on Form S-8
pertaining to The Cato Corporation 2004 Incentive Compensation
Plan, in Registration Statement No. 333-119299 pertaining
to The Cato Corporation 2003 Employee Stock Purchase Plan,
Registration Statement No. 333-96283 on Form S-8
pertaining to The Cato Corporation 1999 Incentive Compensation
Plan, in Registration Statement No. 33-41314 on
Form S-8 pertaining to The Cato Corporation 1987 Incentive
Stock Option Plan, in Registration Statement No. 33-41315
on Form S-8 pertaining to The Cato Corporation 1987
Nonqualified Stock Option Plan, and in Registration Statement
Nos. 33-69844 and 333-96285 on Forms S-8 pertaining to
The Cato Corporation 1993 Employee Stock Purchase Plan, of our
report dated April 28, 2005 relating to the financial
statements, financial statement schedule, managements
assessment of the effectiveness of internal control over
financial reporting and the effectiveness of internal control
over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
April 28, 2005
50
EX-23.2
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration
Statement No. 333-96283 on Form S-8 pertaining to The
Cato Corporation 1999 Incentive Compensation Plan, in
Registration Statement No. 33-41314 on Form S-8
pertaining to The Cato Corporation 1987 Incentive Stock Option
Plan, in Registration Statement No. 33-41315 on
Form S-8 pertaining to The Cato Corporation 1987
Nonqualified Stock Plan, and in Registration Statement
No. 33-69844 and 333-96285 on Forms S-8 pertaining to
The Cato Corporation 1993 Employee Stock Purchase Plan, of our
report dated April 21, 2003 (April 25, 2005 as to the
effects of the restatement discussed in Note 1) (which
report expresses an unqualified opinion and includes an
explanatory paragraph relating to the restatement discussed in
Note 1) relating to the consolidated financial statements
and financial statement schedule of The Cato Corporation
appearing in and incorporated by reference in the Annual Report
on Form 10-K for the year ended January 29, 2005.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
April 26, 2005
S-1
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance | |
|
|
|
|
|
|
for | |
|
Reserve for | |
|
Allowance | |
|
|
Doubtful | |
|
Rental | |
|
for Sales | |
|
|
Accounts(a) | |
|
Commitments(b) | |
|
Returns(c) | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance at February 2, 2002
|
|
$ |
5,968 |
|
|
$ |
1,077 |
|
|
$ |
|
|
|
Additions charged to costs and expenses
|
|
|
4,763 |
|
|
|
1,000 |
|
|
|
390 |
|
|
Additions charged to other accounts
|
|
|
887 |
(d) |
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
(5,519 |
)(e) |
|
|
(1,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 1, 2003
|
|
|
6,099 |
|
|
|
956 |
|
|
|
390 |
|
|
Additions charged to costs and expenses
|
|
|
6,098 |
|
|
|
1,062 |
|
|
|
10 |
|
|
Additions charged to other accounts
|
|
|
858 |
(d) |
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
(6,720 |
)(e) |
|
|
(1,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2004
|
|
|
6,335 |
|
|
|
616 |
|
|
|
400 |
|
|
Additions charged to costs and expenses
|
|
|
5,096 |
|
|
|
1,373 |
|
|
|
22 |
|
|
Additions charged to other accounts
|
|
|
1,069 |
(d) |
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
(6,378 |
)(e) |
|
|
(1,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 29, 2005
|
|
$ |
6,122 |
|
|
$ |
487 |
|
|
$ |
422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Deducted from trade accounts receivable. |
|
(b) |
Provision for the difference between costs and revenues from
non-cancelable subleases over the lease terms of closed stores. |
|
(c) |
Gross margin revenue on return sales. |
|
(d) |
Recoveries of amounts previously written off. |
|
(e) |
Uncollectible accounts written off. |
S-2
EX-31.1
EXHIBIT 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John P. Derham Cato, Chairman, President and Chief Executive
Officer of The Cato Corporation, certify that:
|
|
1. |
I have reviewed this Annual Report on Form 10-K of The Cato
Corporation; |
|
2. |
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report; |
|
3. |
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report; |
|
4. |
The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have: |
|
|
|
|
a) |
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared; |
|
|
b) |
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles; |
|
|
c) |
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; |
|
|
d) |
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and |
|
|
5. |
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions): |
|
|
|
|
a) |
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and |
|
|
b) |
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal control over financial reporting. |
Date: April 28, 2005
/s/ John P. Derham Cato
John P. Derham Cato
Chairman, President and
Chief Executive Officer
52
EX-31.2
EXHIBIT 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael O. Moore, Executive Vice President, Chief Financial
Officer and Secretary of The Cato Corporation, certify that:
|
|
1. |
I have reviewed this Annual Report on Form 10-K of The Cato
Corporation; |
|
2. |
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report; |
|
3. |
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report; |
|
4. |
The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have: |
|
|
|
|
a) |
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared; |
|
|
b) |
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles; |
|
|
c) |
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; |
|
|
d) |
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and |
|
|
5. |
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions): |
|
|
|
|
a) |
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and |
|
|
b) |
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal control over financial reporting. |
Date: April 28, 2005
/s/ Michael O. Moore
Michael O. Moore
Executive Vice President
Chief Financial Officer and Secretary
53
EX-32.1
EXHIBIT 32.1
CERTIFICATION OF PERIODIC REPORT
I, John P. Derham Cato, Chairman, President and Chief Executive
Officer of The Cato Corporation, certify, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350, that on the date of this
Certification:
|
|
1. |
the Annual Report on Form 10-K of the Company for the
annual period ended January 29, 2005 (the
Report) fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and |
|
2. |
the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company. |
Dated: April 28, 2005
|
|
|
/s/ John P. Derham Cato |
|
|
|
John P. Derham Cato |
|
Chairman, President and |
|
Chief Executive Officer |
54
EX-32.2
EXHIBIT 32.2
CERTIFICATION OF PERIODIC REPORT
I, Michael O. Moore, Executive Vice President, Chief Financial
Officer and Secretary of The Cato Corporation, certify, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350, that on the date of this Certification:
|
|
1. |
the Annual Report on Form 10-K of the Company for the
annual period ended January 29, 2005 (the
Report) fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and |
|
2. |
the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company. |
Dated: April 28, 2005
|
|
|
/s/ Michael O. Moore |
|
|
|
Michael O. Moore |
|
Executive Vice President |
|
Chief Financial Officer and Secretary |
55