<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 July 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________to__________________
COMMISSION FILE NUMBER 0-3747
THE CATO CORPORATION AND SUBSIDIARIES
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
8100 DENMARK ROAD
CHARLOTTE, NORTH CAROLINA
(Address of principal executive offices)
56-0484485
(IRS Employer Identification Number)
28273-5975
(Zip Code)
(704) 554-8510
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of August 15, 1994, there were 23,104,788 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
July 30, 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
Management's discussion and analysis of
financial condition and results of operations 6-7
PART II - OTHER INFORMATION 8-9
</TABLE>
<PAGE 3>
PART I FINANCIAL INFORMATION
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
--------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
REVENUES:
Retail sales . . . . . . . . . . . . . . .$110,196 $ 95,502 $220,301 $189,444
Other income (principally finance and
layaway charges . . . . . . . . . . . . . 3,067 2,856 6,093 5,619
--------- --------- --------- ---------
Total revenues . . . . . . . . . . . . . 113,263 98,358 226,394 195,063
--------- --------- --------- ---------
COSTS AND EXPENSES:
Costs of goods sold, including occupancy,
distribution and buying . . . . . . . . . 77,020 63,835 147,801 121,707
Selling, general and administrative . . . . 27,675 24,232 55,488 47,359
Depreciation . . . . . . . . . . . . . . . 1,757 1,330 3,365 2,448
--------- --------- --------- ---------
Total operating expenses . . . . . . . . 106,452 89,397 206,654 171,514
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES . . . . . . . . . 6,811 8,961 19,740 23,549
Income taxes . . . . . . . . . . . . . . . 2,486 3,120 7,205 8,313
--------- --------- --------- ---------
NET INCOME . . . . . . . . . . . . . . . . . .$ 4,325 $ 5,841 $ 12,535 $ 15,236
========= ========= ========= =========
EARNINGS PER SHARE . . . . . . . . . . . . . .$ 0.15 $ 0.20 $ 0.43 $ 0.52
========= ========= ========= =========
DIVIDENDS PER SHARE . . . . . . . . . . . . .$ 0.040 $ 0.025 $ 0.065 $ 0.038
========= ========= ========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE 4>
THE CATO CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 30, July 31, January 29,
1994 1993 1994
---------- --------- ----------
(In thousands)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . $ 9,880 $ 37,673 $ 22,001
Short-term investments . . . . . . . . . . 28,663 11,734 20,613
Accounts receivable - net . . . . . . . . 38,715 32,984 36,814
Merchandise inventories . . . . . . .. . . 68,535 58,263 55,814
Deferred income taxes. . . . . . . . . . . 1,607 1,966 1,607
Prepaid expenses . . . . . . . . . . . . . 1,893 802 1,935
---------- --------- ----------
Total Current Assets . . . . . . . . . . . . 149,293 143,422 138,784
Property and Equipment. . . . . . . . . . 43,160 28,449 35,497
Other Assets . . . . . . . . . . . . . . . 4,469 4,113 4,322
---------- --------- ----------
Total. . . . . . . . . . . . . . . . . . $ 196,922 $175,984 $ 178,603
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . $ 44,980 $ 41,870 $ 34,547
Accrued expenses . . . . . . . . . . . . . 9,672 12,615 12,668
Income taxes . . . . . . . . . . . . . . . - 1,110 -
---------- --------- ----------
Total Current Liabilities. . . . . . . . 54,652 55,595 47,215
Deferred Income Taxes . . . . . . . . . . . 3,482 2,680 3,482
Other Noncurrent Liabilities . . . . . . . . 280 544 373
Stockholders' Equity:
Class A Common Stock, issued 23,104,188 shares,
22,935,458 shares and 23,078,208 shares at
July 30, 1994, July 31, 1993 and
January 29, 1994, respectively . . . . . 770 764 769
Convertible Class B Common Stock, issued
5,264,317 shares, 5,277,717 shares and
5,264,317 shares at July 30, 1994,
July 31, 1993 and January 29, 1994, re 176 176 176
Preferred Stock, none . . . . . . . . . . - - -
Additional paid-in capital . . . . . . . . . 62,035 59,540 61,753
Retained earnings . . . . . . . . . . . . . 75,527 56,685 64,835
---------- --------- ----------
Total Stockholders' Equity . . . . . . . . 138,508 117,165 127,533
---------- --------- ----------
Total . . . . . . . . . . . . . . . . . $ 196,922 $175,984 $ 178,603
========== ========= ==========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE 5>
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
July 30, July 31,
1994 1993
--------------------------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . $ 12,535 $ 15,236
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation . . . . . . . . . . . . . . . 3,365 2,448
Amortization of investment premiums . . . . 331 150
Changes in assets and liabilities:
(Increase) in accounts receivable . . . . (1,901) (5,247)
(Increase) in merchandise inventory . . . (12,721) (24,521)
(Increase) decrease in other assets . . . (105) 48
(Decrease) in accrued income taxes. . . . - (88)
Increase in accounts payable and
other liabilities . . . . . . . . . . 7,383 15,132
--------- -----------
Net cash provided by operating activities . . . 8,887 3,158
--------- -----------
INVESTING ACTIVITIES:
Expenditures for property and equipment . . . . (11,067) (6,845)
Purchases of short-term investments . . . . . (10,165) (15,549)
Sales of short-term investments . . . . . . . 1,784 7,494
--------- -----------
Net cash used in investing activities . . . . . (19,448) (14,900)
--------- -----------
FINANCING ACTIVITIES:
Cash dividends paid . . . . . . . . . . . . . (1,843) (1,083)
Proceeds from employee stock purchase plan. . . 240 -
Proceeds from stock options exercised . . . . 43 528
Proceeds from issuance of common stock . . . . - 24,268
Repayment of life insurance policy loans. . . . - (203)
--------- -----------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . (1,560) 23,510
--------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents . . . . . . . . . . . . . . . . (12,121) 11,768
Cash and Cash Equivalents at Beginning of
Year . . . . . . . . . . . . . . . . . . . . 22,001 25,905
--------- -----------
Cash and Cash Equivalents at End of Period. . . $ 9,880 $ 37,673
========= ===========
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE 6>
THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS AND SIX MONTHS ENDED JULY 30, 1994 AND
JULY 31, 1993
- - -------------------------------------------------------
NOTE 1 - GENERAL:
The consolidated financial statements have been prepared from the accounting
records of the Company and all amounts shown at July 30, 1994 and July 31,
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 July 31, 1993 to conform with classifications used as of
July 30, 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 29,260,660 shares and 29,415,015 shares for the three
months and six months ended July 30, 1994, respectively, and 29,767,045 shares
and 29,542,435 shares for the three months and six months ended July 31, 1993.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the six months ended July 30, 1994 and July 31, 1993 was
$100,000 and $202,000, respectively. Income tax payments for the six months
ended July 30, 1994 and July 31, 1993 were $8,200,000 and $8,400,000,
respectively.
5
<PAGE 7>
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 Six Months Ended
------------------ ----------------
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total retail sales 100.0% 100.0% 100.0% 100.0%
Total revenues 102.8 103.0 102.8 103.0
Cost of goods sold, including
occupancy, distribution
and buying 69.9 66.8 67.1 64.2
Selling, general and
administrative 25.1 25.4 25.2 25.0
Income before income taxes 6.2 9.4 9.0 12.4
Net income 3.9 6.1 5.78 .0
</TABLE>
Comparison of Second Quarter and First Six Months of 1994 and 1993.
OPERATING RESULTS
- - -----------------
Total retail sales for the second quarter increased 15% over last year's
second quarter to $110.2 million from $95.5 million. Same-store sales
increased 2% over the prior year's second quarter. For the six months ended
July 30, 1994, total retail sales increased 16% over the prior year's first
six months, and same-store sales increased 2% over the comparable six-month
period. The Company operated 618 stores at July 30, 1994, compared to 550
stores operated at the end of last year's second 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 second quarter
and first six months.
Other income for the second quarter and first six months increased 7% and 8%,
respectively, over the prior year's comparable 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 69.9% and 67.1% of total retail sales for the second quarter and first
six months of this year, compared to 66.8% and 64.2% for last year's
comparable three- and six-month periods. The increase in costs of goods sold
as a percent of retail sales resulted primarily from higher levels of
promotional markdowns recorded in the current year. As a result of sales not
reaching planned
6
<PAGE 8>
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- - -------------------------------------------------
levels in the second quarter and first six months of this
year, higher levels of markdowns were required to keep overall inventory
levels in line with the sales levels achieved. The Company's sales plans for
the remainder of the year have been revised to reflect more modest sales
increases and inventory levels will be in line with the revised plan.
Selling, general and administrative (SG&A) expenses were $27.7 million, or
25.1% of total retail sales, and $55.5 million, or 25.2% of total retail
sales, for the second quarter and first six months of this year, compared to
$24.2 million, or 25.4% of total retail sales, and $47.4 million, or 25.0% 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 July 30, 1994, the Company had working capital of $94.6 million, compared
to $87.8 million at July 31, 1993 and $91.6 million at January 29, 1994. Cash
provided by operating activities was $8.9 million for the six months ended
July 30, 1994, compared to $3.2 million in the prior year's first six months.
The increase in the current year resulted primarily from decreased investment
in inventory. The Company had no borrowings under its $35 million revolving
credit and term loan agreement during the six-month periods ended July 30,
1994 and July 31, 1993.
Expenditures for property and equipment totaled $11.1 million for the six
months ended July 30, 1994, compared to $6.8 million of expenditures in last
year's first six months. The Company is currently planning approximately
$29 million of capital expenditures in the current fiscal year. The Company
plans to open approximately 85 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 July 30, 1994, the Company had opened
45 new stores, relocated or expanded 27 stores and closed 2 stores.
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.
7
<PAGE 9>
PART II OTHER INFORMATION
THE CATO CORPORATION
ITEM 1. LEGAL PROCEEDINGS
- - ----------------------------
None
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
- - ------------------------------------------------------------------
None
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
- - -----------------------------------------------------------
Not Applicable
ITEM 4. RESULT OF VOTES OF SECURITY HOLDERS
- - ----------------------------------------------
Following are the results of the matters voted upon at the Company's
Annual Meeting which was held on May 19, 1994.
Election of Directors:
Mr. John P. Derham Cato - For 67,348,030; Abstaining 4,665; Against 0
Ms. Clarice Cato Goodyear - For 67,347,772; Abstaining 4,923; Against 0
Mr. James H. Shaw - For 67,348,180; Abstaining 4,515; Against 0
Mr. Robert W. Bradshaw, Jr. - For 67,347,980; Abstaining 4,715; Against 0
Mr. Grant L. Hamrick - For 67,348,180; Abstaining 4,515; Against 0
Mr. Alan E. Wiley - For 67,347,830; Abstaining 4,865; Against 0
Amendment to the Company's Bylaws and Certificate of Incorporation:
For 64,576,451; Abstaining 801; Against 2,775,443
Adoption of 1993 Employee Stock Purchase Plan:
For 67,198,075; Abstaining 501; Against 154,119
Amendment to Certificate of Incorporation:
For 64,055,049; Abstaining 666; Against 3,296,980
Ratification of Ernst & Young as Auditors:
For 67,352,057; Abstaining 638; Against 0
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
July 30, 1994.
8
<PAGE 10>
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: September 2, 1994 Wayland H. Cato, Jr.
-----------------------------
Wayland H. Cato, Jr.
Chairman of the Board of
Directors and Chief Executive
Officer
Date: September 2, 1994 Alan E. Wiley
-----------------------------
Alan E. Wiley
Executive Vice President-
Secretary, Chief Financial
and Administrative Officer
</TABLE>
9
<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> 6-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JUL-30-1994
<CASH> 9,880
<SECURITIES> 28,663
<RECEIVABLES> 41,840
<ALLOWANCES> 3,125
<INVENTORY> 68,535
<CURRENT-ASSETS> 149,293
<PP&E> 71,452
<DEPRECIATION> 28,292
<TOTAL-ASSETS> 196,922
<CURRENT-LIABILITIES> 54,652
<BONDS> 0
<COMMON> 946
0
0
<OTHER-SE> 137,562
<TOTAL-LIABILITY-AND-EQUITY> 196,922
<SALES> 220,301
<TOTAL-REVENUES> 226,394
<CGS> 147,801
<TOTAL-COSTS> 147,801
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,511
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,740
<INCOME-TAX> 7,205
<INCOME-CONTINUING> 12,535
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,535
<EPS-PRIMARY> .43
<EPS-DILUTED> 0
</TABLE>
