<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 1, 1997
----------------------------------------------
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 November 18, 1997, there were 22,588,366 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 1, 1997
TABLE OF CONTENTS
Page
No.
----
PART I - FINANCIAL INFORMATION (UNAUDITED)
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
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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 1, November 2, November 1, November 2,
1997 1996 1997 1996
-------------- ------------- -------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
REVENUES
Retail sales $ 109,886 $ 108,117 $ 354,038 $ 340,892
Other income (principally finance and layaway charges) 3,857 3,374 11,656 10,093
------------- ------------ ------------- ------------
Total revenues 113,743 111,491 365,694 350,985
------------- ------------ ------------- ------------
COSTS AND EXPENSES
Cost of goods sold, including occupancy,
distribution and buying 80,028 81,467 249,038 241,790
Selling, general and administrative 29,747 29,298 91,428 88,544
Depreciation 1,873 2,055 5,781 6,252
Interest 66 65 197 196
------------- ------------ ------------- ------------
Total expenses 111,714 112,885 346,444 336,782
------------- ------------ ------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 2,029 (1,394) 19,250 14,203
Income taxes (benefit) 639 (495) 6,064 5,042
------------- ------------ ------------- ------------
NET INCOME (LOSS) $ 1,390 $ (899) $ 13,186 $ 9,161
============= ============ ============= ============
EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE $ .05 $ (0.03) $ .46 $ 0.32
============= ============ ============= ============
DIVIDENDS PER SHARE $ .04 $ 0.04 $ .12 $ 0.12
============= ============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
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THE CATO CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 1, November 2, February 1,
1997 1996 1997
(Unaudited) (Unaudited)
-------------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 18,189 $ 10,053 $ 16,593
Short-term investments 33,774 34,646 33,512
Accounts receivable - net 47,453 38,893 43,192
Merchandise inventories 89,365 93,007 63,968
Deferred income taxes 2,014 1,825 2,014
Prepaid expenses 1,833 1,981 2,181
-------------- -------------- --------------
Total Current Assets 192,628 180,405 161,460
Property and Equipment - net 50,229 55,611 51,333
Other Assets 5,554 5,349 5,450
-------------- -------------- --------------
Total $ 248,411 $ 241,365 $ 218,243
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 58,317 $ 59,350 $ 38,276
Accrued expenses 17,475 12,590 16,232
Income taxes 4,225 1,865 1,579
-------------- -------------- --------------
Total Current Liabilities 80,017 73,805 56,087
Deferred Income Taxes 3,851 4,491 3,851
Other Noncurrent Liabilities 6,671 7,799 6,402
Stockholders' Equity:
Class A Common Stock, issued 23,439,466 shares,
23,364,618 shares and 23,366,403 shares at
November 1, 1997, November 2, 1996 and
February 1, 1997, respectively 781 778 778
Convertible Class B Common Stock, issued and
outstanding 5,264,317 shares at November 1, 1997,
November 2, 1996 and February 1, 1997,
respectively 176 176 176
Preferred Stock, none - - -
Additional paid-in capital 63,677 63,263 63,272
Retained earnings 98,449 92,032 88,656
-------------- -------------- --------------
163,083 156,249 152,882
Less: Class A Common Stock in treasury,
at cost (851,500 shares at November 1, 1997, 175,000
shares at November 2, 1996 and February 1, 1997,
respectively) 5,211 979 979
-------------- -------------- --------------
Total Stockholders' Equity 157,872 155,270 151,903
-------------- -------------- --------------
Total $ 248,411 $ 241,365 $ 218,243
============== ============== ==============
</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
--------------------------------------------
November 1, November 2,
1997 1996
--------------------------------------------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 13,186 $ 9,161
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 5,781 6,252
Amortization of investment premiums 75 146
Changes in operating assets and liabilities which
provided (used) cash:
Accounts receivable (4,261) 899
Merchandise inventories (25,397) (34,567)
Other assets 244 250
Accrued income taxes 2,646 537
Accounts payable and other liabilities 22,179 25,729
---------------- ---------------
Net cash provided by operating activities 14,453 8,407
---------------- ---------------
INVESTING ACTIVITIES
Expenditures for property and equipment (5,303) (7,883)
Purchases of short-term investments (5,866) (19,555)
Sales of short-term investments 5,529 6,474
---------------- ---------------
Net cash used in investing activities (5,640) (20,964)
---------------- ---------------
FINANCING ACTIVITIES
Dividends paid (3,393) (3,420)
Purchase of treasury stock (4,232) (756)
Proceeds from employee stock purchase plan 229 269
Proceeds from stock options exercised 179 334
---------------- ---------------
Net cash used in financing activities (7,217) (3,573)
---------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents 1,596 (16,130)
Cash and Cash Equivalents at Beginning of Period 16,593 26,183
---------------- ---------------
Cash and Cash Equivalents at End of Period $ 18,189 $ 10,053
================ ===============
</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 1, 1997 AND
NOVEMBER 2, 1996
- - --------------------------------------------------------------------------------
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
1, 1997 and November 2, 1996 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:
Earnings (loss) per share is calculated by dividing net income (loss) 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 (loss) per common and common
equivalent share computations were 28,214,727 shares and 28,365,202 shares for
the three months and nine months ended November 1, 1997, respectively, and
28,577,429 shares and 28,706,072 shares for the three months and nine months
ended November 2, 1996, respectively.
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THE CATO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 1, 1997 AND
NOVEMBER 2, 1996
- - --------------------------------------------------------------------------------
NOTE 2 - EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE - CONTINUED:
In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings
per Share" (SFAS 128) was issued to simplify the standards for computing
earnings per share (EPS) and make them comparable to international EPS
standards. SFAS 128 is effective for periods ending after December 15, 1997 and
can not be adopted at an earlier date. SFAS 128 will require dual presentation
of basic and diluted EPS on the face of the statement of current earnings and a
reconciliation of the components of the basic and diluted EPS calculations in
the notes to the financial statements. Basic EPS excludes dilution and is
computed by dividing net earnings by the weighted-average number of common
shares outstanding for the period. Diluted EPS is similar to fully diluted EPS
pursuant to Accounting Principles Board (APB) Opinion No. 15. The Company will
adopt SFAS 128 in the quarter and year ending January 31, 1998. Had the new
standard been applied in the quarter ended November 1, 1997, basic and diluted
EPS would not have been materially different from primary and fully diluted EPS
under APB Opinion No. 15.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the nine months ended November 1, 1997 and November 2, 1996
was $194,000 and $155,000, respectively. Income tax payments for the nine months
ended November 1, 1997 and November 2, 1996 were $2,869,000 and $4,494,000,
respectively.
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 replaced
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.
In May 1997, the unsecured revolving credit agreement was extended until May
2000 and the letter of credit facility renewed for an additional year.
<PAGE> 8
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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 1, November 2, November 1, November 2,
1997 1996 1997 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total retail sales 100.0% 100.0% 100.0% 100.0%
Total revenues 103.5 103.1 103.3 103.0
Cost of goods sold, including occupancy,
distribution and buying 72.8 75.3 70.3 70.9
Selling, general and administrative 27.0 27.1 25.9 26.0
Income (loss) before income taxes 1.9 (1.3) 5.4 4.2
Net income (loss) 1.3 (0.8) 3.7 2.7
</TABLE>
COMPARISON OF THIRD QUARTER AND FIRST NINE MONTHS OF 1997 WITH 1996.
OPERATING RESULTS
Total retail sales for the third quarter were $109.9 million compared to last
year's third quarter sales of $108.1 million, a 2% increase. Same-store sales
increased 3% in this year's third quarter. For the nine months ended November 1,
1997, total retail sales increased 4% over the prior year's first nine months,
while same-store sales increased 5% for the comparable nine month period. The
increase in retail sales for the first nine months of 1997 resulted from the
Company's store development activity, a more customer attuned merchandise
offering and more aggressive pricing. The Company operated 688 stores at
November 1, 1997 compared to 694 stores at the end of last year's third quarter.
Other income for the third quarter and first nine months of 1997 increased 14%
and 15%, respectively, over the prior year's comparable periods. The increase in
the current year resulted primarily from increased finance charge income on the
Company's customer accounts receivable and by increased earnings from cash
equivalents and short-term investments.
Cost of goods sold, including occupancy, distribution and buying expenses were
72.8% and 70.3% of total retail sales for the third quarter and first nine
months of 1997, respectively, compared to 75.3% and 70.9% for last year's
comparable three and nine month periods. The decrease in cost of goods sold as a
percent of retail sales resulted primarily from a decrease in initial mark-up
and lower markdowns.
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THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
OPERATING RESULTS - CONTINUED
Selling, general and administrative (SG&A) expenses were $29.7 million and $91.4
million for the third quarter and first nine months of this year, respectively,
compared to $29.3 million and $88.5 million for last year's comparable three and
nine months periods, respectively. Expenses remained well controlled and were
under planned levels.
LIQUIDITY AND CAPITAL RESOURCES
At November 1, 1997, the Company had working capital of $112.6 million, compared
to $106.6 million at November 2, 1996 and $105.4 million at February 1, 1997.
Cash provided from operating activities was $14.5 million for the nine months
ended November 1, 1997, compared to $8.4 million for last year's comparable nine
month period. The Company had no borrowings under its revolving credit agreement
at November 1, 1997 or November 2, 1996. At November 1, 1997, the Company had
cash, cash equivalents, and short-term investments of $52.0 million, compared to
$44.7 million at November 2, 1996 and $50.1 million at February 1, 1997.
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 replaced
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.
In May 1997, the unsecured revolving credit agreement was extended until May
2000 and the letter of credit facility for an additional year.
Expenditures for property and equipment totaled $5.3 million for the nine months
ended November 1, 1997, compared to $7.9 million of expenditures in last year's
first nine months. The Company expects total capital expenditures to be
approximately $9.0 million for the current fiscal year. The Company intends to
open 55 new stores and to relocate or expand 16 stores during the current fiscal
year. For the nine months ended November 1, 1997, the Company had opened 46 new
stores, relocated or expanded 14 stores, and closed 13 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) 27 Financial Data Schedule (for SEC use only)
(B) No Reports on Form 8-K were filed during the quarter ended
November 1, 1997.
<PAGE> 11
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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 10, 1997 /s/ Wayland H. Cato, Jr.
- - ------------------------ -------------------------------------
Date Wayland H. Cato, Jr.
Chairman of the Board of
Directors and Chief Executive Officer
December 10, 1997 /s/ Alan E. Wiley
- - ------------------------ -------------------------------------
Date Alan E. Wiley
Senior 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> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> NOV-01-1997
<CASH> 18,189
<SECURITIES> 33,774
<RECEIVABLES> 51,835
<ALLOWANCES> 4,382
<INVENTORY> 89,365
<CURRENT-ASSETS> 192,628
<PP&E> 95,603
<DEPRECIATION> 45,374
<TOTAL-ASSETS> 248,411
<CURRENT-LIABILITIES> 80,017
<BONDS> 0
0
0
<COMMON> 957
<OTHER-SE> 156,915
<TOTAL-LIABILITY-AND-EQUITY> 248,411
<SALES> 354,038
<TOTAL-REVENUES> 365,694
<CGS> 249,038
<TOTAL-COSTS> 249,038
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,525
<INTEREST-EXPENSE> 197
<INCOME-PRETAX> 19,250
<INCOME-TAX> 6,064
<INCOME-CONTINUING> 13,186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,186
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0
</TABLE>
