<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 30, 1999
------------------------------------------------
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 16, 1999, there were 21,192,639 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 30, 1999
TABLE OF CONTENTS
Page
No.
PART I - FINANCIAL INFORMATION (UNAUDITED)
Condensed Consolidated Statements of Income 2
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II - OTHER INFORMATION 11-12
<PAGE> 3
Page 2
PART I FINANCIAL INFORMATION
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ----------------------------
OCTOBER 30, October 31, OCTOBER 30, October 31,
1999 1998 1999 1998
(UNAUDITED) Unaudited (UNAUDITED) Unaudited
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES
Retail sales $128,514 $113,834 $430,397 $382,581
Other income (principally finance and layaway charges) 5,037 4,766 14,900 14,239
-------- -------- -------- --------
Total revenues 133,551 118,600 445,297 396,820
-------- -------- -------- --------
COSTS AND EXPENSES
Cost of goods sold 90,761 81,364 290,904 264,407
Selling, general and administrative 34,485 30,977 105,525 96,477
Depreciation 2,202 1,883 6,334 5,657
Interest 5 54 16 185
-------- -------- -------- --------
Total expenses 127,453 114,278 402,779 366,726
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 6,098 4,322 42,518 30,094
Income taxes 2,134 1,513 14,881 10,533
-------- -------- -------- --------
NET INCOME $ 3,964 $ 2,809 $ 27,637 $ 19,561
======== ======== ======== ========
BASIC EARNINGS PER SHARE $ .15 $ .10 $ 1.04 $ .71
======== ======== ======== ========
DILUTED EARNINGS PER SHARE $ .15 $ .10 $ 1.02 $ .69
======== ======== ======== ========
DIVIDENDS PER SHARE $ .075 $ .05 $ .205 $ .14
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
Page 3
THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 30, October 31, January 30,
1999 1998 1999
(UNAUDITED) (Unaudited)
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 26,502 $ 36,785 $ 44,068
Short-term investments 54,347 39,875 42,141
Accounts receivable - net 45,438 43,148 44,536
Merchandise inventories 89,027 87,327 61,112
Deferred income taxes 3,969 2,905 3,372
Prepaid expenses 1,520 2,140 2,374
-------- -------- --------
Total Current Assets 220,803 212,180 197,603
Property and Equipment - net 67,032 52,073 54,740
Other Assets 6,524 6,150 6,170
-------- -------- --------
Total $294,359 $270,403 $258,513
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 62,209 $ 63,984 $ 52,391
Accrued expenses 23,852 20,494 20,991
Income taxes 5,422 2,322 197
-------- -------- --------
Total Current Liabilities 91,483 86,800 73,579
Deferred Income Taxes 5,801 5,417 5,922
Other Noncurrent Liabilities 7,413 6,452 6,778
Stockholders' Equity:
Class A Common Stock, issued 24,163,587 shares,
23,979,238 shares and 24,070,519 shares at
October 30, 1999, October 31, 1998 and
January 30, 1999, respectively 805 799 802
Convertible Class B Common Stock, issued and
outstanding 5,264,317 shares at October 30, 1999,
October 31, 1998 and January 30, 1999, respectively 176 176 176
Additional paid-in capital 70,640 67,817 69,878
Retained earnings 141,440 117,609 120,590
-------- -------- --------
213,061 186,401 191,446
Less Class A Common Stock in treasury,
at cost (2,883,948 shares at October 30, 1999,
1,822,500 shares at October 31, 1998, and 2,368,000
shares at January 30, 1999, respectively) 23,399 14,667 19,212
-------- -------- --------
Total Stockholders' Equity 189,662 171,734 172,234
-------- -------- --------
Total $294,359 $270,403 $258,513
======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
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THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
OCTOBER 30, October 31,
1999 1998
(UNAUDITED) (Unaudited)
-----------------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES
Net income $ 27,637 $ 19,561
Adjustments to reconcile net income to net cash
provided by operating
activities:
Depreciation 6,334 5,657
Amortization of investment premiums 138 83
Loss on disposal of property and equipment 405 638
Changes in operating assets and liabilities which
provided (used) cash:
Accounts receivable (902) 4,038
Merchandise inventories (27,915) (23,101)
Other assets 500 (511)
Accrued income taxes 5,225 281
Accounts payable and other liabilities 13,846 14,475
-------- --------
Net cash provided by operating activities 25,268 21,121
-------- --------
INVESTING ACTIVITIES
Expenditures for property and equipment (19,032) (8,567)
Purchases of short-term investments (20,013) (22,032)
Sales of short-term investments 5,619 10,431
-------- --------
Net cash used in investing activities (33,426) (20,168)
-------- --------
FINANCING ACTIVITIES
Dividends paid (5,454) (3,829)
Purchase of treasury stock (4,697) (5,567)
Proceeds from employee stock purchase plan 436 331
Proceeds from stock options exercised 307 3,253
-------- --------
Net cash used in financing activities (9,408) (5,812)
-------- --------
Net Decrease in Cash and Cash Equivalents (17,566) (4,859)
Cash and Cash Equivalents at Beginning of Period 44,068 41,644
-------- --------
Cash and Cash Equivalents at End of Period $ 26,502 $ 36,785
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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THE CATO CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR NINE MONTHS ENDED OCTOBER 30, 1999 AND OCTOBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - GENERAL:
The consolidated financial statements have been prepared from the accounting
records of The Cato Corporation and its wholly-owned subsidiaries (the Company)
and all amounts shown at October 30, 1999 and October 31, 1998 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 interim financial statements should be read in conjunction with the
financial statements and notes there to, included in the Company's Annual Report
in Form 10K for the fiscal year ended January 30, 1999.
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 a component of other comprehensive
income.
Total comprehensive income for the third quarter and nine months ended October
30, 1999 was $3,719,000 and $26,305,000 respectively. Total comprehensive income
for the third quarter and nine months ended October 31, 1998 was $3,033,000 and
$19,894,000, respectively. Total comprehensive income is composed of net income
and net unrealized losses on available for sale securities.
Merchandise inventories are stated at the lower of cost (first-in, first-out) or
market as determined by the retail inventory method.
In March 1999, the Company transferred 63,000 shares of Class A Common Stock
from treasury stock to its Employee Stock Ownership Plan as the contribution for
the fiscal year ended January 30, 1999. In the first nine months of fiscal 1999,
the Company repurchased 579,000 shares of Class A Common Stock for $4,697,000,
or an average price of $8.11 per share.
The provisions for income taxes are based on the Company's estimated annual
effective tax rate.
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THE CATO CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR NINE MONTHS ENDED OCTOBER 30, 1999 AND OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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 outstanding during the respective
periods. The weighted-average shares outstanding is used in the basic earnings
per share calculation, while the weighted-average shares and equivalents
outstanding is used in the diluted earnings per share calculation.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- ---------------------------------
OCTOBER 30, October 31, OCTOBER 30, October 31,
1999 1998 1999 1998
--------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
Weighted-average shares outstanding 26,523,490 27,433,823 26,559,736 27,546,942
Dilutive effect of stock options 579,744 508,592 469,030 729,375
--------------- ------------ ----------------- --------------
Weighted-average shares and
equivalents outstanding 27,103,234 27,942,415 27,028,766 28,276,317
=============== ============== ================= ==============
</TABLE>
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the nine months ended October 30, 1999 and October 31, 1998
was $16,000 and $121,000, respectively. Income tax payments, net of refunds
received, for the nine months ended October 30, 1999 and October 31, 1998 were
$10,020,799 and $10,308,000, respectively.
NOTE 4 - FINANCING ARRANGEMENTS:
At October 30, 1999, the Company had an unsecured revolving credit agreement
which provides for borrowings of up to $35 million. The revolving credit
agreement is committed until July 2002. The credit agreement contains various
financial covenants and limitations, including the maintenance of specific
financial ratios. The Company was in compliance with all financial covenants and
ratios and there were no borrowings outstanding under the agreement at October
30, 1999 or October 31, 1998.
<PAGE> 8
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THE CATO CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR NINE MONTHS ENDED OCTOBER 30, 1999 AND OCTOBER 31, 1998
- -------------------------------------------------------------------------------
NOTE 5 - REPORTABLE SEGMENT INFORMATION:
The Company has two reportable segments: retail and credit. The following
schedule summarizes certain segment information (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- ----------------------------------
OCTOBER 30, October 31, OCTOBER 30, October 31,
1999 1998 1999 1998
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Retail $ 130,633 $ 115,806 $ 436,653 $ 388,463
Credit 2,918 2,794 8,644 8,357
---------------- --------------- ---------------- -----------------
Total $ 133,551 $ 118,600 $ 445,297 $ 396,820
================ =============== ================ =================
Income before taxes:
Retail $ 4,930 $ 3,215 $ 39,490 $ 27,293
Credit 1,168 1,107 3,028 2,801
---------------- --------------- ---------------- -----------------
Total $ 6,098 $ 4,322 $ 42,518 $ 30,094
================ =============== ================ =================
</TABLE>
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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 Condensed Consolidated Statements of Income as percentages
of total retail sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ -------------------------------
OCTOBER 30, October 31, OCTOBER 30, October 31,
1999 1998 1999 1998
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Total retail sales 100.0 % 100.0 % 100.0 % 100.0 %
Total revenues 103.9 104.2 103.5 103.7
Cost of goods sold 70.6 71.5 67.6 69.1
Selling, general and administrative 26.8 27.2 24.5 25.2
Income before income taxes 4.8 3.8 9.9 7.9
Net income 3.1 2.5 6.4 5.1
</TABLE>
COMPARISON OF THIRD QUARTER AND FIRST NINE MONTHS OF 1999 WITH 1998.
OPERATING RESULTS
Total retail sales for the third quarter were $128.5 million compared to last
year's third quarter sales of $113.8 million, a 13% increase. Same-store sales
increased 5% in this year's third quarter. For the nine months ended October 30,
1999, total retail sales were $430.4 million compared to last year's first nine
months sales of $382.6 million, a 13% increase, and same-store sales increased
6% for the comparable nine month period. The increase in retail sales for the
first nine months of 1999 resulted from the Company's continued everyday low
pricing strategy, improved merchandise content, and an increase in store
development activity. The Company operated 794 stores at October 30, 1999
compared to 723 stores at the end of last year's third quarter.
Other income for the third quarter and first nine months of 1999 increased 6%
and 5%, respectively, over the prior year's comparable periods. The increase in
the current year resulted primarily from increased finance and late charge
income on the Company's customer accounts receivable and increased earnings from
cash equivalents and short-term investments.
<PAGE> 10
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THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
OPERATING RESULTS - CONTINUED
Cost of goods sold were 70.6% and 67.6% of total retail sales for the third
quarter and first nine months of 1999, compared to 71.5% and 69.1% for last
year's comparable three and nine month periods, respectively. The decrease in
cost of goods sold as a percent of retail sales resulted primarily from much
improved merchandise offerings, more timely and aggressive markdowns and tighter
merchandise planning and control.
Selling, general and administrative (SG&A) expenses were $34.5 million and
$105.5 million for the third quarter and first nine months of this year,
compared to $31.0 million and $96.5 million for last year's comparable three and
nine month periods, respectively. SG&A expenses for the third quarter and first
nine months of 1999 declined 40 and 70 basis points respectively over the prior
year as expenses remained well controlled and under plan.
LIQUIDITY AND CAPITAL RESOURCES
At October 30, 1999, the Company had working capital of $129.3 million, compared
to $125.4 million at October 31, 1998 and $124.0 million at January 30, 1999.
Net cash provided from operating activities was $25.3 million for the nine
months ended October 30, 1999, compared to $21.1 million for last year's
comparable nine month period.
Net cash used in investing activities totaled $33.4 million for the first nine
months of 1999 compared to $20.2 million for the comparable period of 1998. Cash
was used primarily to fund capital expenditures for new, relocated and remodeled
stores and for new technology for systems.
Net cash used in financing activities totaled $9.4 million for the first nine
months of 1999 compared to $5.8 million for the comparable period of 1998. The
increase was due primarily from reduced proceeds from stock options exercised
and an increase in dividends paid.
The Company had no borrowings under its revolving credit agreement at October
30, 1999 or October 31, 1998. At October 30, 1999, the Company had cash, cash
equivalents, and short-term investments of $80.8 million, compared to $76.7
million at October 31, 1998 and $86.2 million at January 30, 1999.
<PAGE> 11
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THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
At October 30, 1999, the Company had an unsecured revolving credit agreement
which provides for borrowings of up to $35 million. The revolving credit
agreement is committed until July 2002. The credit agreement contains various
financial covenants and limitations, including the maintenance of specific
financial ratios. The Company was in compliance with all financial covenants and
ratios and there were no borrowings outstanding under the agreement at October
30, 1999 or October 31, 1998.
The Company developed a two phase approach to address the Year 2000 issue, which
involves the exposure to risks in its information technology (IT) systems, as
well as potential risks in other non-IT systems with embedded technology. Phase
1 was an analysis to identify and fix all internally developed programs. Phase 2
was the identification and correction to all programs purchased from external
sources. The Company has completed Phase 1 and Phase 2 with continued testing of
compliance throughout 1999. The Company expenditures approximated $575,000 in
1999 for hardware, software and consulting to ensure proper processing of
transactions relating to the Year 2000 and beyond. The Company has completed
formal communications with its third-party suppliers and vendors to determine
the extent to which the Company is vulnerable to those third-parties' failure to
remediate their own Year 2000 issue. Although lack of compliance for Year 2000
issues by third-party suppliers and vendors could have an adverse effect on the
Company's business, results of operations and financial condition, the Company
expects its Year 2000 compliance efforts to significantly reduce the risk of
business interruption and the level of uncertainty the Year 2000 issue may have
on its computer systems. The company has developed contingency plans for each
area within the organization that could be affected by Year 2000 issues in the
event of internal interruptions or failures on the part of third-party suppliers
and vendors.
Form 10-Q includes "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. All statements
other than statements of historical facts included in the Form 10-Q and located
elsewhere herein regarding the Company's financial position and business
strategy may constitute forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct.
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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) None
(B) No Reports on Form 8-K were filed during the quarter ended
October 30, 1999.
<PAGE> 13
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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 9, 1999 /s/ Wayland H. Cato, Jr.
- ----------------------------- ---------------------------------------
Date Wayland H. Cato, Jr.
Chairman of the Board
December 9, 1999 /s/ John P. Derham Cato
- ----------------------------- ---------------------------------------
Date John P. Derham Cato
Vice Chairman of the Board
President and Chief Executive Officer
December 9, 1999 /s/ Michael O. Moore
- ----------------------------- ---------------------------------------
Date Michael O. Moore
Executive Vice President
Chief Financial Officer and Secretary
<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> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> OCT-30-1999
<CASH> 26,502
<SECURITIES> 54,347
<RECEIVABLES> 50,464
<ALLOWANCES> 5,026
<INVENTORY> 89,027
<CURRENT-ASSETS> 220,803
<PP&E> 124,804
<DEPRECIATION> 57,772
<TOTAL-ASSETS> 294,359
<CURRENT-LIABILITIES> 91,483
<BONDS> 0
0
0
<COMMON> 981
<OTHER-SE> 188,681
<TOTAL-LIABILITY-AND-EQUITY> 294,359
<SALES> 430,397
<TOTAL-REVENUES> 445,297
<CGS> 290,904
<TOTAL-COSTS> 290,904
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,869
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 42,518
<INCOME-TAX> 14,881
<INCOME-CONTINUING> 27,637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,637
<EPS-BASIC> 1.04
<EPS-DILUTED> 1.02
</TABLE>
