<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 November 2, 1996
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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
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THE CATO CORPORATION AND SUBSIDIARIES
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(Exact name of registrant as specified in its charter)
Delaware 56-0484485
- - --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
8100 Denmark Road, Charlotte, North Carolina 28273-5975
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(Address of principal executive offices)
(Zip Code)
(704) 554-8510
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(Registrant's telephone number, including area code)
Not Applicable
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(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 19, 1996, there were 23,189,618 shares of Class A Common Stock
and 5,264,317 shares of Class B Common Stock outstanding.
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THE CATO CORPORATION
FORM 10-Q
NOVEMBER 2, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
No.
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PART I - FINANCIAL INFORMATION (UNAUDITED)
<S> <C>
Consolidated Statements of Income (Loss) 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>
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PART I FINANCIAL INFORMATION
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
NOVEMBER 2, October 28, NOVEMBER 2, October 28,
1996 1995 1996 1995
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES
Retail sales $ 108,117 $ 105,825 $ 340,892 $ 335,025
Other income (principally finance and layaway charges) 3,374 3,506 10,093 9,911
--------- --------- --------- ---------
Total revenues 111,491 109,331 350,985 344,936
--------- --------- --------- ---------
COSTS AND EXPENSES
Cost of goods sold, including occupancy,
distribution and buying 81,467 80,097 241,790 237,629
Selling, general and administrative 29,298 29,504 88,544 87,815
Depreciation 2,055 1,917 6,252 5,795
Interest 65 56 196 212
--------- --------- --------- ---------
Total expenses 112,885 111,574 336,782 331,451
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (1,394) (2,243) 14,203 13,485
Income taxes (benefit) (495) (751) 5,042 4,516
--------- --------- --------- ---------
NET INCOME (LOSS) $ (899) $ (1,492) $ 9,161 $ 8,969
========= ========= ========= =========
INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE $ (0.03) $ (0.05) $ 0.32 $ 0.31
========= ========= ========= =========
DIVIDENDS PER SHARE $ 0.04 $ 0.04 $ 0.12 $ 0.12
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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THE CATO CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 2, October 28, February 3,
1996 1995 1996
(UNAUDITED) (Unaudited)
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 10,053 $ 17,448 $ 26,183
Short-term investments 34,646 23,830 21,711
Accounts receivable - net 38,893 37,425 39,792
Merchandise inventories 93,007 82,085 58,440
Deferred income taxes 1,825 1,768 1,825
Prepaid expenses 1,981 2,381 2,486
--------- --------- ---------
Total Current Assets 180,405 164,937 150,437
Property and Equipment 55,611 53,051 54,364
Other Assets 5,349 4,957 5,094
--------- --------- ---------
Total $ 241,365 $ 222,945 $ 209,895
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 59,350 $ 52,507 $ 36,482
Accrued expenses 12,590 11,289 10,458
Income taxes 1,865 - 1,328
--------- --------- ---------
Total Current Liabilities 73,805 63,796 48,268
Deferred Income Taxes 4,491 4,192 4,491
Other Noncurrent Liabilities 7,799 7,243 7,454
Stockholders' Equity:
Class A Common Stock, issued 23,364,618 shares,
23,202,959 shares and 23,204,647 shares at
November 2, 1996, October 28, 1995 and
February 3, 1996, respectively 778 773 773
Convertible Class B Common Stock, issued and
outstanding 5,264,317 shares at November 2, 1996,
October 28, 1995 and February 3, 1996,
respectively 176 176 176
Preferred Stock, none - - -
Additional paid-in capital 63,263 62,660 62,665
Retained earnings 92,032 84,328 86,291
--------- --------- ---------
156,249 147,937 149,905
Less: Class A Common Stock in treasury,
at cost (175,000 shares at November 2, 1996, 40,000
shares at October 28, 1995 and February 3, 1996,
respectively) 979 223 223
--------- --------- ---------
Total Stockholders' Equity 155,270 147,714 149,682
--------- --------- ---------
Total $ 241,365 $ 222,945 $ 209,895
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
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NOVEMBER 2, October 28,
1996 1995
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(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,161 $ 8,969
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,252 5,795
Amortization of investment premiums 146 159
Changes in operating assets and liabilities:
Decrease in accounts receivable 899 501
Increase in merchandise inventories (34,567) (27,411)
Decrease (Increase) in other assets 250 (41)
Increase (Decrease) in accrued income taxes 537 (909)
Increase in accounts payable and
other liabilities 25,729 16,566
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Net cash provided by operating activities 8,407 3,629
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INVESTING ACTIVITIES
Expenditures for property and equipment (7,883) (5,940)
Purchases of short-term investments (19,555) (5,990)
Sales of short-term investments 6,474 5,036
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Net cash used in investing activities (20,964) (6,894)
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FINANCING ACTIVITIES
Dividends paid (3,420) (3,412)
Purchase of treasury stock (756) (223)
Proceeds from employee stock purchase plan 269 379
Proceeds from stock options exercised 334 6
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Net cash used in financing activities (3,573) (3,250)
--------- ---------
Net Decrease in Cash and Cash Equivalents (16,130) (6,515)
Cash and Cash Equivalents at Beginning of Year 26,183 23,963
--------- ---------
Cash and Cash Equivalents at End of Period $ 10,053 $ 17,448
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 2, 1996 AND OCTOBER 28, 1995
NOTE 1 - GENERAL:
The consolidated financial statements have been prepared from the accounting
records of The Cato Corporation (the Company) and all amounts shown at November
2, 1996 and October 28, 1995 are unaudited. In the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) considered
necessary for a fair presentation have been included. The results of the
interim period may not be indicative of the entire year.
The Company's short-term investments are classified as available for sale
securities, and therefore, are carried at fair value, with unrealized gains and
losses, net of income taxes, reported as an adjustment to retained earnings.
Inventories are stated at the lower of cost (first-in, first-out) or market,
determined by the retail inventory method.
The provisions for income taxes are based on the Company's estimated annual
effective tax rate.
NOTE 2 - EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
Income (loss) 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 income (loss) per
common and common equivalent share computations were applicable, 28,577,429
shares and 28,706,072 shares for the three months and nine months ended
November 2, 1996, respectively, and 28,570,582 shares and 28,612,012 shares for
the three months and nine months ended October 28, 1995, respectively.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the nine months ended November 2, 1996 and October 28,
1995 was $155,000 and $234,000, respectively. Income tax payments for the nine
months ended November 2, 1996 and October 28, 1995 were $4,494,000 and
$5,412,000, respectively.
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THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 2, 1996 AND OCTOBER 28, 1995
NOTE 4 - FINANCING ARRANGEMENTS:
In February 1996, the Company entered into a new unsecured revolving credit
agreement which provides for borrowings of up to $20 million and an additional
letter of credit facility of $15 million. The revolving credit agreement is
committed until May 1999 and the letter of credit facility is renewable
annually. The revolving credit agreement contains various financial covenants,
including the maintenance of specific financial ratios. The agreement replaces
an unsecured revolving credit and term loan agreement, which was committed
until May 1998, and provided $35 million of available borrowings and a $15
million letter of credit facility.
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THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in the
Company's Unaudited Consolidated Statements of Income as percentages of total
retail sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
NOVEMBER 2, October 28, NOVEMBER 2, October 28,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Total retail sales 100.0 % 100.0 % 100.0 % 100.0 %
Total revenues 103.1 103.3 103.0 103.0
Cost of goods sold, including occupancy,
distribution and buying 75.3 75.7 70.9 70.9
Selling, general and administrative 27.1 27.9 26.0 26.2
Income (loss) before income taxes (1.3) (2.1) 4.2 4.1
Net (loss) income (0.8) (1.4) 2.7 2.7
</TABLE>
COMPARISON OF THIRD QUARTER AND FIRST NINE MONTHS OF 1996 WITH 1995.
OPERATING RESULTS
Total retail sales for the third quarter were $108.1 million compared to last
year's third quarter sales of $105.8 million, a 2% increase. Same-store sales
decreased 2% in this year's third quarter. For the nine months ended November
2, 1996, total retail sales increased 2% over the prior year's first nine
months, while same-store sales decreased 3% for the comparable nine month
period. The increase in retail sales for the first nine months of 1996
resulted from the Company's store development activity. The Company operated
694 stores at November 2, 1996 compared to 671 stores at the end of last year's
third quarter.
Other income for the third quarter decreased 4% compared to last year's third
quarter. The decrease in the current quarter resulted primarily from reduced
layaway charges. For the first nine months of 1996, other income increased 2%
over last year's comparable period. The increase in the current year resulted
primarily from increased finance charge income on the Company's customer
accounts receivable and increased earnings from cash equivalents and short-term
investments.
Cost of goods sold, including occupancy, distribution and buying expenses were
75.3% and 70.9% of total retail sales for the third quarter and first nine
months of 1996, respectively, compared to 75.7% and 70.9% for last year's
comparable three and nine month periods. The Company's merchandise margins for
the third quarter and first nine months of 1996 continue to show the effect of
sluggish sales. The Company has been aggressive in taking markdowns to keep
inventory levels in line with below planned sales.
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THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Selling, general and administrative (SG&A) expenses were $29.3 million, or
27.1% of total retail sales and $88.5 million, or 26.0% of total retail sales
for the third quarter and first nine months of this year, respectively. SG&A
expenses were $29.5 million, or 27.9% of total retail sales and $87.8 million,
or 26.2% of total retail sales for last year's comparable three and nine months
periods, respectively. SG&A expenses improved 80 basis points in the third
quarter ended November 2, 1996, compared to last year's third quarter, a result
of the Company's continued efforts to control operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
At November 2, 1996, the Company had working capital of $106.6 million,
compared to $101.1 million at October 28, 1995 and $102.2 million at February 3,
1996. Cash provided from operating activities was $8.4 million for the nine
months ended November 2, 1996, compared to $3.6 million for last year's
comparable nine month period. The Company had no borrowings under its revolving
credit agreement at November 2, 1996 or October 28, 1995. At November 2, 1996,
the Company had cash, cash equivalents, and short-term investments of $44.7
million, compared to $41.3 million at October 28, 1995 and $47.9 million at
February 3, 1996.
In February 1996, the Company entered into a new unsecured revolving credit
agreement which provides for borrowings of up to $20 million and an additional
letter of credit facility of $15 million. The revolving credit agreement is
committed until May 1999 and the letter of credit facility is renewable
annually. The revolving credit agreement contains various financial covenants,
including the maintenance of specific financial ratios. The agreement replaces
an unsecured revolving credit and term loan agreement, which was committed
until May 1998, and provided $35 million of available borrowings and a $15
million letter of credit facility.
Expenditures for property and equipment totaled $7.9 million for the nine
months ended November 2, 1996, compared to $5.9 million of expenditures in last
year's first nine months. The Company expects total capital expenditures to be
approximately $9.5 million for the current fiscal year. The Company intends to
open 28 new stores and to relocate or expand 19 stores during the current
fiscal year. For the nine months ended November 2, 1996, the Company had
opened 27 new stores and relocated or expanded 18 stores and closed 4 stores.
The Company believes that its cash, cash equivalents and short-term
investments, together with cash flow from operations and borrowings available
under its revolving credit agreement, will be adequate to fund the Company's
proposed capital expenditures and other operating requirements.
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PART II OTHER INFORMATION
THE CATO CORPORATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
None
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
Not Applicable
ITEM 4. RESULT OF VOTES OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 27 - Financial Data Schedule (for SEC use only).
(B) No Reports on Form 8-K were filed during the quarter ended November 2,
1996.
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PART II OTHER INFORMATION (CONTINUED)
THE CATO CORPORATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE CATO CORPORATION
December 6, 1996 /s/ Wayland H. Cato, Jr.
- - -------------------------- ----------------------------------------
Date Wayland H. Cato, Jr.
Chairman of the Board of Directors and
Chief Executive Officer
December 6, 1996 /s/ Alan E. Wiley
- - -------------------------- ----------------------------------------
Date Alan E. Wiley
Senior Executive Vice President-
Secretary, Chief Financial and
Administrative Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS 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> FEB-01-1997
<PERIOD-END> NOV-02-1996
<CASH> 10,053
<SECURITIES> 34,646
<RECEIVABLES> 43,279
<ALLOWANCES> 4,386
<INVENTORY> 93,007
<CURRENT-ASSETS> 180,405
<PP&E> 100,278
<DEPRECIATION> 44,667
<TOTAL-ASSETS> 241,365
<CURRENT-LIABILITIES> 73,805
<BONDS> 0
0
0
<COMMON> 954
<OTHER-SE> 154,316
<TOTAL-LIABILITY-AND-EQUITY> 241,365
<SALES> 340,892
<TOTAL-REVENUES> 350,985
<CGS> 241,790
<TOTAL-COSTS> 241,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,641
<INTEREST-EXPENSE> 196
<INCOME-PRETAX> 14,203
<INCOME-TAX> 5,042
<INCOME-CONTINUING> 9,161
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,161
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0
</TABLE>
