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 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 June 5, 1996 there were 7,679,201 shares of Catherines
Stores Corporation common stock outstanding.
CATHERINES STORES CORPORATION
FORM 10-Q
May 4, 1996
Table of Contents
Page No.
--------
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 10-11
PART 2 - OTHER INFORMATION 12
Item 1. Financial Statements
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Thirteen weeks ended
May 4, 1996 April 29, 1995
----------- --------------
<S> <C> <C>
Net sales $70,464,258 $67,858,177
Costs of sales, including buying
and occupancy costs 47,493,179 45,790,885
---------- ----------
Gross margin 22,971,079 22,067,292
Selling, general and
administrative expenses 18,769,070 17,718,077
Amortization of intangible
assets 301,099 301,726
---------- ----------
Operating income 3,900,910 4,047,489
Interest expense, net 291,217 184,080
---------- ----------
Income before income taxes 3,609,693 3,863,409
Provision for income taxes 1,455,000 1,562,000
---------- ----------
Net income $ 2,154,693 $ 2,301,409
========== ==========
Net income per common share $ 0.28 $ 0.30
========== ==========
Weighted average number of
common shares outstanding 7,834,025 7,800,960
========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 4, February 3,
1996 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,409,795 $ 3,954,808
Receivables 4,959,742 3,780,937
Merchandise inventory 56,940,961 50,077,984
Prepaid expenses and other 4,168,746 3,536,617
Deferred income tax asset 962,000 962,000
----------- -----------
Total current assets 71,441,244 62,312,346
----------- -----------
Property and Equipment, at cost:
Land 500,000 500,000
Leasehold improvements 19,817,075 18,635,489
Fixtures and equipment 22,702,161 21,316,361
Equipment under capital leases 7,309,076 7,309,076
Improvements in process 2,402,793 1,719,818
----------- -----------
52,731,105 49,480,744
Less accumulated depreciation
and amortization (19,708,876) (18,083,516)
----------- -----------
33,022,229 31,397,228
----------- -----------
Other Assets and Deferred Charges,
less accumulated amortization of
$1,564,797 and $1,442,558 (Note 3) 3,174,051 3,299,862
Goodwill, less accumulated
amortization of $3,734,371 and
$3,555,510 24,271,183 24,450,044
----------- -----------
$131,908,707 $121,459,480
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 30,114,698 $ 26,184,815
Accrued expenses (Note 4) 12,089,565 11,870,012
Current maturities of long-term
bank and other debt 3,097,816 3,045,734
----------- -----------
Total current liabilities 45,302,079 41,100,561
----------- -----------
Long-Term Bank and Other Debt,
less current portion (Note 5) 11,764,499 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,
7,679,201 and 7,673,174 shares
issued and outstanding 76,812 76,732
Additional paid-in capital 50,005,063 49,958,108
Retained earnings 24,352,254 22,197,561
----------- -----------
Total stockholders' equity 74,434,129 72,232,401
----------- -----------
$131,908,707 $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 FLOWS
<TABLE>
<CAPTION>
Thirteen weeks ended
May 4, 1996 April 29, 1995
----------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,154,693 $ 2,301,409
---------- ----------
Adjustments to reconcile net
income to net cash provided
by operating activities--
Depreciation and amortization 1,926,459 1,648,738
Provision for losses on
accounts receivable 126,822 158,851
Change in other non-cash
reserves 68,159 (635,826)
Change in current assets and
liabilities (Note 2) (4,719,456) (1,265,513)
Other 3,573 4,521
---------- ----------
Total adjustments (2,594,443) (89,229)
---------- ----------
Net cash (used) provided
by operating activities (439,750) 2,212,180
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures (3,250,361) (2,425,175)
---------- ----------
Net cash used by
investing activities (3,250,361) (2,425,175)
---------- ----------
Cash Flows from Financing Activities:
Sales of common stock 47,035 55,856
Proceeds from issuance of long-
term bank and other debt 4,692,000 2,500,000
Principal payments of long-term
bank and other debt (593,937) (729,239)
---------- ----------
Net cash provided by
financing activities 4,145,098 1,826,617
---------- ----------
Net Increase in Cash and Cash
Equivalents 454,987 1,613,622
Cash and Cash Equivalents,
beginning of period 3,954,808 2,000,404
---------- ----------
Cash and Cash Equivalents, end
of period $ 4,409,795 $ 3,614,026
========== ==========
</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 the consolidated financial
position of Catherines Stores Corporation ("Stores") and its wholly
owned subsidiaries as of May 4, 1996 and February 3, 1996, and the
consolidated results of their operations and their cash flows for
the thirteen weeks ended May 4, 1996 and April 29, 1995. Stores
and its subsidiaries are collectively referred to as the "Company".
The results of operations for the 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>
Thirteen weeks ended
--------------------------
May 4, April 29,
1996 1995
----------- -----------
<S> <C> <C>
Increase (decrease) in cash and
cash equivalents -
Receivables $ (1,304,452) $ (2,235,888)
Merchandise inventory (7,100,311) (12,167,604)
Prepaid expenses and other (632,129) (227,987)
Accounts payable 3,929,883 11,047,075
Accrued expenses 387,553 2,318,891
----------- -----------
Total (4,719,456) (1,265,513)
=========== ===========
</TABLE>
Interest paid during the thirteen weeks ended May 4, 1996 and
April 29, 1995 was approximately $188,000 and $219,000,
respectively. Income taxes paid during the thirteen weeks ended
May 4, 1996 and April 29, 1995 were approximately $98,000 and
$176,000, 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>
May 4, February 3, Amortization Methods
1996 1996 and Periods
---------- ----------- --------------------
<S> <C> <C> <C>
Trademarks and tradenames $1,138,488 $1,149,758 Straight-line over
40 years
Deferred financing costs 199,568 242,824 Effective interest
method over term
of financing
Covenants not to compete 1,513,893 1,581,606 Straight-line over
term of agreements
Other 322,102 325,674
--------- ---------
Total $3,174,051 $3,299,862
========= =========
</TABLE>
(4) Accrued Expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
May 4, February 3,
1996 1996
---------- -----------
<S> <C> <C>
Payroll and related benefits $ 2,519,328 $ 2,540,098
Taxes other than income taxes 1,038,453 1,793,844
Rent and other related costs 2,419,950 2,453,354
Insurance 860,010 824,907
Deferred revenues 1,853,968 1,750,529
Other 3,397,856 2,507,280
---------- ----------
Total $12,089,565 $11,870,012
========== ==========
</TABLE>
(5) Long-Term Bank and Other Debt
Long-term bank and other debt consisted of the following:
<TABLE>
<CAPTION>
May 4, February 3,
1996 1996
---------- -----------
<S> <C> <C>
Due to banks:
Term loan $ 3,000,000 $ 3,250,000
Working capital notes 8,442,000 3,750,000
Other:
Capital lease obligations 2,809,927 3,232,576
Other notes and obligations 610,388 531,676
---------- ----------
14,862,315 10,764,252
Less current maturities (3,097,816) (3,045,734)
---------- ----------
Total $11,764,499 $ 7,718,518
========== ==========
</TABLE>
At May 4, 1996, Catherines had approximately $10,987,000
available under its working capital facility and $2,808,000
available under its swing line of credit after considering
outstanding letters of credit of approximately $5,853,000.
6) Leases
During the thirteen weeks ended May 4, 1996, the Company
extended leases for 15 stores and entered into new leases for 16
stores. Future minimum rental payments have increased
approximately $1,577,000 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 $79,481,000.
Total rent expense for all operating leases was as follows:
<TABLE>
<CAPTION>
Thirteen weeks ended
----------------------
May 4, April 29,
1996 1995
---------- ---------
<S> <C> <C>
Minimum rentals $4,884,373 $4,433,523
Contingent rentals 109,242 139,267
--------- ---------
Total $4,993,615 $4,572,790
========= =========
</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. At May 4, 1996, there
were vested options outstanding to purchase 501,200 shares of
common stock at an average price per share of $8.14.
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 80 46,955 - 47,035
Net income - - 2,154,693 2,154,693
------ ---------- ---------- ----------
Balance at May 4, 1996 $76,812 $50,005,063 $24,352,254 $74,434,129
====== ========== ========== ==========
</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>
Thirteen weeks ended
----------------------
May 4, April 29,
1996 1995
---------- ---------
<S> <C> <C>
Weighted average number of
shares outstanding 7,673,306 7,644,419
Common stock equivalents -
shares issuable under the 1994
Omnibus Incentive Plan, the 1992
Nonqualified Stock Option Plan,
and the 1990 Performance Units
Plan 160,719 156,541
--------- ---------
Weighted average common
shares outstanding assuming
full dilution 7,834,025 7,800,960
========= =========
</TABLE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's cash used by operations was $440,000 during the
thirteen weeks ended May 4, 1996, compared to cash provided by
operations of $2,212,000 during the thirteen weeks ended April 29,
1995. The decrease in cash flow provided by operations is
primarily attributable to an increase in working capital. The
Company's working capital was $26,139,000 at May 4, 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 thirteen
week period ended May 4, 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 be approximately $12,000,000, of which an estimated $9,267,000
will be used for the opening of 35 new locations and the
remodeling, relocation, and expansion of approximately 37 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 May 4, 1996, the Company had approximately
$10,897,000 available under its working capital facility and
$2,808,000 under its swing line of credit after considering
approximately $5,853,000 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 quarter of 1995, including outstanding letters of
credit, was $18,074,000 in April 1995.
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 May 4, 1996 Compared to Thirteen Weeks Ended
April 29, 1995
Net sales in the first quarter of 1996 increased 3.8% to
$70,464,000 from $67,858,000 in the first quarter of 1995. This
sales increase resulted from the 36 new stores opened in 1996 and
in the second half of 1995. Comparable stores' sales decreased
1.1%, due primarily to reductions in the average unit price and in
the average units per salescheck, offset by increases in total
units sold and the total salechecks generated. During the first
quarter, 21 stores were opened and two stores were closed, bringing
the number of stores operated by the Company on May 4, 1996 to 451.
Gross margin, after buying and occupancy costs, increased as
a percentage of sales to 32.6% from 32.5% in the first quarter of
1995. The increase is primarily attributable to an increase in
merchandise margins due to lower markdowns (net of allowances,
reserves and customer perk income), offset by an increase in rents,
depreciation and utility expenses.
Selling, general and administrative expenses increased to
$18,769,000 in the first quarter of 1996 compared to $17,718,000 in
the first quarter of 1995. Approximately $762,000 of the increase
in these expenses are attributable to stores opened thus far in
1996, combined with increases in employee health care and payroll
expense, offset by a decrease in advertising expense. As a
percentage of sales, the selling, general and administrative
expenses increased to 26.6% from 26.1%.
Interest expense was approximately $291,000 in the first
quarter of 1996, compared to $184,000 in the first quarter of 1995.
The increase is primarily attributable to the increase in working
capital borrowings.
Income taxes were provided at an effective rate of 40.3% in
the first quarter of 1996, compared to 40.4% in the first quarter
of 1995.
Net income for the first quarter of 1996 was $2,155,000
compared to $2,301,000 for the first quarter of 1995. Net income
per common share was $0.28 compared to $0.30 per share reported in
the first quarter 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
The Annual Meeting of the Stockholders of the Company was
held on June 5, 1996. Matters voted upon at the meeting were the
election of directors and the ratification of independent public
accountants for the fiscal year ending February 1, 1997.
The results of the voting were as follows:
<TABLE>
<CAPTION>
Abstain/
Broker
For Against Withheld Non-Voter
--- ------- -------- ---------
<S> <C> <C> <C> <C>
Election of Directors:
David C. Forell 6,657,262 110,439
Allen B. Morgan, Jr. 6,657,240 110,461
Elliot J. Stone 6,654,812 112,889
Appointment of Arthur
Andersen 6,753,145 6,399 8,460
</TABLE>
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(A) None
(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
June 5, 1996 /s/ David C. Forell
------------ ----------------------------------
(Date) David C. Forell,
Executive Vice President, Chief
Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by refernce to such financial statements.
</LEGEND>
<CIK> 0000875194
<NAME> CATHERINES STORES CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> MAY-04-1996
<CASH> 4,410
<SECURITIES> 0
<RECEIVABLES> 4,960
<ALLOWANCES> 0
<INVENTORY> 56,941
<CURRENT-ASSETS> 71,441
<PP&E> 52,731
<DEPRECIATION> (19,709)
<TOTAL-ASSETS> 131,909
<CURRENT-LIABILITIES> 45,302
<BONDS> 0
<COMMON> 50,082
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 131,909
<SALES> 70,464
<TOTAL-REVENUES> 70,464
<CGS> 47,493
<TOTAL-COSTS> 47,493
<OTHER-EXPENSES> 18,769
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 291
<INCOME-PRETAX> 3,610
<INCOME-TAX> 2,155
<INCOME-CONTINUING> 3,610
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,155
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
