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 3, 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 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 16, 1997 there were 7,204,470 shares of Catherines
Stores Corporation common stock outstanding.
<PAGE>
CATHERINES STORES CORPORATION
FORM 10-Q
May 3, 1997
Table of Contents
Page No.
--------
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial
Statements 6-9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-11
PART 2 - OTHER INFORMATION 12
<PAGE>
PART 1 - Financial Information
Item 1 - Financial Statements (unaudited)
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Thirteen weeks ended
May 3, 1997 May 4, 1996
----------- --------------
<S> <C> <C>
Net sales $70,968,193 $70,464,258
Costs of sales, including buying
and occupancy costs 48,670,830 47,493,202
---------- ----------
Gross margin 22,297,363 22,971,056
Selling, general and
administrative expenses 19,653,566 18,769,046
Amortization of intangible
assets 274,878 301,099
---------- ----------
Operating income 2,368,919 3,900,911
Interest expense, net 322,424 291,217
---------- ----------
Income before income taxes 2,046,495 3,609,694
Provision for income taxes 833,000 1,455,000
---------- ----------
Net income $ 1,213,495 $ 2,154,694
========== ==========
Net income per common share $ 0.17 $ 0.28
========== ==========
Weighted average number of
common shares outstanding 7,259,603 7,834,025
========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 3, February 1,
1997 1997
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,644,581 $ 2,992,339
Receivables 3,580,769 3,051,595
Merchandise inventory 56,065,089 51,933,957
Prepaid expenses and other 4,793,796 3,478,849
Deferred income tax asset 1,294,000 1,294,000
----------- -----------
Total current assets 70,378,235 62,750,740
----------- -----------
Property and Equipment, at cost:
Land 500,000 500,000
Leasehold improvements 23,616,062 22,703,829
Fixtures and equipment 28,633,334 27,799,419
Equipment under capital leases 9,336,421 9,204,817
Improvements in process 163,383 425,542
----------- -----------
62,249,200 60,633,607
Less accumulated depreciation
and amortization (27,048,049) (25,119,716)
----------- -----------
35,201,151 35,513,891
----------- -----------
Deferred Income Taxes 388,000 388,000
Other Assets and Deferred Charges,
less accumulated amortization of
$2,010,187 and $1,910,112 (Note 3) 2,924,986 2,999,552
Goodwill, less accumulated
amortization of $4,426,151 and
$4,251,347 23,538,449 23,713,253
----------- -----------
$132,430,821 $125,365,436
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 26,021,332 $ 25,973,186
Accrued expenses (Note 4) 12,833,501 12,053,356
Current maturities of long-term
bank and other debt 2,652,447 2,514,849
----------- -----------
Total current liabilities 41,507,280 40,541,391
----------- -----------
Long-Term Bank and Other Debt,
less current maturities (Note 5) 19,722,343 14,877,902
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,
7,204,470 and 7,191,656 shares
issued and outstanding 72,045 71,917
Additional paid-in capital 46,432,123 46,390,691
Retained earnings 24,697,030 23,483,535
----------- -----------
Total stockholders' equity 71,201,198 69,946,143
----------- -----------
$132,430,821 $125,365,436
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated balance sheets.
<PAGE>
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Thirteen weeks ended
May 3, 1997 May 4, 1996
----------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,213,495 $ 2,154,694
---------- ----------
Adjustments to reconcile net
income to net cash used
by operating activities--
Depreciation and amortization 2,211,091 1,926,459
Provision for losses on
accounts receivable 181,772 126,822
Change in other non-cash
reserves (75,089) (68,159)
Change in current assets and
liabilities (Note 2) (5,253,645) (4,583,138)
Other (33,388) 3,572
---------- ----------
Total adjustments (2,969,259) (2,594,444)
---------- ----------
Net cash used by
operating activities (1,755,764) (439,750)
---------- ----------
Cash Flows from Investing Activities:
Capital expenditures (1,410,952) (3,250,361)
---------- ----------
Net cash used by
investing activities (1,410,952) (3,250,361)
---------- ----------
Cash Flows from Financing Activities:
Sales of common stock 41,560 47,035
Proceeds from issuance of long-
term bank and other debt 5,236,000 4,692,000
Principal payments of long-term
bank and other debt (458,602) (593,937)
---------- ----------
Net cash provided by
financing activities 4,818,958 4,145,098
---------- ----------
Net Increase in Cash and Cash
Equivalents 1,652,242 454,987
Cash and Cash Equivalents,
beginning of period 2,992,339 3,954,808
---------- ----------
Cash and Cash Equivalents, end
of period $ 4,644,581 $ 4,409,795
========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
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 3, 1997 and February 1, 1997, and the
consolidated results of their operations and their cash flows for
each of the thirteen weeks ended May 3, 1997 and May 4, 1996.
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 1, 1997. 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 3, May 4,
1997 1996
----------- -----------
<S> <C> <C>
Increase (decrease) in cash and
cash equivalents -
Receivables $ (712,942) $ (1,306,802)
Merchandise inventory (3,896,047) (6,625,643)
Prepaid expenses and other (1,314,947) (632,129)
Accounts payable 48,146 3,929,883
Accrued expenses 622,145 51,553
----------- -----------
Total $ (5,253,645) $ (4,583,138)
=========== ===========
</TABLE>
Interest paid during the thirteen weeks ended May 3, 1997 and
May 4, 1996 was approximately $323,000 and $188,000, respectively.
Income taxes paid during the thirteen weeks ended May 3, 1997 and
May 4, 1996 were approximately $453,000 and $98,000, respectively.
<PAGE>
(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 3, February 1, Amortization Methods
1997 1997 and Periods
---------- ----------- --------------------
<S> <C> <C> <C>
Covenants not to compete $1,267,021 $1,324,348 Straight-line over
term of agreements
Trademarks and tradenames 1,101,213 1,112,482 Straight-line over
40 years
Deferred financing costs 38,326 69,805 Effective interest
method over term
of financing
Other 518,426 492,917
--------- ---------
Total $2,924,986 $2,999,552
========= =========
</TABLE>
(4) Accrued Expenses
----------------
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
May 3, February 1,
1997 1997
---------- -----------
<S> <C> <C>
Payroll and related benefits $ 2,720,888 $ 2,430,673
Taxes other than income taxes 1,456,058 1,138,246
Rent and other related costs 2,190,948 2,307,074
Insurance 473,681 1,006,664
Deferred revenues 1,884,029 1,830,652
Other 4,107,897 3,340,047
---------- ----------
Total $12,833,501 $12,053,356
========== ==========
</TABLE>
(5) Long-Term Bank and Other Debt
-----------------------------
Long-term bank and other debt consisted of the following:
<TABLE>
<CAPTION>
May 3, February 1,
1997 1997
---------- -----------
<S> <C> <C>
Due to banks:
Term loan $ 2,000,000 $ 2,250,000
Working capital notes 17,236,000 12,000,000
Other:
Capital lease obligations 3,040,528 3,040,939
Other notes and obligations 98,262 101,812
---------- ----------
22,374,790 17,392,751
Less current maturities (2,652,447) (2,514,849)
---------- ----------
Total $19,722,343 $14,877,902
========== ==========
</TABLE>
At May 3, 1997, the Company had approximately $6,123,000
available under its combined working capital and swing line
facility after considering outstanding letters of credit of
approximately $4,641,000. Subsequent to the end of the first
quarter, on May 13, 1997, the Company entered into a supplement to
a capital lease agreement in the amount of approximately $1,300,000
for the purpose of installing new point of sale registers in its
stores. During the first quarter one third of these registers were
installed. This equipment will cost approximately $3,400,000, all
of which will be financed by capital lease.
<PAGE>
(6) Leases
------
During the thirteen weeks ended May 3, 1997, the Company
entered into new leases for ten stores including relocations.
Future minimum rental payments have increased approximately
$1,440,000 since February 1, 1997, 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 $75,447,000.
Total rent expense for all operating leases was as follows:
<TABLE>
<CAPTION>
Thirteen weeks ended
----------------------
May 3, May 4,
1997 1996
---------- ---------
<S> <C> <C>
Minimum rentals $5,293,110 $4,884,373
Contingent rentals 80,376 109,242
--------- ---------
Total $5,373,486 $4,993,615
========= =========
</TABLE>
(7) Stockholders' Equity
--------------------
On March 19, 1997, under the 1994 Omnibus Incentive Plan,
options to purchase 143,750 shares of common stock were granted to
certain officers and key employees of the Company at $4.88 per
share, the fair market value on that date. At May 3, 1997, there
were vested options outstanding to purchase 639,225 shares of
common stock at an average price per share of $8.65.
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 1, 1997 $71,917 $46,390,691 $23,483,535 $69,946,143
Net proceeds from sale
of common shares 128 41,432 - 41,560
Net income - - 1,213,495 1,213,495
------ ---------- ---------- ----------
Balance at May 3, 1997 $72,045 $46,432,123 $24,697,030 $71,201,198
====== ========== ========== ==========
</TABLE>
(8) New Accounting Pronouncements
-----------------------------
The Financial Accounting Standards Board has issued Statement
of Financial Accounting Standards No. 128 "Earnings per Share",
effective for fiscal years ending after December 15, 1997. This
statement requires, among other things, the presentation of
earnings per share and diluted earnings per share on the face of
the income statements and a reconciliation of weighted average
shares to fully diluted weighted average shares in the footnotes of
the financial statements. Management does not believe that this
statement will have a material impact on the financial statements
of the Company.
<PAGE>
(9) 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 3, May 4,
1997 1996
---------- ---------
<S> <C> <C>
Weighted average number of
shares outstanding 7,198,532 7,673,306
Common stock equivalents -
shares issuable under the 1994
Omnibus Incentive Plan, the 1992
Nonqualified Stock Option Plan,
and the 1990 Performance Units
Plan 61,071 160,719
--------- ---------
Weighted average common
shares outstanding assuming
full dilution 7,259,603 7,834,025
========= =========
</TABLE>
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
- --------------------------
This outlook contains forward-looking statements based on
current expectations that involve a number of uncertainties. The
factors that could cause actual results to differ materially
include the following: general economic conditions; competitive
factors and pricing pressures; changes in product mix and fashion
offerings; and inventory risks due to shifts in market demand.
Liquidity and Capital Resources
- -------------------------------
The Company's cash used by operations was $1,756,000 during
the thirteen weeks ended May 3, 1997, compared to cash used by
operations of $440,000 during the thirteen weeks ended May 4,
1996. The decrease in cash flow provided by operations is
primarily attributable to an increase in working capital and
reduction in net income. The Company's working capital was
$28,871,000 at May 3, 1997 compared to $22,209,000 at February 1,
1997. Merchandise inventory, required for Mother's Day and May
business, was the primary contributor to the increase in working
capital. Compared to the first quarter of 1996 per store
inventories decreased 3.5%. 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 3, 1997.
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. The term of the agreement is
through January 31, 2000.
The Company estimates that fiscal 1997 capital expenditures
will be approximately $4,500,000, of which an estimated $3,467,000
will be used for the opening of seven new locations and the
remodeling, relocation, and expansion of approximately 27 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 3, 1997, the Company had approximately
$6,123,000 available under its combined working capital and swing
line facility after considering approximately $4,641,000 in
outstanding letters of credit.
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.
<PAGE>
Results of Operations
- ---------------------
Thirteen Weeks Ended May 3, 1997 Compared to Thirteen Weeks Ended
- -----------------------------------------------------------------
May 4, 1996
- -----------
Net sales in the first quarter of 1997 increased 0.7% to
$70,968,000 from $70,464,000 in the first quarter of 1996.
Comparable stores' sales decreased 1.9%, due primarily to
reductions in the number of units sold and in the number of
saleschecks generated, offset by increases in average unit price.
During the first quarter, five stores were opened and two stores
were closed, bringing the number of stores operated by the Company
on May 3, 1997 to 460.
Gross margin, after buying and occupancy costs, decreased as
a percentage of sales to 31.4% from 32.6% in the first quarter of
1996. The decrease is primarily attributable to an increase in
rents, depreciation and utility expenses for the five stores opened
this year and those stores opened in the second quarter and fall of
1996. Merchandise margins were slightly below last year.
Selling, general and administrative expenses increased to
$19,654,000 in the first quarter of 1997 compared to $18,769,000 in
the first quarter of 1996. The increase is primarily attributable
to payroll, advertising, services and freight, offset by reductions
in benefits and property taxes. As a percentage of sales, the
selling, general and administrative expenses increased to 27.7%
from 26.6% in the first quarter of 1996. Selling, general and
administrative expenses per store increased 2.6% over the first
quarter of 1996.
Interest expense was approximately $322,000 in the first
quarter of 1997 compared to $291,000 in the first quarter of 1996.
The increase is primarily attributable to the increase in working
capital borrowings.
Income taxes were provided at an effective rate of 40.7% in
the first quarter of 1997 compared to 40.3% in the first quarter of
1996.
Net income for the first quarter of 1997 was $1,213,000
compared to $2,155,000 for the first quarter of 1996. Net income
per common share was $0.17 compared to $0.28 per share reported in
the first quarter of 1996.
<PAGE>
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
Not applicable
Item 3. Defaults upon 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 4, 1997. Matters voted upon at the meeting were the
election of directors and the ratification of independent public
accountants for the fiscal year ending January 31, 1998.
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:
Bernard J. Wein 6,216,216 496,599
James H. Lindy 6,676,481 36,334
Appointment of
Arthur Andersen LLP 6,687,042 17,450 4,360
</TABLE>
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(A) Exhibits:
Exhibit 27 - Financial Data Schedule
(EDGAR Filing Only)
(B) Reports on Form 8-K:
None
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.
SIGNATURES
June 4, 1997 /s/David C. Forell
------------ -------------------------
(Date) David C. Forell,
Executive Vice President,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of Catherines Stores Corporation and
Subsidiaries and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000875194
<NAME> CATHERINES STORES CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-2-1997
<PERIOD-END> MAY-3-1997
<CASH> 4,645
<SECURITIES> 0
<RECEIVABLES> 3,581
<ALLOWANCES> 0
<INVENTORY> 56,065
<CURRENT-ASSETS> 70,378
<PP&E> 62,249
<DEPRECIATION> (27,048)
<TOTAL-ASSETS> 132,431
<CURRENT-LIABILITIES> 41,507
<BONDS> 0
0
0
<COMMON> 46,504
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 132,431
<SALES> 70,968
<TOTAL-REVENUES> 70,968
<CGS> 48,671
<TOTAL-COSTS> 48,671
<OTHER-EXPENSES> 19,929
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 322
<INCOME-PRETAX> 2,046
<INCOME-TAX> 833
<INCOME-CONTINUING> 1,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,213
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
