<PAGE 1>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 29, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------------------------------
Commission file number 0-3747
--------------------------------------------
THE CATO CORPORATION AND SUBSIDIARIES
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiciton of
incorporation or organization)
8100 DENMARK ROAD
CHARLOTTE, NORTH CAROLINA 28273-5975
(Address of principal executive offices)
(Zip Code)
56-0484485
(IRS Employer Identification Number)
(704) 554-8510
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
As of November 11, 1994, there were 23,127,144 shares of Class A
Common Stock and 5,264,317 shares of Class B Common Stock
outstanding.
<PAGE 2>
THE CATO CORPORATION
FORM 10-Q
October 29, 1994
Table of Contents
<TABLE>
<CAPTION>
Page
No.
-----
<S> <C>
PART I - FINANCIAL INFORMATION (UNAUDITED)
Consolidated statements of income 2
Consolidated balance sheets 3
Consolidated statements of cash flows 4
Notes to consolidated financial statements 5-6
Management's discussion and analysis of
financial condition and results of operations 7-8
PART II - OTHER INFORMATION 9-10
</TABLE>
<PAGE 3>
PART I FINANCIAL INFORMATION
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
October 29, October 30, October 29, October 30,
1994 1993 1994 1993
---------- ----------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
REVENUES:
Retail sales . . . . . . . . . . . . . . . . $109,111 $ 94,598 $329,412 $ 284,042
Other income (principally finance and la. . . 3,101 2,926 9,194 8,545
------- ------ ------ ------
Total revenues . . . . . . . . . . . . . . 112,212 97,524 338,606 292,587
------- ------ ------- -------
COSTS AND EXPENSES:
Costs of goods sold, including occupancy, distribution
and buying . . . . . . . . . . . . . . . . 77,505 64,567 225,306 186,274
Selling, general and administrative . . . . . 28,537 24,760 84,025 72,119
Depreciation . . . . . . . . . . . . . . . . 1,762 1,341 5,127 3,789
------ ------ ------ ------
Total operating expenses . . . . . . . . . 107,804 90,668 314,458 262,182
------ ------ ------ -------
INCOME BEFORE INCOME TAXES . . . . . . . .. . . 4,408 6,856 24,148 30,405
Income taxes . . . . . . . . . . . . . .. . . 1,609 2,420 8,814 10,733
------ ------ ------ ------
NET INCOME . . . . . . . . . . . . . . . .. . .$ 2,799 $ 4,436 $ 15,334 $ 19,672
====== ====== ====== ======
EARNINGS PER SHARE . . . . . . . . . . . .. . .$ 0.10 $ 0.15 $ 0.52 $ 0.66
====== ====== ====== ======
DIVIDENDS PER SHARE . . . . . . . . . . . .. . .$ 0.040 $ 0.025 $ 0.105 $ 0.063
====== ====== ====== ======
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE 4>
THE CATO CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 29, October 29, January 29,
1994 1993 1994
--------- ---------- -----------
( In thousands )
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . .$ 9,507 $ 24,042 $ 22,001
Short-term investments . . . . . . . . . . 23,098 11,262 20,613
Accounts receivable - net . . . . . . . . 40,488 36,086 36,814
Merchandise inventories . . . . . . .. . . 83,573 75,088 55,814
Deferred income taxes. . . . . . . . . . . 1,870 1,966 1,607
Prepaid expenses . . . . . . . . . . . . . 2,001 974 1,935
------- ------- -------
Total Current Assets . . . . . . . . . 160,537 149,418 138,784
Property and Equipment. . . . . . . . .. . . 51,271 33,148 35,497
Other Assets . . . . . . . . . . . . . .. . . 4,560 4,205 4,322
------- ------- -------
Total. . . . . . . . . . . . .. . .$ 216,368 $186,771 $ 178,603
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable. . . . . . . . . . . . . . $ 10,400 $ - $ -
Accounts payable. . . . . . . . . . .. . . 52,147 48,601 34,547
Accrued expenses. . . . . . . . . . .. . . 10,152 11,711 12,668
Income taxes . . . . . . . . . . . .. . . - 1,484 -
------ ------ -------
Total Current Liabilities. . . .. . . 72,699 61,796 47,215
Deferred Income Taxes . . . . . . . . . . . . 3,482 2,680 3,482
Other Noncurrent Liabilities. . . . . . . . . 263 511 373
Stockholders' Equity:
Class A Common Stock, issued 23,127,144 shares,
23,075,358 shares and 23,078,208 shares at
October 29, 1994, October 30, 1993
and January 29, 1994, respective. . . 770 769 769
Convertible Class B Common Stock, issued
5,264,317 shares at October 29, 1994,
October 30, 1993 and January 29, 1994. 176 176 176
Preferred Stock, none issued. . . . .. . . - - -
Additional paid-in capital. . . . . . . . . . 62,246 60,426 61,753
Retained earnings . . . . . . . . . . .. . . 76,732 60,413 64,835
------ ------- -------
Total Stockholders' Equity. . . . . . . . 139,924 121,784 127,533
------- ------- --------
Total . . . . . . . . . . . . .. . .$ 216,368 $186,771 $ 178,603
======= ======= ========
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE 5>
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
October 29, October 30
1994 1993
---------- ---------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . .. . . . .$ 15,334 $ 19,672
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation . . . . . . . . . . . .. . . . . 5,127 3,789
Loss on disposal of assets. . . . . . . . . . 352 -
Amortization of investment premiums .. . . . . 438 247
Changes in assets and liabilities:
(Increase) in accounts receivable . . . . . (3,674) (8,349)
(Increase) in merchandise inventor. . . . . (27,759) (41,346)
(Increase) in other assets . . . .. . . . . (304) (216)
Increase in accrued income taxes .. . . . . - 286
Increase in accounts payable and other liabi 15,058 21,090
------ ------
Net cash provided by (used in) operating. . . . . 4,572 (4,827)
----- ------
INVESTING ACTIVITIES:
Expenditures for property and equipment . . . . . (21,715) (13,049)
Proceeds from sale of assets. . . . . . . . . . . 378 -
Purchases of short-term investments . .. . . . . (10,239) (22,749)
Sales of short-term investments . . . .. . . . . 6,594 15,069
------ -------
Net cash used in investing activities .. . . . . (24,982) (20,729)
----- ---
FINANCING ACTIVITIES:
Borrowings under credit agreement. . . . . . . . . 10,400 -
Cash dividends paid . . . . . . . . . . . . . . . (2,978) (1,791)
Proceeds from employee stock purchase pl. . . . . 429 -
Proceeds from stock options exercised .. . . . . 65 1,425
Proceeds from issuance of common stock .. . . . . - 24,262
Repayment of life insurance policy loans. . . . . - (203)
------- -------
Net cash provided by financing activitie. . . . . 7,916 23,693
----- ---
Net decrease in Cash and Cash Equivalent. . . . . (12,494) (1,863)
Cash and Cash Equivalents at Beginning o. . . . . 22,001 25,905
------ ------
Cash and Cash Equivalents at End of Peri. . . . .$ 9,507 $ 24,042
====== =======
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE 6>
THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS AND NINE MONTHS ENDED OCTOBER 29, 1994 AND
OCTOBER 30, 1993
- - -------------------------------------------------------------------
NOTE 1 - GENERAL:
The consolidated financial statements have been prepared from the
accounting records of the Company and all amounts shown at October
29, 1994 and October 30, 1993 are unaudited. In the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) considered necessary for a fair presentation have been
included.
Certain reclassifications have been made to the consolidated
financial statements as of October 30, 1993 to conform with
classifications used as of October 29, 1994.
Inventories are stated at the lower of cost (first-in, first-out)
or market, determined by the retail inventory method.
The provisions for income taxes are based on the Company's
estimated annual effective tax rate.
NOTE 2 - EARNINGS PER SHARE:
Earnings per share is calculated by dividing net income by the
weighted average number of Class A and Class B common shares and
common stock equivalents outstanding during the respective periods.
Common stock equivalents represent the dilutive effect of the
assumed exercise of outstanding stock options. The number of
shares used in the earnings per share computations were 29,020,713
shares and 29,283,581 shares for the three months and nine months
ended October 29, 1994, and 29,802,362 shares and 29,629,077 shares
for the three months and nine months ended October 30, 1993.
NOTE 3 - SHORT-TERM INVESTMENTS:
In accordance with the quidelines set forth under Statement of
Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities", the Company has
determined that short-term investments held by the Company should
be classified as available-for-sale. Available-for-sale securities
are carried at fair value, with unrealized gains and losses, net of
tax, reported as an adjustment to retained earnings. The
adjustment to retained earnings for unrealized losses at October
29, 1994, totalled $459,000. The differences between amortized
cost and fair value were immaterial for the prior year's balance
sheets presented. The amortized cost of debt securities is adjusted
for amortization of premiums and accretion of discounts to
maturity. The amortization of premiums, accretion of discounts,
investment earnings and realized gains and losses are included in other
income.
<PAGE 7>
The following if a summary of available-for-sale securities as of
October 29, 1994: (In thousands)
<TABLE>
<CAPTION>
Security Type Cost Unrealized Estimated
Loss Fair Value
- - -------------- ----- ----------- -----------
<S> <C> <C> <C>
Obligations of states and
political subdivisions $17,272 $(2) $17,270
Corporate debt securities 2,000 (80) 1,920
------- ------- --------
Subtotal 19,272 (82) 19,190
Equity securities 4,548 (640) 3,908
------- ------- --------
Total $23,820 $(722) $23,098
======= ======= ========
</TABLE>
The amortized cost and estimated fair value of debt and marketable
equity securities at October 29, 1994, by contractual maturity, are
shown below: (In thousands)
<TABLE>
<CAPTION>
Security Type Cost Estimated
Fair Value
- - -------------- ----- ----------
<S> <C> <C>
Due in one year or less $14,441 $14,388
Due in one year through five years 4,831 4,802
------- -------
Subtotal 19,272 19,190
Equity securities 4,548 3,908
------- --------
Total $23,820 $23,098
======= ========
</TABLE>
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the nine months ended October 29, 1994 and
October 30, 1993 was $143,000 and $253,000, respectively. Income
tax payments for the nine months ended October 29, 1994 and October
30, 1993 were $8,511,000 and $10,450,000, respectively. The
Company had noncash investing activities of $722,000 in the nine
months ended October 29, 1994, relating to unrealized losses on
available-for-sale securities.
<PAGE 8>
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- - -------------------------------------------------------------------
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items in the Company's Unaudited Consolidated Statements of Income
as percentages of total retail sales:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- -----------------
Oct. 29, Oct. 30, Oct. 29, Oct. 30,
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total retail sales 100.0% 100.0% 100.0% 100.0%
Total revenues 102.8 103.1 102.8 103.0
Cost of goods sold, including
occupancy, distribution and
buying 71.0 68.3 68.4 65.6
Selling, general and
administrative 26.2 26.2 25.5 25.4
Income before income taxes 4.0 7.3 7.3 10.7
Net income 2.6 4.7 4.7 6.9
</TABLE>
Comparison of Third Quarter and First Nine Months of 1994 and 1993.
OPERATING RESULTS
- - -----------------
Total retail sales for the third quarter increased 15% over last
year's third quarter to $109.1 million from $94.6 million last
year. Same-store sales increased 1% over the prior year's third
quarter. For the nine months ended October 29, 1994, total retail
sales increased 16% over the prior year's first nine months, and
same-store sales increased 2% over the comparable nine-month
period. The Company operated 636 stores at October 29, 1994,
compared to 558 stores operated at the end of last year's third
quarter. Sales from new, relocated or expanded stores opened
within the last year were primarily responsible for the increase in
sales recorded for this year's third quarter and first nine months.
Other income increased 6% for the third quarter and 8% for this
year's first nine months over last year's corresponding periods.
The increases in the current year resulted primarily from increased
finance charge income on the Company's accounts receivable
portfolio and increased earnings from cash equivalents and short-
term investments.
Cost of goods sold, including occupancy, distribution and buying
expenses, were 71.0% and 68.4% of total retail sales for the third
quarter and first nine months compared to 68.3% and 65.6% for last
year's comparable three- and nine-month periods. The increase in
cost of goods sold as a percent of retail sales resulted primarily
from increased promotional markdowns brought about by a highly
competitive retail climate. As a result of sales not reaching
<PAGE 9>
planned levels in the third quarter and first nine months of this
year the Company has aggressively marked down seasonal merchandise
to keep inventories in line with the sales levels achieved.
Inventory levels at the end of this year's third quarter are in
line with the modest sales gains planned for the fourth quarter.
Selling, general and administrative (SG&A) expenses were $28.5
million, or 26.2% of total retail sales, and $84.0 million, or
25.5% of total retail sales, for the third quarter and first nine
months of this year, compared to $24.8 million, or 26.2% of total
retail sales, and $72.1 million, or 25.4% of total retail sales,
for last year's comparable periods. The overall increases in SG&A
resulted primarily from increased selling-related expenses and
increased infrastructure expenses brought about by the Company's
store development program. The Company has continued to maintain
a conservative cost structure and has implemented aggressive
expense controls to keep operating expenses in line with planned
sales levels.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
At October 29, 1994, the Company had working capital of $87.8
million, compared to $87.6 million at October 30, 1993 and $91.6
million at January 29, 1994. Cash provided by operating activities
was $4.6 million for the nine months ended October 29, 1994,
compared to net cash used in operating activities of $4.8 million
for last year's comparable nine-month period. The increase in cash
provided by operating activities in the current year resulted
primarily from decreased build-up of inventory levels.
The Company had $10.4 million of borrowings outstanding under its
$35 million revolving credit and term loan agreement at October 29,
1994, compared to no borrowings outstanding at the end of last
year's third quarter.
Expenditures for property and equipment totaled $21.7 million for
the nine months ended October 29, 1994, compared to $13.0 million
of expenditures in last year's first nine months. The Company
expects total capital expenditures to be approximately $30.5
million for current fiscal year. The Company intends to open
approximately 80 new stores in the current fiscal year and to
relocate or expand an additional 50 stores. Additional
expenditures are planned to expand the Company's distribution
facilities and to upgrade management information systems. As of
October 29, 1994, the Company had opened 65 new stores, relocated
or expanded 39 stores and closed 4 stores this fiscal year.
The Company believes that its cash and short-term investments,
together with cash flow from operations and borrowings available
under a $35 million revolving credit and term loan agreement, will
be adequate to fund the Company's proposed capital expenditures and
other operating requirements.
<PAGE 10>
PART II OTHER INFORMATION
THE CATO CORPORATION
ITEM 1. LEGAL PROCEEDINGS
- - -----------------------------
None
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
- - ------------------------------------------------------------------
None
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
- - -----------------------------------------------------------
Not Applicable
ITEM 4. RESULT OF VOTES OF SECURITY HOLDERS
- - ----------------------------------------------
None
ITEM 5. OTHER INFORMATION
- - ----------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - -------------------------------------------
(A) None
(B) No Reports on Form 8-K were filed during the
quarter ended October 29, 1994.
<PAGE 11>
PART II OTHER INFORMATION (CONTINUED)
THE CATO CORPORATION
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE CATO CORPORATION
<TABLE>
<S> <C>
Date: December 8, 1994 Wayland H. Cato, Jr.
-----------------------
Chairman of the Board
of Directors and Chief
Executive Officer
Date: December 8, 1994 Alan E. Wiley
-----------------------
Executive Vice
President-Secretary,
Chief Financial and
Administrative Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> OCT-29-1994
<CASH> 9,507
<SECURITIES> 23,098
<RECEIVABLES> 43,613
<ALLOWANCES> 3,125
<INVENTORY> 83,573
<CURRENT-ASSETS> 160,537
<PP&E> 81,219
<DEPRECIATION> 29,948
<TOTAL-ASSETS> 216,368
<CURRENT-LIABILITIES> 72,699
<BONDS> 0
<COMMON> 946
0
0
<OTHER-SE> 138,978
<TOTAL-LIABILITY-AND-EQUITY> 216,368
<SALES> 329,412
<TOTAL-REVENUES> 338,606
<CGS> 225,306
<TOTAL-COSTS> 225,306
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,217
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 24,148
<INCOME-TAX> 8,814
<INCOME-CONTINUING> 15,334
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,334
<EPS-PRIMARY> .52
<EPS-DILUTED> 0
</TABLE>
