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 August 3, 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 No. 000-19372
-----------
CATHERINES STORES CORPORATION
---------------------------------
(exact name of registrant as specified in its
charter)
Tennessee 62-1350411
- ------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
3742 Lamar Ave., Memphis, TN 38118
-------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (901) 363-3900
--------------
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).
Yes X No
----- -----
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of the latest practicable
date.
As of September 4, 1996 there were 7,687,555 shares of
Catherines Stores Corporation common stock outstanding.
CATHERINES STORES CORPORATION
FORM 10-Q
August 3, 1996
Table of Contents
Page No
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PART 1 - FINANCIAL INFORMATION
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-12
PART 2 - OTHER INFORMATION 13
Item 1. Financial Statements
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Twenty-six weeks ended Thirteen weeks ended
August 3, 1996 July 29, 1995 August 3, 1996 July 29, 1995
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $139,297,060 $136,821,892 $ 68,832,801 $ 68,963,715
Cost of sales,
including buying
and occupancy
costs 94,669,434 92,107,482 47,176,231 46,316,597
----------- ----------- ----------- -----------
Gross margin 44,627,626 44,714,410 21,656,570 22,647,118
Selling, general
and administrative
expenses 36,877,091 35,441,074 18,108,044 17,722,997
Amortization of
intangible assets 601,331 603,452 300,232 301,726
----------- ----------- ----------- ---------
Operating income 7,149,204 8,669,884 3,248,294 4,622,395
Interest expense,
net 556,989 427,052 265,772 242,972
----------- ----------- ----------- -----------
Income before
income taxes 6,592,215 8,242,832 2,982,522 4,379,423
Provision for
income taxes 2,702,000 3,297,000 1,247,000 1,735,000
----------- ----------- ----------- -----------
Net income $ 3,890,215 $ 4,945,832 $ 1,735,522 $ 2,644,423
=========== =========== =========== ===========
Net income per
common share $ 0.50 $ 0.63 $ 0.22 $ 0.34
=========== =========== =========== ===========
Weighted
average number
of common shares
outstanding 7,852,321 7,839,578 7,870,429 7,878,195
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 3, February 3,
1996 1996
---------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,740,048 $ 3,954,808
Receivables 3,280,758 3,780,937
Merchandise inventory 52,639,457 50,077,984
Prepaid expenses and other 4,204,318 3,536,617
Deferred income tax asset 962,000 962,000
----------- -----------
Total current assets 63,826,581 62,312,346
----------- -----------
Property and Equipment, at cost:
Land 500,000 500,000
Leasehold improvements 21,214,649 18,635,489
Fixtures and equipment 25,305,416 21,316,361
Equipment under capital leases 7,810,014 7,309,076
Improvements in process 2,012,793 1,719,818
----------- -----------
56,842,872 49,480,744
Less accumulated depreciation
and amortization (21,590,895) (18,083,516)
----------- -----------
35,251,977 31,397,228
----------- -----------
Other Assets and Deferred Charges,
less accumulated amortization of
$1,686,167 and $1,442,558 (Note 3) 3,051,810 3,299,862
Goodwill, less accumulated amortization
of $3,913,232 and $3,555,510 24,092,323 24,450,044
----------- -----------
$126,222,691 $121,459,480
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 26,057,229 26,184,815
Accrued expenses (Note 4) 11,350,963 11,870,012
Current maturities of long-term bank
and other debt 3,013,874 3,045,734
----------- -----------
Total current liabilities 40,422,066 41,100,561
----------- -----------
Long-Term Bank and Other Debt,
less current portion (Note 5) 9,179,892 7,718,518
Deferred Income Taxes 408,000 408,000
Stockholders' Equity (Note 7):
Preferred stock, $.01 par value,
1,000,000 shares authorized, none
issued and outstanding --- ---
Common stock, $.01 par value,
50,000,000 shares authorized,
7,687,555 and 7,673,174 shares issued
and outstanding 76,876 76,732
Additional paid-in capital 50,048,081 49,958,108
Retained earnings 26,087,776 22,197,561
----------- -----------
Total stockholders' equity 76,212,733 72,232,401
----------- -----------
$126,222,691 $121,459,480
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Twenty-six weeks ended
August 3, 1996 July 29, 1995
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 3,890,215 $ 4,945,832
---------- ----------
Adjustments to reconcile net income to
net cash provided by operating
activities--
Depreciation and amortization 4,108,562 3,361,443
Provision for losses on accounts
receivable 294,330 404,875
Change in other non-cash reserves 693,767 141,433
Change in current assets and
liabilities (Note 2) (4,363,727) (5,255,254)
Other 4,590 1,849
---------- ----------
Total adjustments 737,522 (1,345,654)
---------- ----------
Net cash provided by operating
activities 4,627,737 3,600,178
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures (6,247,463) (4,014,517)
---------- ----------
Net cash used by investing
activities (6,247,463) (4,014,517)
---------- ----------
Cash Flows from Financing Activities:
Sales of common stock 90,117 109,991
Proceeds from issuance of long-term bank
and other debt 1,750,000 3,000,000
Principal payments of long-term bank
and other debt (1,435,151) (1,448,423)
---------- ----------
Net cash provided by financing
activities 404,966 1,661,568
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents (1,214,760) 1,247,229
Cash and Cash Equivalents, beginning
of period 3,954,808 2,000,404
---------- ----------
Cash and Cash Equivalents, end of period $ 2,740,048 $ 3,247,633
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
CATHERINES STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) General
- -----------
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of normal recurring adjustments) which management
considers necessary to present fairly and consolidated financial
position of Catherines Stores Corporation ("Stores") and its wholly
owned subsidiaries as of August 3, 1996 and February 3, 1996, the
consolidated results of their operations for the twenty-six and
thirteen weeks ended August 3, 1996 and July 29, 1995, and cash
flows for the twenty-six weeks ended August 3, 1996 and July 29,
1995. Stores and its subsidiaries are collectively referred to as
the "Company". The results of operations for the twenty-six and
thirteen week periods may not be indicative of the results for the
entire year.
These statements should be read in conjunction with the
audited financial statements and related notes which have been
incorporated by reference in the Company's Form 10-K for the year
ended February 3, 1996. Accordingly, significant accounting
policies and other disclosures necessary for complete financial
statements in conformity with generally accepted accounting
principles have been omitted since such items are reflected in the
Company's audited financial statements and related notes thereto.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make certain estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent
assets and liabilities, at the date of the financial statements,
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(2) Statements of Cash Flows
- ----------------------------
The changes in current assets and liabilities reflected in the
statements of cash flows were as follows:
<TABLE>
<CAPTION>
Twenty-Six weeks ended
-------------------------
August 3, July 29,
1996 1995
--------- --------
<S> <C> <C>
Increase (decrease) in cash and
cash equivalents-
Receivables $ 203,069 $ (871,680)
Merchandise inventory (3,318,460) (5,474,297)
Prepaid expenses and other (667,701) (318,655)
Accounts payable (127,586) (426,264)
Accrued expenses (453,049) 1,835,642
---------- ----------
Total $(4,363,727) $(5,255,254)
========== ==========
</TABLE>
Interest paid during the twenty-six weeks ended August 3, 1996
and July 29, 1995 was approximately $386,000 and $458,000,
respectively. Income taxes paid during the twenty-six weeks ended
August 3, 1996 and July 29, 1995 were approximately $1,660,000 and
$2,788,000, respectively.
(3) Other Assets and Deferred Charges
- -------------------------------------
Other assets and deferred charges, net of accumulated
amortization, together with the related amortization methods and
periods, were as follows:
<TABLE>
<CAPTION>
August 3, February 3, Amortization Methods
1996 1996 and Periods
----------- ----------- ---------------------
<S> <C> <C> <C>
Trademarks and tradenames $1,128,086 $ 1,149,758 Straight-line over
40 years
Deferred financing costs 156,314 242,824 Effective interest
method over term
of financing
Covenants not to compete 1,446,178 1,581,606 Straight-line over
term of agreements
Other 321,232 325,674
--------- ---------
Total $3,051,810 $3,299,862
========= =========
</TABLE>
(4) Accrued Expenses
- --------------------
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
August 3, February 3,
1996 1996
--------- -----------
<S> <C> <C>
Payroll and related benefits $ 2,438,912 $ 2,540,098
Taxes other than income taxes 1,300,094 1,793,844
Rent and other related costs 2,285,549 2,453,354
Insurance 867,971 824,907
Deferred revenues 1,682,380 1,750,529
Other 2,776,057 2,507,280
---------- ----------
Total $11,350,963 $11,870,012
========== ==========
</TABLE>
(5) Long-Term Bank and Other Debt
- ---------------------------------
Long-term bank and other debt consisted of the following:
<TABLE>
<CAPTION>
August 3, February 3,
1996 1996
--------- -----------
<S> <C> <C>
Due to banks:
Term loan $ 2,750,000 $ 3,250,000
Working capital notes 5,500,000 3,750,000
Other:
Capital lease obligations 3,448,539 3,232,576
Other notes and obligations 495,227 531,676
---------- ----------
12,193,766 10,764,252
Less current maturities (3,013,874) (3,045,734)
---------- ----------
Total $ 9,179,892 $ 7,718,518
========== ==========
</TABLE>
At August 3, 1996, Catherines had approximately $14,290,000
available under its working capital facility and $3,000,000
available under its swing line of credit after considering
outstanding letters of credit of approximately $5,210,000.
On September 4, 1996, subsequent to the end of the second
quarter, the Company and its lenders signed an amendment to its
credit agreement to extend the expiration date to March 31, 1999;
to amend the financial ratio covenants and restrict the company's
capital expenditures to $11,000,000 in each fiscal year.
(6) Leases
- ----------
During the twenty-six weeks ended August 3, 1996, the Company
extended leases for 27 stores and entered into new leases for 24
stores. Future minimum rental payments have increased
approximately $2,029,000 since February 3, 1996, bringing the total
future minimum rental payments under all noncancelable operating
leases with initial or remaining lease terms of one year or more to
approximately $79,934,000.
Total rent expense for all operating leases was as follows:
<TABLE>
<CAPTION>
Twenty-six weeks ended
--------------------------
August 3, July 29,
1996 1995
--------- --------
<S> <C> <C>
Minimum rentals $ 9,948,205 $ 9,010,184
Contingent rentals 190,193 266,505
---------- ----------
Total $10,138,398 $ 9,276,689
========== ==========
</TABLE>
(7) Stockholders' Equity
- ------------------------
On March 20, 1996, under the 1994 Omnibus Incentive Plan,
options to purchase 156,500 shares of common stock were granted to
certain officers and key employees of the Company at $9.00 per
share, the fair market value on that date. On June 5, 1996,
options to purchase 10,000 shares of common stock were granted to
the outside directors of the Company at $10.00 per share, the fair
market value on that date. At August 3, 1996, there were vested
options outstanding to purchase 535,350 shares of common stock at
an average price per share of $8.17.
The change in stockholders' equity was as follows:
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
--------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Balance at February 3,
1996 $76,732 $49,958,108 $22,197,561 $72,232,401
Net proceeds from sale
of shares to employee
stock purchase plan 144 89,973 -- 90,117
Net income -- -- 3,890,215 3,890,215
------ ---------- ---------- ----------
Balance at August 3, 1996 $76,876 $50,048,081 $26,087,776 $76,212,733
====== ========== ========== ==========
</TABLE>
(8) Weighted Average Common Shares Outstanding
- ----------------------------------------------
Net income per common share is computed based on the weighted
average number of common and common equivalent shares outstanding
during the period. The computation of weighted average common
shares outstanding is as follows:
<TABLE>
<CAPTION>
Twenty-six weeks ended Thirteen weeks ended
---------------------- --------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
---------- -------- --------- --------
<S> <C> <C> <C> <C>
Weighted average
number of shares
outstanding 7,678,610 7,648,791 7,682,903 7,653,163
Common stock
equivalents -
shares issuable
under the 1994
Omnibus Incentive
Plan, the 1992 Non-
qualified Stock Option
Plan, and the 1990
Performance Units Plan 173,711 190,787 187,526 225,032
--------- --------- --------- ---------
Weighted average
common shares out-
standing assuming
full dilution 7,852,321 7,839,578 7,870,429 7,878,195
========= ========= ========= =========
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
The Company's cash provided by operations was $4,628,000
during the twenty-six weeks ended August 3, 1996, compared to cash
provided by operations of $3,600,000 during the twenty-six weeks
ended July 29, 1995. The increase in cash flow provided by
operations is primarily attributable to a decrease in additions to
working capital. The Company's working capital was $23,405,000 at
August 3, 1996 compared to $21,212,000 at February 3, 1996.
Merchandise inventory in the Company's new stores and awaiting
delivery to the Company's stores in the distribution facility was
the primary contributor to the increase in working capital.
Borrowings under the Company's working capital facility and
internally generated cash flow financed the Company's operating
requirements during the twenty-six week period ended August 3,
1996.
The Company is a party to a merchant services agreement with
a third party credit processor. This agreement provides for the
Company to sell, without recourse, accounts receivable from credit
sales on a daily basis at face value, subject to adjustment
beginning February 1997. The term of the agreement is through
January 31, 2000.
The Company estimates that fiscal 1996 capital expenditures
will approximate $11,000,000, of which an estimated $7,767,000 will
be used for the opening of 34 new locations and the remodeling,
relocation, and expansion of approximately 30 to 35 other
locations. The remainder of capital expenditures are to upgrade
existing computer systems, add additional software technology and
to maintain existing facilities.
The Company's bank credit agreement provides for a $5,000,000
term loan, a working capital facility of $25,000,000 and a swing
line of credit of $3,000,000 with the Company's agent bank. The
term loan requires quarterly payments of $250,000. The working
capital facility may be used for letters of credit. The interest
rate is the bank's prime rate or LIBOR plus 1 1/4%, at the
Company's option. At August 3, 1996, the Company had approximately
$14,290,000 available under its working capital facility and
$3,000,000 under its swing line of credit after considering
approximately $5,210,000 in outstanding letters of credit. The
agreement also allows the Company to repurchase up to $8,000,000 of
its common stock over the term of the agreement. The Company's
peak borrowing under the working capital facility and term loan
during the first half of 1996, including outstanding letters of
credit, was $18,074,000 in April 1996.
On September 4, 1996, subsequent to the end of the second
quarter, the Company and its lenders amended its credit agreement
to extend the expiration date to March 31, 1999; to amend the
financial ratio covenants and to restrict the company's capital
expenditures to $11,000,000 in each fiscal year.
The Company believes that its internally generated cash flow,
together with borrowings under the bank credit agreement, will be
adequate to finance the Company's operating requirements, debt
repayments and capital needs during the current year. Any material
shortfalls in operating cash flow could require management to seek
alternative sources of financing or to reduce the number of stores
that the Company expects to open, remodel or expand.
Results of Operations
- ---------------------
Thirteen Weeks Ended August 3, 1996 Compared to Thirteen Weeks
- --------------------------------------------------------------
Ended July 29, 1995
- -------------------
Net sales in the second quarter of 1996 decreased to 0.2% to
$68,833,000 from $68,964,000 in the second quarter of 1995.
Comparable stores' sales decreased 5.2% due primarily to reductions
in the average units per salescheck, the total units sold and the
total saleschecks generated. There was a slight increase in the
average unit price. During the second quarter, three stores were
opened and two stores were closed, bringing the number of stores
operated by the Company on August 3, 1996 to 452.
Gross margin, after buying and occupancy costs, declined as a
percentage of sales to 31.5% from 32.8% in the second quarter of
1995. The decrease is primarily attributable to an increase in
rents, depreciation and utility expenses, offset by an increase in
merchandise margins due to net lower markdowns. Merchandise margin
for the second quarter of 1996 increased 0.4% as a percentage of
sales from second quarter of 1995.
Selling, general and administrative expenses increased to 2.2%
to $18,108,000 in the second quarter of 1996 from $17,723,000 in
the second quarter of 1995. The 39 new stores opened in 1996 and
the second half of 1995 had expenses of $1,463,000, while
comparable stores had expense reductions of $1,078,000 primarily in
payroll and advertising expenses. As a percentage of sales,
selling, general and administrative expenses increased to 26.3%
from 25.7%.
Interest expense was approximately $266,000 in the second
quarter of 1996, compared to $243,000 in the second quarter of
1995. The increase is primarily attributable to an increase in
working capital borrowings.
Net income for the second quarter of 1996 was $1,736,000 or
$0.22 per common share compared to $2,645,000 or $0.34 per common
share in the second quarter of 1995.
Twenty-six Weeks Ended August 3, 1996 Compared to Twenty-six Weeks
- ------------------------------------------------------------------
Ended July 29, 1995
- -------------------
Net sales in the first half of 1996 increased 1.8% to
$139,297,000 from $136,822,000 in the first half of 1995.
Comparable stores' sales decreased 3.2%, due primarily to
reductions in the average units per salescheck and in the total
units sold, offset by increases in the total saleschecks generated.
There was a slight decline in the average unit price. During the
first half of 1996, 24 stores were opened and four stores were
closed, bringing the number of stores operated by the Company on
August 3, 1996 to 452.
Gross margin, after buying and occupancy costs, decreased as
a percentage of sales to 32.0% from 32.7% in the first half of
1995. The decrease is primarily attributable to an increase in
rents, depreciation and utility expenses, offset by an increase in
merchandise margins due to net lower markdowns. Merchandise
margins for the first half of 1996 improved 0.5% as a percentage of
sales from the first half of 1995.
Selling, general and administrative expenses increased 4.1% to
$36,877,000 in the first half of 1996 compared to $35,441,000 in
the first half of 1995. The 39 new stores opened in 1996 and the
second half of 1995 had expenses of $2,793,000, while comparable
stores had expense reductions of $1,357,000 primarily in payroll
and advertising expenses. As a percentage of sales, selling,
general and administrative expenses increased to 26.5% from 25.9%.
Interest expense was approximately $557,000 in the first half
of 1996, compared to $427,000 in the first half of 1995. The
increase is primarily attributable to the increase in working
capital borrowings.
Income taxes were provided at an effective rate of 41.0% in
the first half of 1996, compared to 40.0% in the first half of
1995. The rate is affected by non-deductible amortization of
goodwill.
Net income for the first half of 1996 was $3,890,000 compared
to $4,946,000 for the first half of 1995. Net income per common
share was $0.50 compared to $0.63 per share in the first half of
1995.
PART II - OTHER INFORMATION
CATHERINES STORES CORPORATION
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in the Rights of the Company's Security Holders
-------------------------------------------------------
Not applicable
Item 3. Defaults by the Company on its Senior Securities
------------------------------------------------
Not applicable
Item 4. Submission of Matters to a vote of Security Holder
--------------------------------------------------
Not applicable
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(A) Amendment to Credit Agreement dated September 4, 1996
(B) None
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
September 4, 1996 /s/ David C. Forell
----------------- --------------------------------------
(Date) David C. Forell
Executive Vice President,
Chief Financial Officer and Treasurer
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (the "Fourth
Amendment"), dated effective as of the 4th day of September, 1996,
by and among CATHERINES, INC., a Delaware corporation (the
"Company"), CATHERINES STORES CORPORATION, a Tennessee corporation
(successor by merger to Catherines Stores Corporation, a Delaware
corporation) (the "Parent"), CATHERINES OF PENNSYLVANIA, INC., a
Tennessee corporation ("PA Co."), CATHERINES OF CALIFORNIA, INC.,
a California corporation ("RT Co."), CATHERINES PARTNERS, L.P., a
Tennessee limited partnership ("Intex"), FIRST AMERICAN NATIONAL
BANK ("FANB") individually and in its capacity as Agent (as defined
in the Agreement) (the "Agent"), HIBERNIA NATIONAL BANK
("Hibernia"), and THE HONGKONG AND SHANGHAI BANKING CORPORATION
LIMITED ("Hongkong") (FANB, Hibernia and Hongkong, together with
their respective successors, transferees and assigns from time to
time parties hereto referred to collectively as the "Banks" and
each individually referred to as a "Bank").
RECITALS
The Company, Parent and Banks (together with Added Dimensions,
Inc., Linda Karan-Large Size Factory Outlet, Inc., and The Answer-
The Elegant Large Size Discounter, Inc. which have been merged into
Virginia Specialty Stores, Inc. ("VSS") and VSS which has been
merged into the Company) are parties to that certain Credit
Agreement dated as of March 31, 1994 (the "Credit Agreement").
Hibernia and Hongkong became parties to the Credit Agreement
by virtue of that certain Commitment Transfer Supplement dated of
even date with the Credit Agreement.
PA Co., RT Co. and Intex (together with CSC Sub, Inc. which
was the predecessor corporation of Parent) became Credit Parties to
the Credit Agreement and said Credit Agreement was amended by the
Credit Parties by virtue of that certain First Amendment to Credit
Agreement (the "First Amendment") dated as of January 29, 1995.
The Credit Agreement was amended by virtue of that certain
Second Amendment to Credit Agreement (the "Second Amendment") dated
as of December 6, 1995.
The Credit Agreement was further amended by virtue of that
certain Third Amendment to Credit Agreement dated as of April 26,
1996 (the "Third Amendment") (the Credit Agreement, the First
Amendment, the Second Amendment and the Third Amendment referred to
collectively as the "Agreement").
The Credit Parties have requested that the Banks (a) extend
the Swingline Loan Termination Date and the Working Capital
Termination Date to March 15, 1999 and (b) make certain changes to
the financial covenants of the Agreement.
The Banks consent to and approve the foregoing request of the
Credit Parties, subject to the terms and conditions of the Fourth
Amendment.
All corporate actions required for the execution, delivery and
performance of the obligations hereunder incurred have been duly
taken.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties agree as follows:
SECTION ONE: DEFINITIONS
1.01 Defined Terms. Except as otherwise herein specifically
defined, all defined terms shall have the meanings stated in the
Agreement.
1.02 Definition of Fixed Charge Coverage Ratio. The
definition of "Fixed Charge Coverage Ratio" is hereby deleted in
its entirety.
1.03 Amended Definitions. Each of the following definitions
contained in Section 1 of the Agreement is hereby deleted and the
following definitions substituted in lieu thereof:
"Basic Documents" shall mean, collectively, the Credit
Agreement (including all schedules and exhibits thereto), as
amended by the First Amendment, the Second Amendment, the Third
Amendment and the Fourth Amendment (including all schedules and
exhibits hereto and thereto), the Working Capital Notes, the Term
Notes, the Swingline Note, the Security Documents, the First
Amendment Security Documents, the Second Amendment Security
Documents and the Fourth Amendment Security Documents.
"Swingline Loan Termination Date" shall mean the earlie
of (i) March 15, 1999 or (ii) such date as the Swingline Commitment
shall terminate hereunder.
"Swingline Note" shall mean the Swingline Note as
modified by the First Amendment to Swingline Note.
"Working Capital Notes" shall mean the First Amended and
Restated Working Capital Notes, as modified by the First Amendment
to the First Amended and Restated Working Capital Notes,
individually, a "Working Capital Note".
"Working Capital Termination Date" shall mean the
earlier of (i) March 15, 1999 or (ii) such date as the Working
Capital Commitment shall terminate hereunder.
1.04 New Definitions. Each of the following definitions are
hereby added to Section 1 of the Agreement:
"First Amendment to First Amended and Restated Working
Capital Note" shall mean the amendment to the First Amended and
Restated Working Capital Notes of the Company in favor of each of
the Banks, substantially in the form of Exhibit "A" to the Fourth
Amendment, individually, a First Amendment to First Amended and
Restated Working Capital Note.
"First Amendment to Swingline Note" shall mean the
amendment to the Swingline Note of the Company in favor of
Swingline Lender, substantially in the form of Exhibit "B" to the
Fourth Amendment.
"Fourth Amendment Security Documents" shall mean,
collectively, the Fourth Amendment; the First Amendments to First
Amended and Restated Working Capital Note, the First Amendment to
Swingline Note, the Second Modification and Extension of Leasehold
Deed of Trust; and the Second Modification and Extension of Deed of
Trust.
"Second Modification and Extension of Deed of Trust"
shall mean the modification to the Deed of Trust of The Industrial
Development Board of the City of Memphis and County of Shelby,
Tennessee, substantially in the form of Exhibit "C" to the Fourth
Amendment.
"Second Modification and Extension of Leasehold Deed of
Trust" shall mean the modification to the Leasehold Deed of Trust
of the Company and Parent, substantially in the form of Exhibit "D"
to the Fourth Amendment.
SECTION TWO: AMENDMENTS.
2.01 Amendment to Section 9.9. Section 9.9 of the Agreement
providing a negative covenant with respect to the Fixed Charge
Coverage Ratio is hereby deleted in its entirety.
2.02 The following Section 9.9 is hereby added to the
Agreement:
9.9 Capital Expenditures. Permit Capital Expenditures
to exceed an aggregate of $11,000,000.00 in any Fiscal Year.
2.03 Amendment to Section 9.10. Section 9.10 of the
Agreement is hereby deleted in its entirety and the following
substituted therefor:
9.10 Debt Coverage Ratio. Permit the Debt Coverage
Ratio, in each case for the period of four (4) fiscal quarters
ending on the last day of each fiscal quarter commencing with the
fiscal quarter ending July 31, 1996, to be less than 2.0 to 1.0.
SECTION THREE: CONDITIONS PRECEDENT.
3.01 Conditions to the Execution of the Fourth Amendment.
The obligation of the Banks to enter into the Fourth Amendment
shall be subject to the following conditions to the satisfaction of
the Agent:
(a) Fourth Amendment and Notes. Each Bank shall have
received an original of the Fourth Amendment duly executed by a
duly authorized officer of each of the Credit Parties and a First
Amendment to First Amended and Restated Working Capital Note, each
duly executed by a duly authorized officer of the Company.
Swingline Lender shall have received an original of the First
Amendment to Swingline Note duly executed by a duly authorized
officer of the Company.
(b) No Default or Event of Default. No Default or Event of
Default shall have occurred and be continuing on the date of the
Fourth Amendment. No Event of Default (or condition which would
constitute an Event of Default with the giving of notice, the lapse
of time, or both) under material (in the reasonable opinion of the
Company and the Agent) contracts of the Credit Parties such as, but
not limited to, agreements with respect to capital stock, financing
documents and lease agreements shall have occurred and be
continuing on the date of the Fourth Amendment.
(c) Amendment Fee. Agent shall have received an amendment
fee of $14,000.00 which shall be distributed on a prorata basis to
the Banks by Agent.
(d) First Amendment to First Amended and Restated Working
Capital Note. Each Bank shall have received an original of a First
Amendment to First Amended and Restated Working Capital Note, each
duly executed by a duly authorized officer of the Company.
(e) Legal Opinions of Counsel to the Credit Parties. Each
Bank shall have received a counterpart of an opinion, dated the
date of the Fourth Amendment, of Waring Cox, counsel to the Credit
Parties, in substantially the form of Exhibit "E".
(f) Regulation U of Federal Reserve System. Each Bank shall
have received a counterpart of Federal Reserve Form U-1 executed by
each Credit Party.
(g) Corporate Proceedings. Each Bank shall have received an
execution copy of the resolutions of the Boards of Directors of the
applicable Credit Parties authorizing the execution, delivery and
performance of the Fourth Amendment and the Fourth Amendment
Security Documents certified by the Secretary or Assistant
Secretary of the relevant Credit Parties as of the date of the
Fourth Amendment, which certificate shall state that the
resolutions thereby certified have not been amended, modified,
revoked or rescinded as of the date of the Fourth Amendment.
(h) Additional Documents to be Delivered. Each Bank shall
have received a counterpart of each of the Fourth Amendment
Security Documents (except for the First Amendment to the First
Amended and Restated Working Capital Note and the First Amendment
to the Swingline Note which shall be delivered in accordance with
the terms of subsection 3.01(a)), each duly executed and delivered
by the applicable Credit Party thereto and each of which shall be
in full force and effect.
(i) Representations and Warranties. The representations,
warranties and disclosures made by the Credit Parties in the
Agreement, as amended by the Fourth Amendment, or in any Basic
Document or made by any of the Credit Parties in any certificate,
document or financial or other statement furnished in connection
herewith or therewith, shall be true and correct in all material
respects on and as of the date of the Fourth Amendment with the
same effect as if made on such date.
SECTION FOUR: REPRESENTATIONS AND WARRANTIES.
4.01 Entity Existence; Compliance with Law.
(a) Each of the corporate Credit Parties (i) is duly
organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation, (ii) has the corporate power
and authority and the legal right to own or lease and operate its
property, and to conduct the business in which it is currently
engaged, (iii) is duly qualified as a foreign corporation and in
good standing under the laws of each jurisdiction where failure so
to qualify and remain in good standing would materially and
adversely affect its ability to own or lease and operate its
property or to conduct the business in which it is currently
engaged or intends to engage in the future and (iv) is in
compliance with all Requirements of Law, except where non-
compliance would not have material adverse effect on the business,
operations, assets or financial conditions of each such Credit
Party.
(b) Intex (i) is duly organized, validly existing and in good
standing under the laws of Tennessee, (ii) has the partnership
power and authority and the legal right to own or lease and operate
its property, and to conduct the business in which it is currently
engaged, (iii) is duly qualified as a foreign limited partnership
and in good standing under the laws of each jurisdiction where
failure so to qualify and remain in good standing would materially
and adversely affect its ability to own or lease and operate its
property or to conduct the business in which it is currently
engaged or intends to engage in the future and (iv) is in
compliance with all Requirements of Law, except where non-
compliance would not have material adverse effect on the business,
operations, assets or financial conditions of Intex.
4.02 Entity Power; Authorization; Enforceable Obligations.
(a) Each of the corporate Credit Parties has the corporate
power and authority, and Intex has the partnership power and
authority, to make, deliver and perform all of its respective
obligations in connection with the Agreement and the Fourth
Amendment Security Documents to which each is a party; each
corporate Credit Party has taken all necessary corporate action,
and Intex has taken all necessary partnership action, to authorize
the Fourth Amendment Security Documents, and to authorize the
execution, delivery and performance by each of the Fourth Amendment
Security Documents to which each is a party. No consent or
authorization of, filing with, or other act by or in respect of,
any other Person is required in connection with the execution,
delivery or performance by each of the Credit Parties or the
validity of or enforceability against each of the Credit Parties,
of the Fourth Amendment Security Documents to which each is a party
(except such filings as are necessary in connection with perfection
of the Liens created by such documents, which filings have been
duly made and/or obtained and are in full force and effect). Each
Fourth Amendment Security Document to which each Credit Party is a
party has been duly executed and delivered on behalf of each such
Credit Party. Each Fourth Amendment Security Document to which it
is a party constitutes a legal, valid and binding obligation of
each Credit Party, enforceable against each such Credit Party in
accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, moratorium or other similar
laws affecting creditors' rights generally, and except as
enforceability may be limited by general principles of equity
(whether considered in a suit at law or in equity).
4.03 No Legal Bar. The execution, delivery and performance
by each of the Credit Parties of each Fourth Amendment Security
Document to which it is a party do not and will not violate any
Requirement of Law or any Contractual Obligation applicable to or
binding upon the Credit Parties or any of their properties or
assets, except where noncompliance would not have a material effect
on the business, operations, property, assets or financial
condition of the Credit Parties taken as a whole and will not
result in the creation or imposition of any Lien on any such
properties or assets pursuant to the provisions of any Requirement
of Law or any Contractual Obligations other than the Lien of the
Security Documents.
4.04 No Default. None of the Credit Parties is in default in
the payment or performance of any of its Contractual Obligations in
any respect that is material to the Credit Parties, and no Default
or Event of Default has occurred and is continuing. None of the
Credit Parties is in default in any respect that is material to it
under any order, award or decree of any Governmental Authority or
arbitrator binding upon or affecting it or by which any of its
properties or assets may be bound or affected.
4.05 Fourth Amendment Security Documents. The property which
is subject to the Liens of the Security Documents, the First
Amendment Security Documents, the Second Amendment Security
Documents and the Fourth Amendment Security Documents constitutes
substantially all the property of any nature of the Credit Parties
other than Inventory, Excluded Leases, Equipment,(including
proceeds of Inventory, Excluded Leases and Equipment), "Assets to
be Sold" as defined in the HSB Purchase Agreement and rights under
the Company Merchant Services Agreement, the VSS Merchant Services
Agreement and the HSB Purchase Agreement.
4.06 Margin Regulations. None of the Credit Parties are
engaged, nor will they engage, principally or as one of their
important activities, in the business of extending credit for the
purpose of "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U
or Regulation G of the Board of Governors of the Federal Reserve
System as now and from time to time hereinafter in effect. No part
of the proceeds of any Loan will be used for "purchasing" or
"carrying" "margin stock" as defined in Regulation U of such Board
of Governors.
SECTION FIVE: MISCELLANEOUS.
5.01 Governing Law; No Third-Party Rights. THIS AGREEMENT AND
THE RIGHTS AND DUTIES OF THE PARTIES UNDER THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF TENNESSEE.
5.02 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate
counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
5.03 No Other Amendments. All other terms and provisions of
the Agreement not modified or amended hereby shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Fourth
Amendment to Credit Agreement as of the day and year first above
written.
CATHERINES, INC.
By: /s/ David C. Forell
--------------------------------
David C. Forell, Executive Vice
President
CATHERINES STORES CORPORATION
By: /s/ David C. Forell
--------------------------------
David C. Forell, Executive Vice
President
CATHERINES OF PENNSYLVANIA, INC.
By: /s/ David C. Forell
--------------------------------
David C. Forell
Executive Vice-President
CATHERINES OF CALIFORNIA, INC.
By: /s/ David C. Forell
--------------------------------
David C. Forell
Executive Vice-President
CATHERINES PARTNERS, L.P.
By: CATHERINES, INC., its general
partner
By: David C. Forell
---------------------------
David C. Forell, Executive
Vice President
FIRST AMERICAN NATIONAL BANK,
individually and as Agent
By: /s/ Mariah G. Lundberg
--------------------------------
Mariah G. Lundberg, Assistant
Vice President
HIBERNIA NATIONAL BANK
By: /s/ Colleen Lacy
--------------------------------
Colleen Lacy, Vice President
THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED
By: /s/ Steven Trepiccione
--------------------------------
Steven Trepiccione, Assistant
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000875194
<NAME> CATHERINES STORES CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> AUG-03-1996
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<INVENTORY> 52,639
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<DEPRECIATION> (21,591)
<TOTAL-ASSETS> 126,223
<CURRENT-LIABILITIES> 40,422
<BONDS> 0
0
0
<COMMON> 50,125
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<TOTAL-LIABILITY-AND-EQUITY> 126,223
<SALES> 139,297
<TOTAL-REVENUES> 139,297
<CGS> 94,669
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<OTHER-EXPENSES> 36,877
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<INTEREST-EXPENSE> 577
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<INCOME-TAX> 2,702
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<NET-INCOME> 3,890
<EPS-PRIMARY> $0.50
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</TABLE>
