UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________to__________________
Commission file number 0-3747
THE CATO CORPORATION AND SUBSIDIARIES
(Exact name of registrant as specified in its charter)
Delaware 56-0484485
(State or other jurisdiction (I.R.S. Employer
of incorporation Identification No.)
8100 Denmark Road, Charlotte, North Carolina 28273-5975
(Address of principal executive offices)
(Zip Code)
(704) 554-8510
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of May 17, 1996, there were 23,261,275 shares of Class A
Common Stock and 5,264,317 shares of Class B Common Stock
outstanding.
THE CATO CORPORATION
FORM 10-Q
May 4, 1996
Table of Contents
Page
No.
PART I - FINANCIAL INFORMATION (UNAUDITED)
Consolidated statements of income 2
Consolidated balance sheets 3
Consolidated statements of cash flows 4
Notes to consolidated financial statements 5-7
Management's discussion and analysis of
financial condition and results of operations 8-9
PART II - OTHER INFORMATION 10-11
PART I FINANCIAL INFORMATION
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF
INCOME
Three Months Ended
---------- ----------
May 4, April 29,
1996 1995
---------- ----------
(In thousands, except per share data)
REVENUES
Retail sales $ 120,028 $ 114,461
Other income
(principally finance
and layaway charges) 3,511 3,294
--------- -----------
Total revenues 123,539 117,755
COSTS AND EXPENSES
Cost of goods sold, including
occupancy, distribution
and buying 79,774 75,276
Selling, general and
administrative 29,655 29,188
Depreciation 2,074 1,939
Interest 65 78
--------- ----------
Total expenses 111,568 106,481
--------- ----------
INCOME BEFORE INCOME TAXES 11,971 11,274
Income taxes 4,250 3,776
--------- ----------
NET INCOME $ 7,721 $ 7,498
========= ==========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.27 $ 0.26
========= ==========
DIVIDENDS PER SHARE $ 0.04 $ 0.04
========= ==========
See notes to unaudited consolidated financial statements.
THE CATO CORPORATION
UNAUDITED CONSOLIDATED BALANCE
SHEETS
May 4, April 29, February 3,
1996 1995 1996
-------- --------- -----------
(In thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 21,756 $ 26,378 $ 26,183
Short-term investments 34,816 25,423 21,711
Accounts receivable - net 39,538 37,455 39,792
Merchandise inventories 69,547 70,101 58,440
Deferred income taxes 1,825 1,914 1,825
Prepaid expenses 4,652 2,686 2,486
-------- ---------- ---------
Total Current Assets 172,134 163,957 150,437
Property and Equipment 55,118 52,857 54,364
Other Assets 5,186 4,780 5,094
-------- --------- ---------
Total $ 232,438 $ 221,594 $ 209,895
======== ========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 48,824 $ 48,467 $ 36,482
Accrued expense 10,591 9,372 10,458
Income taxes 4,352 4,365 1,328
-------- --------- ---------
Total Current Liabilities 63,767 62,204 48,268
Deferred Income Taxes 4,491 4,192 4,491
Other Noncurrent Liabilities 7,551 7,061 7,454
Stockholders' Equity:
Class A Common Stock, issued
23,301,275 shares, 23,172,796
shares and 23,204,647 shares at
May 4, 1996, April 29, 1995
and February 3, 1996,
respectively 776 771 773
Convertible Class B Common
Stock, issued and outstanding
5,264,317 shares 176 176 176
Preferred Stock, none
Additional paid-in capital 63,026 62,343 62,665
Retained earnings 92,874 84,847 86,291
-------- -------- --------
Less Class A Common Stock in 156,852 148,137 149,905
treasury,
at cost (40,000 shares at May 4,
1996 and
February 3, 1996) 223 - 223
-------- -------- --------
Total Stockholders' Equity 156,629 148,137 149,682
-------- -------- --------
Total $ 232,438 $ 221,594 $ 209,895
========= ========= =========
See notes to unaudited consolidated financial statements.
THE CATO CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
---------------------------------
May 4, April 29,
1996 1995
----------------------------------
(In thousands)
OPERATING ACTIVITIES
Net income $ 7,721 $ 7,498
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 2,074 1,939
Amortization of
investment premiums 35 50
Changes in operating
assets and liabilities:
Decrease in accounts
receivable 254 471
Increase in merchandise
inventories (11,107) (15,427)
Increase in other assets (2,258) (169)
Increase in accrued income
taxes 3,024 3,456
Increase in accounts
payable and other
liabilities 12,580 10,256
-------- --------
Net cash provided by
operating activities 12,323 8,074
-------- --------
INVESTING ACTIVITIES
Expenditures for property
and equipment (2,836) (1,719)
Purchases of short-term
investments (14,140) (3,419)
Sales of short-term investments 1,000 550
-------- --------
Net cash used in investing
activities (15,976) (4,588)
-------- --------
FINANCING ACTIVITIES
Dividends paid (1,138) (1,137)
Proceeds from employee stock
purchase plan 154 66
Proceeds from stock options
exercised 210 -
-------- --------
Net cash used in financing
activities (774) (1,071)
-------- --------
Net Increase (Decrease)
in Cash and Cash Equivalents (4,427) 2,415
Cash and Cash Equivalents at
Beginning of Year 26,183 23,963
--------- --------
Cash and Cash Equivalents at End
of Period $ 21,756 $ 26,378
========= =========
See notes to unaudited consolidated financial statements.
THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MAY 4, 1996 AND APRIL 29, 1995
NOTE 1 - GENERAL:
The consolidated financial statements have been prepared from the
accounting records of the Company and all amounts shown at May 4,
1996 and April 29, 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 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 PER COMMON AND COMMON EQUIVALENT 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 common and common equivalent
share computations were 28,918,042 shares for the three months
ended May 4, 1996 and 28,535,326 shares for the three months
ended April 29, 1995.
THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MAY 4, 1996 AND APRIL 29, 1995
<TABLE>
<CAPTION>
NOTE 3 - SHORT-TERM INVESTMENTS:
Short-term investments at May 4, 1996 and April 29, 1995 include
the following (in thousands):
May 4, 1996 April 29, 1995
----------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Unrealized Estimated Unrealized Estimated
Security Type Cost Gain Fair Cost Gain Fair
(Loss) Value (Loss) Value
---------- ---------- --------- ---------- ---------- ---------
Obligations of
states and
political
subdivisions $30,885 - $30,885 $19,386 $(20) $19,366
Corporate debt
securities 2,000 - 2,000 2,000 (130) 1,870
---------- ---------- ---------- ---------- ---------- ---------
Total 32,885 - 32,885 21,386 (150) 21,236
Equity securities 1,931 - 1,931 4,548 (361) 4,187
---------- ---------- ----------- ---------- ---------- ---------
Total $34,816 - $34,816 $25,934 $(511) $25,423
========== ========== =========== =========== ========== =========
</TABLE>
The amortized cost and estimated fair value of debt and
marketable equity securities at May 4, 1996 and April 29, 1995,
by contractual maturity, are shown below (in thousands):
May 4, 1996 April 29, 1995
--------------------- --------------------
Estimated Estimated
Fair Fair
Security Type Cost Value Cost Value
- - ----------------- -------- --------- -------- ---------
Due in one year
or less $29,513 $29,513 $18,880 $18,718
Due in one year
through three years 3,372 3,372 2,506 2,518
-------- --------- -------- --------
Subtotal 32,885 32,885 21,386 21,236
Equity securities 1,931 1,931 4,548 4,187
-------- --------- --------- -------
Total $34,816 $34,816 $25,934 $25,423
======== ========= ========= ======
THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED MAY 4, 1996 AND APRIL 29, 1995
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the three months ended May 4, 1996 and April
29, 1995 was $61,000 and $145,000, respectively. Income tax
payments, net of refunds received, were $1,249,000 and $318,000
for the three months ended May 4, 1996 and April 29, 1995,
respectively.
NOTE 5 - 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.
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:
Three Months Ended
-------------------
May 4, April 29,
1996 1995
------ -------
Total retail sales 100.0% 100.0%
Total revenues 102.9 102.9
Cost of goods sold, including occupancy,
distribution and buying 66.5 65.8
Selling, general and administrative 24.7 25.5
Income before income taxes 10.0 9.8
Net income 6.4 6.5
Comparison of First Quarter of 1996 with 1995.
OPERATING RESULTS
Total retail sales for the first quarter increased 5% over last
year's first quarter to $120.0 million from $114.5 million. Same-
store sales were flat for the first quarter of 1996. The
increase in retail sales for the first quarter resulted from the
Company's store development activity. The Company operated 682
stores at May 4, 1996 compared to 657 stores operated at the end
of last year's first quarter.
Other income for the first quarter increased 7% over last year's
first quarter. 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 66.5% of total retail sales for the current year's
first quarter, compared to 65.8% for last year's first three
months. The increase in cost of goods sold as a percent of retail
sales resulted primarily from higher levels of promotional
markdowns taken in this year's first quarter.
Selling, general and administrative (SG&A) expenses were $29.7
million, or 24.7% or retail sales, for this year's first quarter,
compared to $29.2 million, or 25.5% or retail sales, in last
year's first quarter. The decrease in SG&A as a percent of
retail sales reflects the Company's continued emphasis on
operating expense management.
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At May 4, 1996, the Company had working capital of
$108.4 million, compared to $101.8 million at April 29, 1995 and
$102.2 million at February 3, 1996. Cash provided by operating
activities was $12.3 million for the three months ended May 4,
1996, compared to $8.1 million for last year's comparable three-
month period. The Company had no borrowings under its revolving
credit agreement at May 4, 1996 or April 29, 1995. At May 4,
1996, the Company had cash, cash equivalents, and short-term
investments of $56.6 million, compared to $51.8 million at April
29, 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 $2.8 million for
the three months ended May 4, 1996, compared to $1.7 million of
expenditures in last year's first three months. The Company
expects total capital expenditures to be approximately $9.6
million for current fiscal year. The Company is currently
planning very modest store development in fiscal 1996, pending
more favorable business trends. The Company intends to open
approximately 20 new stores and to relocate or expand 15 stores
during the current fiscal year. For the three months ended May
4, 1996, the Company had opened 11 new stores and relocated or
expanded 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.
PART II OTHER INFORMATION
THE CATO CORPORATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
None
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
Not Applicable
ITEM 4. RESULT OF VOTES OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) None
(B) No Reports on Form 8-K were filed during the quarter
ended May 4, 1996.
PART II OTHER INFORMATION (CONTINUED)
THE CATO CORPORATION
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE CATO CORPORATION
June 7, 1996 /s/ Wayland H. Cato, Jr.
--------------- -------------------------
Date Wayland H. Cato, Jr.
Chairman of the Board
of Directors and Chief
Executive Officer
June 7, 1996 /s/ Alan E. Wiley
--------------- ---------------------------
Date Alan E. Wiley
Executive Vice
President-Secretary,
Chief Financial and
Administrative Officer
<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> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> MAY-04-1996
<CASH> 21,756
<SECURITIES> 34,816
<RECEIVABLES> 43,925
<ALLOWANCES> 4,387
<INVENTORY> 69,547
<CURRENT-ASSETS> 172,134
<PP&E> 95,864
<DEPRECIATION> 40,746
<TOTAL-ASSETS> 232,438
<CURRENT-LIABILITIES> 63,767
<BONDS> 0
0
0
<COMMON> 952
<OTHER-SE> 155,677
<TOTAL-LIABILITY-AND-EQUITY> 232,438
<SALES> 120,028
<TOTAL-REVENUES> 123,539
<CGS> 79,774
<TOTAL-COSTS> 79,774
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 265
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> 11,971
<INCOME-TAX> 4,250
<INCOME-CONTINUING> 7,721
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,721
<EPS-PRIMARY> .27
<EPS-DILUTED> 0
</TABLE>
