_________________________________________________________________
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
________________________________________
FORM 10-K
________________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended Commission File
February 1, 1997 Number 000-19372
REGISTRANT: CATHERINES STORES CORPORATION
State of Incorporation: I.R.S. Employer Identification
Tennessee Number: 62-1350411
Address of Principal Registrant's Telephone Number:
Executive Offices:
3742 Lamar Avenue 901-363-3900
Memphis, TN 38118
SECURITIES REGISTERED PURSUANT SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT: TO SECTION 12(g) OF THE ACT:
None Common Stock, $.01 par value
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 [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of April 1, 1997, there were 7,196,656 shares of Common
Stock outstanding. The aggregate market value of the
Registrant's Common Stock held by non-affiliates of the
Registrant as of April 1, 1997, was $35,083,698 based on the last
reported sales price per share on the NASDAQ National Market
System on that date.
Documents incorporated by reference:
1. Portions of the Annual Report to Shareholders for the
fiscal year ended February 1, 1997 are incorporated by reference
into Part II - Items 6, 7 and 8 and Part IV - Item 14 (a)1.
2. Portions of the Company's Proxy Statement (the "Proxy
Statement") relating to the Annual Meeting to be held on June 4,
1997 which has been filed with the Commission are incorporated by
reference into Part III - Items 10, 11, 12 and 13.
PART I
------
ITEM 1. BUSINESS
- -----------------
Overview
- --------
Catherines Stores Corporation, (the "Company"), through its
wholly owned subsidiaries, Catherines, Inc. ("Catherines"),
Catherines of California, Inc., and Catherines of Pennsylvania,
Inc., and through a limited partnership, Catherines Partners, LP,
is a leading specialty retailer of large-size women's apparel,
operating 457 stores in 40 states. The Company operates four
separate divisions with distinct merchandising concepts and
marketing strategies.
The Catherine's division operates 216 stores in medium-sized
cities, primarily in the Southeast, Southwest and Midwest, and
competes principally on the basis of merchandise selection and
customer service. The PS...Plus Sizes, Plus Savings ("Plus
Sizes") division operates 119 stores in major metropolitan areas
such as Chicago, Washington, D.C., Houston, Dallas, Detroit,
Seattle and Los Angeles and competes principally on the basis of
merchandise selection and price. Both divisions' stores offer a
full assortment of merchandise, primarily at budget to moderate
prices. The merchandise assortment emphasizes casual fashions.
The stores carry a complete range of large sizes, including sizes
over 26 that frequently are not offered by the Company's
competitors.
The Added Dimensions division operates 92 stores in
medium-sized cities throughout the Southeast and Midwest offering
full price, high quality merchandise. Added Dimensions has an
extensive private label sportswear merchandise program which
allows it to offer exclusive fashions to its customers. The
Answer division operates 30 stores in major metropolitan areas.
Stores in the Washington, D.C., Detroit and Chicago areas account
for approximately two-thirds of The Answer's stores. The Answer
competes by offering better branded merchandise below
competitors' prices. Both divisions' stores offer a full
assortment of sportswear, dresses, coats and more limited
assortments of intimate apparel and accessories at moderate to
better prices. The merchandise assortment is predominately
career-oriented.
Customer Base
- -------------
The Company seeks to serve the primary apparel and accessory
needs of women who wear size 16 or larger. The Company estimates
that at least 20 million American women wear size 16 or larger.
The Company's target customer is over 35 years of age, has
traditional but fashion-conscious tastes, and is primarily
concerned with fit and value in apparel selection. The Company
believes that customers are attracted to its stores by the
Company's emphasis on broad assortments, quality, fit, value and
customer service.
Merchandising
- -------------
The Company's stores offer sportswear, dresses, intimate
apparel, coats, shoes and accessories. Sportswear makes up over
half of the Company's sales. The Catherine's and Plus Sizes
divisions offer a broad assortment of merchandise in sizes over
26, making the Company one of the few retailers to emphasize
these sizes.
The majority of the Company's merchandising mix is composed
of brand name product lines which appeal to a wide spectrum of
customer tastes. Brand name merchandise is purchased primarily
from domestic vendors including Sharon Anthony, Koret, Top Notch,
Maggie McNaughton, C. M. Shapes and Victoria Jones Woman.
Private label merchandise made exclusively for the Company
comprises approximately 35% of the merchandise mix. Significant
private label categories include sweaters, blouses, skirts, tops,
coats, activewear, suits and hosiery. Trademarks owned and used
include "CST Studio", "Maggie Barnes", "Kathy White", "Liz & Me",
"AD Sport", "Grove Avenue" and "Jon Lawrence." Private label
merchandise, which carries a higher initial markup, allows the
Company to offer its customers exclusive merchandise at
attractive prices and to control size specifications and quality.
The Company employs a vice-president of product development and a
three-person product development staff to design the styles and
develop fit specifications. The Company expects to continue to
expand its private label merchandise.
Personalized customer service is emphasized in all operating
divisions. Sales associates are trained in techniques that
emphasize product knowledge, wardrobing and telephone contact to
better advise and service the customers. Personnel in all
operating divisions provide fitting room service. Personalized
service is supplemented by store procedures designed to allow the
customer to efficiently make purchases and by merchandise
presentation. Sales associates can also use the Company's
systems to locate garments in a size, style or color requested by
the customer but not available in the associate's store.
The Company's point-of-sale registers capture financial,
credit and statistical information at the time of each
merchandise transaction. This information is used on a regular
basis to evaluate and adjust each store's merchandise mix.
Merchandise assortments are tailored to each store, with
merchandise selected and distributed based on each store's
profile and sales experience.
All four operating divisions carry a broad selection of
merchandise. Catherine's and Plus Sizes focus on budget to
moderate price points, while Added Dimensions and The Answer
concentrate on moderate to better price points. Catherine's and
Added Dimensions are competitively priced while Plus Sizes and
The Answer price below competitors. All divisions centrally
control markdowns which are taken during the season on slow
selling styles. At the end of the season, merchandise is
consolidated and liquidated through clearance sales.
Purchasing and Distribution
- ---------------------------
A significant portion of the Company's merchandise is
purchased from domestic vendors who offer brand name merchandise
not generally sold by the Company's competitors. The Company
attempts to obtain exclusive merchandise from these vendors for
the Company, including merchandise for the Company's larger
sizes.
In addition to domestically purchased brand name
merchandise, the Company also has private label merchandise
produced in the Far East. A group of the Company's buyers visits
manufacturers in Taiwan, Hong Kong and Korea twice a year to
arrange for merchandise to be manufactured for the Company under
its own private labels. Approximately 15% of the Company's
merchandise is purchased overseas. Such purchases are made in
U.S. dollars and generally are financed by letters of credit. To
date, the Company has not experienced difficulties in purchasing
merchandise overseas or importing such merchandise into the
United States. If political instability in a country where
imported merchandise is produced or other factors disrupt or
curtail overseas production, the Company believes it would have
adequate alternate sources of merchandise.
At February 1, 1997, the Company employed one executive
vice-president of merchandising, one senior vice-president of
merchandising, five vice-presidents of merchandising, 26 buyers
and three associate buyers. The merchandise and buying staff is
supplemented by a vice-president of product development and a
three-person product development staff, which designs, develops
fit specifications, controls quality and procures private label
merchandise. The Catherine's and PS...Plus Sizes, Plus Savings
buyers are based in Memphis and visit New York City eight to
twelve times per year to make purchases. Added Dimensions and
The Answer's merchandising and buying organization operates from
leased facilities in New York City. In fiscal 1996, the Company
purchased merchandise from approximately 700 vendors. The
Company's ten largest domestic vendors accounted for 23% of the
Company's purchases with no single vendor accounting for more
than 3% of the Company's domestic purchases. The Company
believes its relationships with its vendors are strong and that
the loss of any one vendor would not have a material adverse
effect on the Company's business.
Almost all of the Company's purchases are shipped to the
Company's 213,000 square foot distribution center in Memphis,
Tennessee. At the distribution center, which is designed to
handle up to approximately 1,000 stores, merchandise is received,
counted, and sorted for distribution to the Company's stores. A
merchandise distribution and planning staff determines the
quantities to be shipped to each store based on the store's needs
and merchandise profile. After the merchandise is picked and
packed by store, it is shipped to the stores daily via commercial
package delivery services.
Store Operations
- ----------------
As of February 1, 1997, the Company operated 457 stores in
40 states and the District of Columbia. The following table sets
forth the location of these stores:
Store Locations by State
------------------------
<TABLE>
<CAPTION>
State Total State Total
- ----- ----- ----- -----
<S> <C> <C> <C>
Alabama 14.00 Missouri 11.00
Arkansas 4.00 Nebraska 3.00
Arizona 5.00 New Jersey 5.00
California 18.00 New Mexico 1.00
Colorado 4.00 New York 15.00
Connecticut 1.00 North Carolina 20.00
District of Columbia 1.00 North Dakota 1.00
Delaware 2.00 Oklahoma 6.00
Florida 25.00 Ohio 36.00
Georgia 24.00 Oregon 4.00
Illinois 28.00 Pennsylvania 11.00
Indiana 15.00 Rhode Island 1.00
Iowa 5.00 South Carolina 14.00
Kansas 3.00 South Dakota 1.00
Kentucky 4.00 Tennessee 24.00
Louisiana 17.00 Texas 37.00
Maryland 11.00 Virginia 24.00
Massachusetts 6.00 Washington 8.00
Michigan 26.00 Wisconsin 8.00
Minnesota 6.00 West Virginia 2.00
Mississippi 6.00
</TABLE>
The Company's stores range in size from approximately 2,000
to 8,100 square feet and average approximately 3,600 square feet.
In order to be in a position to provide a broader assortment of
merchandise in its stores, the Company expects future stores for
all divisions to be as large or larger than the current average
and intends, where warranted, to expand smaller existing stores,
either by expanding in existing locations or by moving to larger
locations as leases expire, to take advantage of market
opportunities to increase sales.
Over 83% of the Company's stores are located in strip
shopping centers or are free standing. The remaining stores are
located in shopping malls. The Company believes its locations
generally are in high traffic areas and offer adequate parking.
The Company seeks to create an atmosphere of excitement through
its new merchandise flow, sales promotions, merchandise
presentation and the quality, value and depth of its merchandise
assortments.
Each store is staffed by a store manager, a co-manager
and/or one or more assistant managers, and several sales
associates. Most store managers have at least five years of
retail experience. Store managers report to district managers,
who in turn report to the Company's Regional Directors of Stores.
The Company periodically reviews its store base and
determines whether particular stores need to be improved or
closed. During the last 5 years, the Company opened 35% of its
current store base and remodeled/relocated 24% of its current
store base. The Company generally closes a store at the end of a
lease term when the operating profit generated by the store is
insufficient to make a contribution to fixed corporate overhead.
Stores are closed prior to lease expiration when they are
unprofitable and have, in the Company's opinion, limited
potential for improvement and the Company has reached
satisfactory agreement with the landlord for closing the
location. The Company closed nine stores in fiscal year 1996, 12
stores in fiscal year 1995 and six stores in fiscal year 1994.
During fiscal 1996, the Company opened 34 stores and
relocated 19 stores. The average capital cost to build a new
store is approximately $107,000 plus inventory requirements of
approximately $118,000 per store (of which approximately 49% is
financed by vendor accounts payable).
The Company expects to open between six and ten stores and
to relocate or remodel up to 18 stores in fiscal 1997. The
Company believes there are adequate real estate opportunities to
open additional stores in the markets it currently serves and to
enter new markets in its overall trade areas.
Marketing
- ---------
The Company uses direct mail as its primary advertising
medium. The Company builds its mailing list by capturing
customer name, address, payment and purchase information at the
point-of-sale. Using this list of over two million names, each
of the Company's operating divisions sends ten to twelve direct
mail pieces per year designed to attract customers to its stores
for special values or discounts. Additional advertising is done
in newspapers and mall required circulars. In fiscal 1996,
advertising expense was 4.3% of net sales with direct mail
accounting for 69% of the total.
The Company offers two types of customer loyalty programs.
Catherine's and PS...Plus Sizes, Plus Savings offers a "Perks"
card which is purchased by the customer and entitles her to a
discount on all purchases for one year. Added Dimensions and The
Answer provide in house charge customers with a "Preferred
Customer" program, which entitles them to a gift certificate when
certain purchase levels are reached.
In addition, the Company believes its stores' locations in
convenient high traffic mall and highly visible strip shopping
centers, and its creative store displays, attract customers.
Credit Operations
- -----------------
The Company offers each operating division's customers the
convenience of a private label credit card. Sales made with the
private label card accounted for 36% of the Company's fiscal 1996
net sales. The Company's credit card is held by more than
1,025,000 customers. The Company also permits its customers to
pay in cash, with personal checks, third party cards or by using
its layaway plan.
The Company uses Hurley State Bank ("HSB"), a subsidiary of
SPS Transactions, Inc., to finance and service its private label
credit card program. HSB provides the following services: new
account approval, credit authorization, billing and account
collection. Under this agreement, the Company sells its
receivables from in-house credit sales on a daily basis without
recourse, at face value. The Company can be charged a discount
fee on these sales beginning February 1998. The agreement allows
the Company to repurchase the accounts receivable at the end of
the five-year term at face value and allows the purchaser to put
the accounts receivable back to the Company at face value in the
event of a change in the Company's ownership. The balance of
accounts receivable held by HSB, on February 1, 1997, was
approximately $75,698,000.
Merchandise Information Systems
- -------------------------------
The Company uses a sophisticated on-line merchandise
information system which was purchased from and is maintained by
a third party. The Company operates its own in-house computer
facility. Buyers are on-line with the system and are provided
with detailed daily sales and inventory information, from which
they make decisions regarding purchases and markdowns. The
District Managers have access available to them, through lap-top
computers, of daily sales, inventory information and other
information that can be used in making staffing and merchandising
decisions. The distribution center uses the system to facilitate
the recording of merchandise receipts, the printing of tickets
and the distributing of merchandise. This system also allows the
Company to capture, at the point-of-sale, customer profile
information which is used as a customer mailing list for direct
mail promotion of sales events.
The Company scans merchandise price tickets at the
point-of-sale and point-of-sale registers automatically determine
the correct price through a price look-up capability. The
registers also capture financial, credit and statistical
information and provide reports on sales by department and class
for financial reporting purposes, and weekly reports on sales by
style, color and size for use by the Company's buyers and
management. The merchandise distributors use this information on
a regular basis to evaluate and adjust each store's merchandise
mix.
The Company continues to review its information systems
needs. Currently, the Company is upgrading and updating some of
its merchandising systems to client server based technology. In
making these changes, the Company will be able to access
information more quickly, retain statistical information for
longer periods of time and enhance reporting capabilities.
Employees
- ---------
As of February 1, 1997, the Company had approximately 2,100
full-time equivalent employees. The Company has a significant
number of part-time store employees and, as is typical in the
retail industry, has experienced high turnover in its retail
sales personnel. However, the Company has not experienced
significant difficulty in hiring qualified personnel. Of the
total work force, approximately 345 employees are employed in the
Company's corporate offices and distribution center. Some of the
Company's distribution center employees are represented by the
Upholstery and Allied Industries Division of the United
Steelworkers of America. The Company and the union have ratified
a three-year contract, which expires in 1998. Management
believes there has been no material effect on its operations from
this representation.
Competition
- -----------
All aspects of the women's retail apparel business are
highly competitive. The Company's primary competitors are
department stores, specialty retailers, discount stores and mail
order companies. Many of these competitors are larger and have
greater financial, marketing and other resources than the
Company. The Company believes that the breadth of its
merchandise assortments, including sizes over 26, its advertising
programs, its customer service and its ability to obtain
desirable store locations are important factors in enabling it to
compete effectively.
Trademarks
- ----------
The Company owns all rights to the trademarks and trade
names it believes are necessary to conduct its business as
presently operated. The Company believes that its trade names,
"Catherine's," "PS...Plus Sizes, Plus Savings, " "Added
Dimensions" and "The Answer, The Elegant Large-Size Discounter,"
are material to its business.
ITEM 2. PROPERTIES
- -------------------
The Company leases all of its stores and believes the lease
terms are generally favorable. At February 1, 1997, the average
base rent for the Company's 457 stores was $12.25 per square
foot. Lease terms range from one to thirteen years and
approximately 46% contain renewal options. Approximately 85% of
the leases have percentage rent clauses. Most of the leases also
require the Company to pay a pro rata share of taxes and common
area maintenance. Many of the leases for recently opened stores
permit the Company to terminate the lease within two to three
years after commencement of the lease term if sales fail to meet
minimum thresholds.
The Company owns its corporate offices and its distribution
center. The distribution center was designed to handle 1,000
stores. Management feels that these facilities will adequately
handle the office space and distribution requirements for the
foreseeable future.
The following table sets forth, as of February 1, 1997, the
number of leases that will expire in each of the indicated
calendar years (including renewal options):
<TABLE>
<CAPTION>
Number of
Calendar Year Leases Expiring
------------- ---------------
<S> <C>
1997 46
1998 73
1999 104
2000 66
2001 84
Thereafter 84
-----
457
=====
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is from time to time involved in routine
litigation incidental to the conduct of its business,
substantially all of which is covered by existing insurance
coverage. The Company believes that no currently pending
litigation to which it is a party will have a material adverse
effect on its consolidated financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
- -------------------------------------------------------------
MARKET PRICE INFORMATION
The Company's Common Stock is traded on the National Market
System of the National Association of Security Dealers, Inc.
Automated Quotation System (the "NASDAQ National Market System")
under the symbol "CATH." The high and low sales prices per share
of the Common Stock as reported on the NASDAQ National Market
System is incorporated by reference to the Annual Report to
Shareholders (p.29).
The Company has not heretofore paid cash dividends and it is
not anticipated that the Company will pay such dividends in the
foreseeable future due to restrictions on such payments contained
in the Company's bank credit agreement and its point-of-sale
equipment lease agreement, and the business judgment of the Board
of Directors.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
Incorporated by reference to the Annual Report to
Shareholders under the caption "Selected Financial Data" (on p.
24).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------
Incorporated by reference to the Annual Report to
Shareholders under the caption "Management's Discussion and
Analysis" (beginning on p. 8).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Incorporated by reference to the Annual Report to
Shareholders (beginning on p. 12).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
- ---------------------------------------------------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Incorporated by reference to the Proxy Statement under the
caption "Election of Directors" (beginning on p. 3).
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Incorporated by reference to the Proxy Statement under the
caption "Executive Compensation" (beginning on p. 5).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- -------------------------------------------------------------
Incorporated by reference to the Proxy Statement under the
caption "Ownership of Common Stock by Directors, Officers and
Certain Beneficial Owners" (beginning on p. 2).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Incorporated by reference to the Proxy Statement under the
caption "Compensation Committee Interlocks and Insider
Participation" (beginning on p. 10).
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
- -----------------------------------------------------------------
(a)1. Consolidated Financial Statements
Statements incorporated herein by reference to the Annual
Report to Shareholders (pages 12 through 23):
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.
CONSOLIDATED BALANCE SHEETS as of February 1, 1997
and February 3, 1996.
CONSOLIDATED STATEMENTS OF INCOME for the Years
Ended February 1, 1997, February 3, 1996 and
January 28, 1995.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the Years Ended February 1, 1997, February 3,
1996 and January 28, 1995.
CONSOLIDATED STATEMENTS OF CASH FLOWS for the
Years Ended February 1, 1997, February 3, 1996 and
January 28, 1995.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(a)2. Financial Statement Schedules
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.
Schedule I - Condensed Financial Information of
Registrant
Schedule II - Valuation and Qualifying Accounts
All other statements are omitted because they are
not applicable or not required or because the
required information is included in the
consolidated financial statements.
(a)3. Exhibits. See Index to Exhibits beginning on page __
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the last quarter covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on April 25, 1997.
CATHERINES STORES CORPORATION
By: /s/ David C. Forell
-------------------------------
David C. Forell
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bernard J. Wein
- ------------------------- Chairman of the Board of ----------------
Bernard J. Wein Directors, Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ Stanley H. Grossman
- ------------------------- Executive Vice President, ----------------
Stanley H. Grossman Secretary and Director
/s/ David C. Forell Executive Vice President
- ------------------------- and Chief Financial Officer ----------------
David C. Forell and Director (Principal
Financial and Accounting
Officer)
/s/ James H. Lindy
- ------------------------- Director ----------------
James H. Lindy
/s/ Allen B. Morgan, Jr.
- ------------------------- Director ----------------
Allen B. Morgan, Jr.
/s/ Wellford L. Sanders, Jr.
- ------------------------- Director ----------------
Wellford L. Sanders, Jr.
/s/ Elliot J. Stone
- ------------------------- Director ----------------
Elliot J. Stone
</TABLE>
Schedule I
Catherines Stores Corporation
Condensed Financial Information of Registrant
Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS:
Cash $ 5 $ 5
Accounts Receivable 750 611
Inventory 12,472 12,939
Prepaid Expenses 225 229
Deferred Income Taxes 268 -
Investment in Subsidiaries -
eliminated in consolidation 71,316 68,597
Intercompany Receivable 916 4,498
Property and Equipment, net of
accumulated depreciation 6,525 6,504
------- -------
TOTAL ASSETS 92,477 93,383
======= =======
LIABILITIES:
Accounts Payable 22,518 20,684
Accrued Liabilities 5 20
Income Taxes Payable 8 446
------- -------
Total Liabilities 22,531 21,150
------- -------
STOCKHOLDERS' EQUITY:
Common Stock 72 77
Additional Paid-In Capital 46,391 49,958
Retained Earnings 23,483 22,198
------- -------
Total Stockholders' Equity 69,946 72,233
------- -------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 92,477 $ 93,383
======= =======
</TABLE>
The accompanying notes are an integral
part of these balance sheets.
Schedule I
(continued)
Catherines Stores Corporation
Condensed Financial Information of Registrant
Statements of Income
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
-----------------------------
Feb. 1, Feb. 3, Jan. 28,
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Sales $170,002 $182,842 $ -
Cost of sales 159,217 161,216 -
------- ------- -----
Gross margin 10,785 21,626 -
Selling, general and
administrative expenses 12,633 11,299 -
------- ------- -----
Income (loss) before income taxes (1,848) 10,327 -
Income tax benefit (provision) 158 (3,614) -
Equity in subsidiaries'
continuing earnings (losses) 2,976 (3,603) 5,600
------- ------- -----
Net income $ 1,286 $ 3,110 $5,600
======= ======= =====
</TABLE>
Schedule I
(continued)
Catherines Stores Corporation
Condensed Financial Information of Registrant
Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
----------------------------
Feb. 1, Feb. 3, Jan. 28,
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 1,286 $ 3,110 $ 5,600
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed
(earnings) losses of
subsidiaries (2,976) 3,603 (5,600)
Depreciation and amoritization 306 312 -
Change in current assets and
liabilities 1,712 (7,020) -
Change in deferred income taxes (268) - -
------ ------ ------
Total adjustments in current
assets and liabilities (1,226) (3,105) -
------ ------ ------
Net cash provided by operating
activities 60 5 -
------ ------ ------
Cash flows from investing
activities:
Capital expenditures (327) (206) -
Cash distribution from
subsidiaries 3,839 - 2,975
Capital contribution to
subsidiaries - - (229)
------ ------ ------
Net cash provided by (used in)
investing activities 3,512 (206) 2,746
------ ------ ------
Cash flows from financing
activities
Sales of common stock, net
of cash expenses 164 206 229
Repurchase of common stock (3,736) (2,975)
------ ------ ------
Net cash (used in) provided
by financing activities (3,572) 206 (2,746)
------ ------ ------
Net change in cash $ - $ 5 $ -
====== ====== ======
</TABLE>
The accompanying notes are an integral
part of these financial statements.
Schedule I
(continued)
Catherines Stores Corporation
Notes to Financial Statements
1. GENERAL
-------
Catherines Stores Corporation ("Stores"), through its
wholly-owned subsidiaries, collectively "the Company", operates
retail specialty stores selling women's large-size clothing and
accessories in locations throughout the United States. Stores'
principal assets are its investments in its subsidiaries and a
retail distribution center. Stores provides merchandise buying
and distribution services to its operating subsidiaries.
These statements should be read in conjunction with the
audited consolidated financial statements of the Company as of
February 1, 1997, February 3, 1996 and January 28, 1995.
Accordingly, significant accounting policies and other
disclosures necessary for complete financial statements in
conformity with generally accepted principles have been omitted
since such items are reflected in the Company's audited
consolidated financial statements and related notes thereto.
Information with respect to material contingencies, long-term
obligations and guarantees of Stores, for all periods presented,
is also disclosed in the audited consolidated financial
statements and related notes thereto.
Accounts Receivable
- -------------------
Accounts receivable consists of trade vendor receivables.
Merchandise Inventory
- ---------------------
Merchandise inventory represents inventory purchased by
Stores for its operating subsidiaries that was intransit to or
being held at its retail distribution facility at fiscal year
end.
Intercompany Transactions
- -------------------------
Stores and its subsidiaries have entered into an exclusive
merchandise buying and distribution services agreement and an
agency agreement. Under the buying and distribution services
agreement, Stores performs all transactions necessary to provide
merchandise to its subsidiaries for retail sales. These goods
are sold at a markup and are recorded as sales on Stores
financial statements. The cost of these goods plus markup are
booked as a receivable on Stores balance sheet. One of Stores
subsidiaries has an agency agreement with Stores and the other
subsidiaries in which it provides all administrative and
management services. The subsidiary in turn assesses a fee to
Stores and its other subsidiaries for these services. These fees
plus all funds distributed to meet the obligations of Stores or
its other subsidiaries are recorded as intercompany transactions.
All intercompany transactions are eliminated in consolidation.
2. STATEMENTS OF CASH FLOWS
------------------------
On January 29, 1995, Stores reorganized its legal and
corporate structure. As a result of this reorganization, Stores
began providing merchandise buying and distribution services to
its operating subsidiaries.
In fiscal 1994, Stores repurchased 300,000 shares of its
outstanding common stock on the open market. To effect this
purchase, a cash distribution of approximately $3,000,000 was
made to Stores by its subsidiaries.
In fiscal 1996, Stores repurchased 509,500 shares of its
outstanding common stock on the open market. To effect this
purchase, a cash distribution of approximately $3,736,000 was
made to Stores by its subsidiaries.
Schedule II
Catherines Stores Corporation
Valuation and Qualifying Accounts
(dollars in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------------------- -------- --------
Charged
(credited) Charged
Balance at to (credited) Balance at
beginning costs and to other end of
Description of period expenses accounts Deductions period
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended Jan. 28, 1995:
Allowance for doubtful
accounts 115 641 --- (644)(1) 112
Reserve for inventory
markdowns 1,050 500 --- --- 1,550
Reserve for inventory
shrinkage 130 16 --- --- 146
Reserve for layaway
cancellations 77 (28) --- --- 49
Reserve for sales returns
and allowances 210 (20) --- --- 190
Year ended Feb. 3, 1996:
Allowance for doubtful
accounts 112 151 --- (208)(1) 55
Reserve for inventory
markdowns 1,550 630 --- --- 2,180
Reserve for inventory
shrinkage 146 10 --- --- 156
Reserve for layaway
cancellations 49 (20) --- --- 29
Reserve for sales returns
and allowances 190 60 --- --- 250
Year ended Feb. 1, 1997:
Allowance for doubtful
accounts 55 164 --- (144)(1) 75
Reserve for inventory
markdowns 2,180 270 --- --- 2,450
Reserve for inventory
shrinkage 156 --- --- --- 156
Reserve for layaway
cancellations 29 (2) --- --- 27
Reserve for sales returns
and allowances 250 13 --- --- 263
</TABLE>
- ------------------------
(1) Accounts written off, less recoveries.
EXHIBIT INDEX
Number
Assigned in
Regulation
S-K, Item 601 Description of Exhibit
- ------------- ----------------------
(2) 2.1 Agreement and Plan of Merger pursuant to which the
Registrant's succession has occurred is
incorporated herein by reference to Exhibit 2.1 to
the Registration of Securities of Certain
Successor Issuers on Form 8-B dated January 29,
1995, to which such Agreement and Plan of Merger
is attached as Exhibit A.
(3) 3.1 Charter is incorporated by reference to Exhibit
2.1 to the Registration of Securities of Certain
Successor Issuers on Form 8-B dated January 29,
1995, to which such Charter is attached as Exhibit
B.
3.2 Bylaws are incorporated by reference to Exhibit
2.1 to the Registration of Securities of Certain
Successor Issuers on Form 8-B dated January 29,
1995, to which such Charter is attached as Exhibit
C.
(4) 4.1 Specimen Common Stock Certificate is incorporated
by reference to Exhibit 4.1 to the Registration of
Securities of Certain Successor Issuers on Form 8-
B dated January 29, 1995.
(10) 10.1 Form of Indemnity Agreement dated as of June 3,
1992 between Registrant and each of Stanley H.
Grossman, David C. Forell, James H. Lindy and
Allen B. Morgan, Jr. is incorporated herein by
reference to Exhibit 10.23 to the Registration
Statement of the Company dated November 30, 1992
(SEC File No. 33-55320).
10.2 Form of Indemnity Agreement dated as of May 23,
1991 between Catherines, Inc. And each of Bernard
J. Wein, Robert V. Glaser, Wellford L. Sanders,
Jr., Elliot J. Stone and Savio W. Tung is
incorporated herein by reference to Exhibit 10.23
to Amendment No. 1 to the Registration Statement
of the Company dated June 28, 1991 (SEC File No.
33-40832).
10.3 Form of Indemnity Agreement dated as of June 3,
1992 between Catherines, Inc. and each of Stanley
H. Grossman, David C. Forell, James H. Lindy and
Allen B. Morgan, Jr. is incorporated herein by
reference to Exhibit 10.20 to the Registration
Statement of the Company dated November 30, 1992
(SEC File No. 33-55320).
10.4 Master Equipment Lease Agreement dated March 15,
1991 between Sanwa Business Credit Corporation and
Catherines, Inc. and related agreements is
incorporated herein by reference to Exhibit 10.25
to Amendment No. 1 to the Registration Statement
of the Company dated June 28, 1991 (SEC File No.
33-40832).
10.5 Supplement No. 1 to Master Equipment Lease
Agreement dated as of September 30, 1991 between
Sanwa Business Credit Corporation and Catherines,
Inc. and related agreements is incorporated herein
by reference to Exhibit 10.21 to the Registration
Statement of the Company dated March 12, 1992 (SEC
File No. 33-46334).
10.6 Supplement No. 2 to Master Equipment Lease
Agreement dated as of June 8, 1992 between Sanwa
Business Credit Corporation and Catherines, Inc.
and related agreements is incorporated herein by
reference to Exhibit 10.23 to the Registration
Statement of the Company dated November 30, 1992
(SEC File No. 33-55320).
10.7 Hardware Purchase and Software License Agreement
between STS Systems, Ltd. and Catherines, Inc. is
incorporated herein by reference to Exhibit 10.23
to the Registration Statement of the Company dated
March 12, 1992 (SEC File No. 33-46334).
10.8 Purchase agreement dated October 1, 1992 between
Catherines, Inc. and Hurley State Bank is
incorporated herein by reference to Exhibit 10.25
to the Registration Statement of the Company dated
November 30, 1992 (SEC File No. 33-55320).
10.9 Merchant Services Agreement dated October 1, 1992
between Catherines, Inc. and Hurley State Bank is
incorporated herein by reference to Exhibit 10.26
to the Registration Statement of the Company dated
November 30, 1992 (SEC File No. 33-55320).
10.10 Service Agreement dated October 1, 1992 between
Catherines, Inc. and Hurley State Bank is
incorporated herein by reference to Exhibit 10.27
to the Registration Statement of the Company dated
November 30, 1992 (SEC File No. 33-55320).
10.11 Agreement and Plan of Merger dated as of October
2, 1992 among Catherines Stores Corporation,
Virginia Acquisition Corp., Virginia Specialty
Stores, Inc. and Walter S. Segaloff is
incorporated herein by reference to Exhibit 10.1
to the Current Report on Form 8-K of the Company
dated November 17, 1992.
10.12 Amendment No. 1 dated November 3, 1992 to said
Agreement and Plan of Merger is incorporated
herein by reference to Exhibit 10.2 to the Current
Report on Form 8-K of the Company dated November
17, 1992.
10.13 Escrow Agreement dated as of November 3, 1992 by
and among Catherines Stores Corporation, Virginia
Acquisition Corp., Virginia Specialty Stores,
Inc., Walter S. Segaloff, Signet Trust Company and
W.S.S. Group, Inc. is incorporated herein by
reference to Exhibit 10.3 to the Current Report on
Form 8-K of the Company dated November 17, 1992.
10.14 Noncompetition Agreement dated as of November 3,
1992, 1992 among Catherines Stores Corporation,
Virginia Acquisition Corp., Virginia Specialty
Stores, Inc. and Walter S. Segaloff is
incorporated herein by reference to Exhibit 10.6
to the Current Report on Form 8-K of the Company
dated November 17, 1992.
10.15 Indemnity Agreement dated as of November 3, 1992
among Catherines Stores Corporation, Virginia
Acquisition Corp., Virginia Specialty Stores, Inc.
and Walter S. Segaloff is incorporated herein by
reference to Exhibit 10.7 to the Current Report on
Form 8-K of the Company dated November 17, 1992.
10.16 Stock Purchase and Registration Agreement dated as
of November 3, 1992 by and among Catherines Stores
Corporation, Signet Trust Company, the Purchaser
Advisors and the Purchasers is incorporated herein
by reference to Exhibit 10.9 to the Current Report
on Form 8-K of the Company dated November 17,
1992.
10.17 Supplement No. 3 to Master Lease Agreement dated
as of December 31, 1992, between Sanwa Business
Credit Corporation and Catherines, Inc. is
incorporated herein by reference to Exhibit 10.37
to the Registration Statement of he Company dated
November 20, 1992, (SEC File No. 33-55320).
10.18 Supplement No. 4 to Master Lease Agreement dated
as of December 31, 1992, between Sanwa Business
Credit Corporation and Catherines, Inc. is
incorporated herein by reference to Exhibit 10.37
to the Registration Statement of the Company dated
November 30, 1992 (SEC File No. 33-55320).
10.19 Real Estate Purchase Agreement dated as of
February 24, 1993 by and between Catherines, Inc.
and Holiday Inns, Inc. is incorporated herein by
reference to Exhibit 10.27 to the Annual Report on
Form 10-K of the Company for the fiscal year ended
January 29, 1994.
10.20 Supplement No. 5 to Master Lease Agreement dated
as of June 30, 1993, between Sanwa Business Credit
Corporation Business Credit Corporation and
Catherines, Inc. is incorporated herein by
reference to Exhibit 10.30 to the Annual Report on
Form 10-K of the Company for the fiscal year ended
January 29, 1994.
10.21 Master Lease Agreement No. 092893 dated September
28, 1993 between Econocom-USA, Inc. and
Catherines, Inc. is incorporated herein by
reference to Exhibit 10.31 to the Annual Report on
Form 10-K of the Company for the fiscal year ended
January 29, 1994.
10.22 Real Property Lease Agreement dated as of December
10, 1993 by and between the Industrial Development
Board of the City of Memphis and County of Shelby,
Tennessee and Catherines, Inc. is incorporated
herein by reference to Exhibit 10.32 to the Annual
Report on Form 10-K of the Company for the fiscal
year ended January 29, 1994.
10.23 Equipment Lease Agreement dated December 31, 1993
by and between First American National Bank and
Catherines, Inc. is incorporated herein by
reference to Exhibit 10.33 to the Annual Report on
Form 10-K of the Company for the fiscal year ended
January 29, 1994.
10.24 Credit Agreement dated as of March 31, 1994,
between and among Catherines, Inc., Catherines
Stores Corporation, Virginia Specialty Stores,
Inc., Added Dimensions, Inc. Linda Karan-Large
Size Factory Outlet, Inc., The Answer-The Elegant
Large Size Discounter, Inc. and First American
National Bank is incorporated herein by reference
to Exhibit 10.34 to the Annual Report on Form 10-K
of the Company for the fiscal year ended January
29, 1994.
10.25 Amendment to Supplement No. 1 dated as of October
1, 1994, by and between Sanwa Business Credit
Corporation and Catherines, Inc. is incorporated
herein by reference to Exhibit 10.33 to
Registration of Certain Successor Issuers on Form
8-B dated January 29, 1995.
10.26 Amendment to Supplement No. 3 dated as of October
1, 1994, by and between Sanwa Business Credit
Corporation and Catherines, Inc. is incorporated
herein by reference to Exhibit 10.34 to
Registration of Certain Successor Issuers on Form
8-B dated January 29, 1995.
10.27 Amendment to Supplement No. 5 dated as of October
1, 1994, by and between Sanwa Business Credit
Corporation and Catherines, Inc. is incorporated
herein by reference to Exhibit 10.35 to
Registration of Certain Successor Issuers on Form
8-B dated January 29, 1995.
10.28 Second Amendment to Master Equipment Lease
Agreement dated as of June 8, 1992, by and between
Sanwa Business Credit Corporation and Catherines,
Inc. is incorporated herein by reference to
Exhibit 10.36 to Registration of Certain Successor
Issuers on Form 8-B dated January 29, 1995.
10.29 Fifth Amendment to Master Equipment Lease
Agreement dated as of January 29, 1995, by and
between Sanwa Business Credit Corporation and
Catherines, Inc. is incorporated herein by
reference to Exhibit 10.37 to Registration of
Certain Successor Issuers on Form 8-B dated
January 29, 1995.
10.30 First Amendment to Credit Agreement dated as of
January 29, 1995, between and among Catherines,
Inc., Catherines Stores Corporation, Catherines of
California, Inc., Catherines of Pennsylvania,
Inc., CSC Sub, Inc., Catherines Partners, L.P. and
First American National Bank, as Agent for itself
and Hibernia National Bank and The Hongkong and
Shanghai Banking Corporation Limited is
incorporated herein by reference to Exhibit 10.38
to Registration of Certain Successor Issuers on
Form 8-B dated January 29, 1995.
10.31 First Amended and Restated Merchant Services
Agreement dated as of October 1, 1992, by and
between Hurley State Bank and Catherines, Inc. is
incorporated herein by reference to Exhibit 10.39
to Registration of Certain Successor Issuers on
Form 8-B dated January 29, 1995.
10.32 First Amended and Restated Merchant Services
Agreement dated as of November 2, 1992, by and
between Hurley State Bank and Virginia Specialty
Stores, Inc. is incorporated herein by reference
to Exhibit 10.40 to Registration of Certain
Successor Issuers on Form 8-B dated January 29,
1995.
10.33 Amendment to Network Services Agreement dated as
of January 29, 1995, by and between SPS Payment
Systems, Inc. and Catherines, Inc is incorporated
herein by reference to Exhibit 10.41 to
Registration of Certain Successor Issuers on Form
8-B dated January 29, 1995.
10.34 Supplement No. 6 to Master Equipment Lease
Agreement dated as of October 1, 1994, by and
between Sanwa Business Credit Corporation and
Catherines, Inc. is incorporated herein by
reference to Exhibit 10.42 to Registration of
Certain Successor Issuers on Form 8-B dated
January 29, 1995.
10.35 Master Agreement dated as of February 1, 1995,
among Catherines, Inc., Investcorp International,
Inc. and Card Establishment Services, Inc.
10.36 Standard Agreement dated as of June 8, 1995,
between Catherines Stores Corporation and United
Steelworkers of America, AFL-CIO, CLC, Local No.
1002.
10.37 Second Amendment to Credit Agreement dated as of
December 6, 1995, between and among Catherines,
Inc., Catherines Stores Corporation, Catherines of
California, Inc., Catherines of Pennsylvania,
Inc., Catherines, Partners, L.P. and First
American National Bank, as Agent for itself and
Hibernia National Bank and The Hongkong and
Shanghai Banking Corporation Limited.
10.38 Third Amendment to Credit Agreement between and
among Catherines, Inc., Catherines Stores
Corporation, Catherines of California, Inc.
Catherines of Pennsylvania, Inc., Catherines
Partners, L.P. and First American National Bank,
as Agent for itself and Hibernia national Bank and
The Hongkong and Shanghai Banking Corporation
Limited.
10.39* Fourth Amendment to Credit Agreement between and
among Catherines, Inc., Catherines Stores
Corporation, Catherines of California, Inc.
Catherines of Pennsylvania, Inc., Catherines
Partners, L.P. and First American National Bank,
as Agent for itself and Hibernia national Bank and
The Hongkong and Shanghai Banking Corporation
Limited.
10.40* Fifth Amendment to Credit Agreement between and
among Catherines, Inc., Catherines Stores
Corporation, Catherines of California, Inc.
Catherines of Pennsylvania, Inc., Catherines
Partners, L.P. and First American National Bank,
as Agent for itself and Hibernia national Bank and
The Hongkong and Shanghai Banking Corporation
Limited.
10.41* Professional Outsourcing Agreement between
Catherines Stores Corporation and Computers &
Networks, Inc. dated December 10, 1996.
MANAGEMENT CONTENTS, COMPENSATORY PLANS OR ARRANGEMENTS, ETC.
10.100 Form of Executive Employment Agreements dated May
23, 1991 between Catherines, Inc. and each of
Bernard J. Wein, Stanley H. Grossman and David C.
Forell is incorporated herein by reference to
Exhibit 10.2 to the Registration Statement of the
Company dated May 24, 1991 (SEC file No. 33-
40832).
10.101 The Registrant's Restated 1990 Performance Units
Plan, as amended, is incorporated herein by
reference to Exhibit 10.4 to the Registration
Statement of the Company dated May 24, 1991 (SEC
File No. 33-40832).
10.102 Executive Annuity Agreement dated April 20, 1989
between Catherines, Inc. and Bernard J. Wein is
incorporated herein by reference to Exhibit 10.6
to the Registration Statement of the Company dated
May 24, 1991 (SEC File No. 33-40832).
10.103 Executive Annuity Agreement dated April 20, 1989
between Catherines, Inc. and Stanley Grossman is
incorporated herein by reference to Exhibit 10.7
to the Registration Statement of the Company dated
May 24, 1991 (SEC File No. 33-40832).
10.104 Executive Insurance Agreement dated April 20, 1989
between Catherines, Inc. and David C. Forell is
incorporated herein by reference to Exhibit 10.8
to the Registration Statement of the Company dated
May 24, 1991 (SEC File No. 33-40832).
10.105 Catherines Senior Management Bonus Plan is
incorporated herein by reference to Exhibit 10.9
to the Registration Statement of the Company dated
May 24, 1991 (SEC File No. 33-40832).
10.106 The Registrant's 1994 Omnibus Incentive Plan is
incorporated by reference to Exhibit 10.1 to the
Registration Statement of the Registrant dated May
31, 1994 (SEC File No. 33-79598).
(11) 11.1* Statement re Computation of Weighted Average
Number of Common Shares Outstanding.
(13) 13.1* The Company's Annual Report to Shareholders for
the fiscal year to which this Annual Report on
Form 10-K relates, to the extent incorporated
herein by reference.
(21) 21.1 Subsidiaries are incorporated herein by reference
to Exhibit 21.1 to Registration of Securities of
Certain Successor Issuers on Form 8-B dated
January 29, 1995.
(23) 23.1* Consent of Arthur Andersen LLP.
23.2* Report of Arthur Andersen LLP on Schedules.
- --------------------
* Previously unfiled documents are noted with an asterisk.
Exhibit 10.39
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 ________,
199__ (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 earlier
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 pro rata 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 noncompliance
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 noncompliance
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. Forrell
------------------------------------
David C. Forell, Executive Vice
President
CATHERINES STORES CORPORATION
By: /s/ David C. Forrell
------------------------------------
David C. Forell, Executive Vice
President
CATHERINES OF PENNSYLVANIA, INC.
By: /s/ David C. Forrell
------------------------------------
David C. Forell, Executive Vice
President
CATHERINES OF CALIFORNIA, INC.
By: /s/ David C. Forrell
------------------------------------
David C. Forell, Executive Vice
President
CATHERINES PARTNERS, L.P.
By: CATHERINES, INC., its general partner
By: /s/ David C. Forrell
-------------------------------
David C. Forell, Executive
Vice President
FIRST AMERICAN NATIONAL BANK,
individually and as Agent
By: /s/ Mariah G. Lundberg
------------------------------------
Mariah G. Lundberg
Title: Assistant Vice President
HIBERNIA NATIONAL BANK
By: /s/ Colleen Lacy
------------------------------------
Colleen Lacy
Title: Vice President
THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED
By: /s/ Steve Trepiccione
------------------------------------
Steve Trepiccione
Title: AVP
EXHIBIT A
FIRST AMENDMENT
TO
FIRST AMENDED AND RESTATED
WORKING CAPITAL NOTE
THIS FIRST AMENDMENT TO FIRST AMENDED AND RESTATED WORKING
CAPITAL NOTE (the "First Amendment") is made and entered into
effective as of the 31st day of July, 1996, by and between
CATHERINES, INC., a Delaware Corporation (the "Company") and FIRST
AMERICAN NATIONAL BANK, a national banking association with a place
for the conduct of business in Memphis, Tennessee, its successors
transferees and assigns (the "Bank").
WHEREAS, the Company executed a certain Working Capital Note
dated as of March 31, 1994, in the original principal sum of Eight
Million and No/100 Dollars ($8,000,000.00) payable to the order of
Bank as amended and restated by that certain First Amended and
Restated Working Capital Note (collectively, the "Working Capital
Note") dated as of March 31, 1994, in the principal sum of Ten
Million and no/100 Dollars ($10,000,000.00) executed by Company and
payable to the order of Bank; and
WHEREAS, the Working Capital Note is one of the Working
Capital Notes referred to in the Credit Agreement dated as of March
31, 1994, among the Company, the Credit Parties referred to therein
and the Banks referred to therein, as amended by First Amendment to
Credit Agreement dated as of January 29, 1995, Second Amendment to
Credit Agreement dated as of December 6, 1995, Third Amendment to
Credit Agreement dated as ______________, 19___, and by Fourth
Amendment to Credit Agreement dated of even date herewith (as the
same may from time be amended, supplemented or otherwise modified,
the "Credit Agreement"); and
WHEREAS, the parties hereto by means of this First Amendment
desire to modify the terms of the Working Capital Note for the
purpose of reflecting certain modifications to the Credit
Agreement.
NOW, THEREFORE, for mutual consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Amendment to Working Capital Termination Date. The
"Working Capital Termination Date" as used in the Working Capital
Note, shall be amended to extend same from March 15, 1998 to March
15, 1999.
2. Legend and Attachment. This First Amendment shall be
physically attached to the Working Capital Note and the following
legend shall be placed on the face of the Working Capital Note:
This Working Capital Note has been amended by
First Amendment to First Amended and Restated
Working Capital Note dated as of July 31,
1996, the original of which is attached
hereto.
3. Reaffirmation of Obligations. All terms and provisions
of the Working Capital Note not herein specifically modified or
amended shall remain in full force and effect as if this First
Amendment had not been executed and all such terms and provisions
are hereby reaffirmed by the parties hereto. The execution and
delivery of his First Amendment does not constitute payment,
cancellation, satisfaction, discharge, release, extinguishment or
novation of the principal indebtedness evidenced by the Working
Capital Note.
IN WITNESS WHEREOF, this First Amendment is executed as of the
day and year first above written.
COMPANY:
CATHERINES, INC., a Delaware corporation
By: /s/ David C. Forrell
------------------------------------
David C. Forell
Title: Executive Vice-President
BANK:
FIRST AMERICAN NATIONAL BANK
By: /s/ Mariah G. Lundberg
------------------------------------
Mariah G. Lundberg
Title: Assistant Vice President
EXHIBIT B
FIRST AMENDMENT
TO
SWINGLINE NOTE
THIS FIRST AMENDMENT TO SWINGLINE NOTE (the "First Amendment")
is made and entered into effective as of the 31st day of July,
1996, by and between CATHERINES, INC., a Delaware Corporation (the
"Company") and FIRST AMERICAN NATIONAL BANK, a national banking
association with a place for the conduct of business in Memphis,
Tennessee, its successors, transferees and assigns (the "Bank").
WHEREAS, the Company executed a certain Swingline Note dated
December 6, 1995, in the original principal sum of Three Million
and No/100 Dollars ($3,000,000.00) payable to the order of Bank
(the "Swingline Note"); and
WHEREAS, the Swingline Note is referred to in the Credit
Agreement dated as of March 31, 1994, among the Company, the Credit
Parties referred to therein and the Banks referred to therein, as
amended by First Amendment to Credit Agreement dated as of January
29, 1995, Second Amendment to Credit Agreement dated as of December
6, 1995, Third Amendment to Credit Agreement dated as of _________,
19___, and by Fourth Amendment to Credit Agreement dated of even
date herewith (as the same may from time be amended, supplemented
or otherwise modified, the "Credit Agreement"); and
WHEREAS, the parties hereto by means of this First Amendment
desire to modify the terms of the Swingline Note for the purpose of
reflecting certain modifications to the Credit Agreement.
NOW, THEREFORE, for mutual consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Amendment to Swingline Loan Termination Date. The
"Swingline Loan Termination Date" as used in the Swingline Note,
shall be amended to extend same from March 15, 1998 to March 15,
1999.
2. Legend and Attachment. This First Amendment shall be
physically attached to the Swingline Note and the following legend
shall be placed on the face of the Swingline Note:
This Swingline Note has been amended by First
Amendment to Swingline Note dated as of July
31, 1996, the original of which is attached
hereto.
3. Reaffirmation of Obligations. All terms and provisions
of the Swingline Note not herein specifically modified or amended
shall remain in full force and effect as if this First Amendment
had not been executed and all such terms and provisions are hereby
reaffirmed by the parties hereto. The execution and delivery of
this First Amendment does not constitute payment, cancellation,
satisfaction, discharge, release, extinguishment or novation of the
principal indebtedness evidenced by the Swingline Note.
IN WITNESS WHEREOF, this First Amendment is executed as of the
day and year first above written.
COMPANY:
CATHERINES, INC., a Delaware corporation
By: /s/ David C. Forrell
------------------------------------
David C. Forell
Title: Executive Vice-President
BANK:
FIRST AMERICAN NATIONAL BANK
By: /s/ Mariah G. Lundberg
------------------------------------
Mariah G. Lundberg
Title: Assistant Vice President
MAXIMUM PRINCIPAL INDEBTEDNESS FOR TENNESSEE RECORDING TAX PURPOSES
IS $0. TRANSFER TAX WAS PREVIOUSLY PAID IN THE REGISTER'S OFFICE
OF SHELBY COUNTY, TENNESSEE UNDER INSTRUMENT NOS. EG 4391 AND FM
6558.
Prepared By and Return to:
Lynn A. Gardner
Glankler Brown, PLLC
6000 Poplar Avenue, Suite 200
Memphis, Tennessee 38119
(901) 685-1322
SECOND MODIFICATION AND EXTENSION OF TENNESSEE
DEED OF TRUST WITH SECURITY AGREEMENT AND FIXTURE FILING
THIS Second Modification and Extension of Tennessee Deed of
Trust with Security Agreement and Fixture Filing (this
"Modification Agreement") is entered into as of the 4th day of
September, 1996, by and among THE INDUSTRIAL DEVELOPMENT BOARD OF
THE CITY OF MEMPHIS AND COUNTY OF SHELBY, TENNESSEE (hereinafter
called "Board"), LYNN A. GARDNER and DAVID C. MAY, TRUSTEES
(hereinafter called "Trustees"), FIRST AMERICAN NATIONAL BANK
(hereinafter called "FANB"), HIBERNIA NATIONAL BANK (hereinafter
called "Hibernia"), and THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED (hereinafter called "Hongkong") (FANB, Hibernia
and Hongkong are hereinafter collectively called "Banks").
W I T N E S S E T H:
WHEREAS, on the 31st day of March, 1994, CATHERINES, INC., a
Delaware corporation (hereinafter called "Borrower"), FANB,
CATHERINES STORES CORPORATION, a Tennessee corporation (successor
by merger to Catherines Stores Corporation, a Delaware corporation)
(hereinafter called "Parent"), and others therein named, executed
that certain Credit Agreement (the "Credit Agreement"); and
WHEREAS, Hibernia and Hongkong became parties to the Credit
Agreement by virtue of that certain Commitment Transfer Supplement
of even date with the Credit Agreement; and
WHEREAS, also on the 31st day of March, 1994, the Board
executed that certain Tennessee Deed of Trust with Security
Agreement and Fixture Filing (the "Tennessee Deed of Trust") which
conveyed to Trustees for the benefit of FANB certain real property
(the "Property") located in the County of Shelby, State of
Tennessee, as more particularly described in the Tennessee Deed of
Trust, which was recorded under Instrument No. EG 4391 in the
Register's Office of Shelby County, Tennessee; and
WHEREAS, as of the 6th day of December, 1995, the Tennessee
Deed of Trust was modified and extended by virtue of a First
Modification and Extension of Tennessee Deed of Trust with Security
Agreement and Fixture Filling (the "First Amendment") (the
Tennessee Deed of Trust and First Amendment are hereinafter
collectively referred to as the "Deed of Trust"); and.
WHEREAS, the Deed of Trust secures certain Obligations, as
defined in the Deed of Trust; and
WHEREAS, the Banks are the holders of the Obligations in
accordance with their ratable interest pursuant to the Credit
Agreement, as amended; and
WHEREAS, Borrower and Parent as lessees of the Property have
requested that the Board join in the execution of this Modification
Agreement for the purpose of reflecting certain modifications to
the Credit Agreement which was last amended by that certain Second
Amendment to Credit Agreement dated as of even date herewith; and
WHEREAS, the parties hereto by means of this Modification
Agreement desire to modify the terms of the Deed of Trust for the
purpose of extending the lien of the Deed of Trust from March 15,
1998, until March 15, 1999, as reflected by certain modifications
to the Credit Agreement, without, however, releasing or affecting
the priority of the Deed of Trust;
NOW, THEREFORE, for mutual considerations, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Working Capital Notes and Swingline Note. Each of the
Working Capital Notes and the Swingline Note secured by the Deed of
Trust have been modified and amended as of the date hereof to
extend the maturity dates thereof to March 15, 1999.
2. Extension of Lien of Deed of Trust. The lien of the Deed
of Trust is hereby extended to March 15, 1999.
3. Joinder of the Board. The Board joins in the execution
of this Modification Agreement, at the request of Borrower, Parent
and Banks, as the holder of the fee title to the Property for the
sole purpose of agreeing to the modification and extension of the
Deed of Trust. The Board does not assume any liability for the
indebtedness described herein or any obligations under the Deed of
Trust and shall have no liability in connection therewith.
Borrower hereby indemnifies the Board against any and all loss,
damages and claims associated with the Board's execution of this
Modification Agreement at Borrower' s request.
4. Joinder of Borrower and Parent. Borrower and Parent join
in the execution of this Modification Agreement in order to affirm
the aforesaid modifications and amendments to the Credit Agreement
and to request that the Board join in the execution of this
Modification Agreement for the reasons aforementioned.
5. Reaffirmation of Obligations. All terms and provisions
of the Deed of Trust not herein specifically modified or amended
shall remain in full force and effect as if this Modification
Agreement had not been executed and all such terms and provisions
are hereby reaffirmed by the parties hereto. The execution and
delivery of this Modification Agreement does not constitute
payment, cancellation, satisfaction, discharge, release,
extinguishment or novation of the principal indebtedness evidenced
by the Notes.
6. Counterparts. This Modification Agreement may be
executed by one or more of the parties to this Modification
Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and
the same instrument.
IN WITNESS WHEREOF, this Modification Agreement is executed as
of the day and year first above written.
THE INDUSTRIAL DEVELOPMENT BOARD OF
THE CITY OF MEMPHIS AND COUNTY OF SHELBY,
TENNESSEE
ATTEST:
______________________ By: _______________________________
Secretary (Treasurer) Chairman
________________________
Lynn A. Gardner, Trustee
________________________
David C. May, Trustee
FIRST AMERICAN NATIONAL BANK
By: __________________________
Title:________________________
HIBERNIA NATIONAL BANK
By: __________________________
Title:________________________
THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED
By: __________________________
Title:________________________
CATHERINES, INC., a Delaware
corporation
By: __________________________
David C. Forell
Title: Executive Vice President
CATHERINES STORES CORPORATION,
a Tennessee corporation
By: __________________________
David C. Forell
Title: Executive Vice President
STATE OF TENNESSEE
COUNTY OF SHELBY
Personally appeared before me, ______________________, a
Notary Public, ___________________ and ____________________ with
whom I am personally acquainted, and who acknowledged that they
executed the within instrument for the purposes therein contained,
and who further acknowledged that they are the (Vice) Chairman and
the Secretary (Treasurer), respectively, of the maker THE
INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF MEMPHIS AND THE COUNTY
OF SHELBY, TENNESSEE, or a constituent of the maker and are
authorized by the maker or by its constituent, the constituent
being authorized by the maker, to execute this instrument on behalf
of the maker.
WITNESS my hand, at office, this ___ day of __________, 1996.
_____________________________
NOTARY PUBLIC
My Commission Expires:
______________________
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, a Notary Public in and for said State and County,
duly commissioned and qualified, personally appeared LYNN A.
GARDNER, TRUSTEE, to me known to be the person described in and who
executed the foregoing instrument and acknowledged that she
executed the same for the purposes therein contained.
WITNESS my hand and Notarial Seal at office this _____day of
______________, 1996.
__________________________
NOTARY PUBLIC
My Commission Expires:
_____________________
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, _________________, a Notary Public in and for said
State and County, duly commissioned and qualified, personally
appeared DAVID C. MAY, TRUSTEE, to me known to be the person
described in and who executed the foregoing instrument and
acknowledged that she executed the same for the purposes therein
contained.
WITNESS my hand and Notarial Seal at office this day of 1996.
___________________________
NOTARY PUBLIC
My Commission Expires:
______________________
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, a Notary Public within and for said State and
County, duly commissioned and qualified, personally appeared
______________________, with whom I am personally acquainted, and
who upon oath acknowledged himself to be the _________________ of
FIRST AMERICAN NATIONAL BANK, the within named bargainor, and that
he as such _______________, being authorized so to do, executed the
foregoing instrument for the purposes therein contained by signing
the name of FIRST AMERICAN NATIONAL BANK by himself as __________.
WITNESS MY HAND and Notarial Seal at office this ___ day of
____________, 1996.
____________________________
NOTARY PUBLIC
My Commission Expires:
______________________
STATE OF _________
COUNTY OF ________
Before me, a Notary Public within and for said State and
County, duly commissioned and qualified, personally appeared
_________________, with whom I am personally acquainted, and who
upon oath acknowledged herself to be the ____________ of HIBERNIA
NATIONAL BANK, the within named bargainor, and that she as such
_______________, being authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name
of HIBERNIA NATIONAL BANK by herself as _________________.
WITNESS MY HAND and Notarial Seal at office this ______ day of
___________, 1996.
____________________________
NOTARY PUBLIC
My Commission Expires:
_____________________
STATE OF _______
COUNTY OF ________
Before me, a Notary Public within and for said State and
County, duly commissioned and qualified, personally appeared
________________, with whom I am personally acquainted, and who
upon oath acknowledged himself to be the _________________of THE
HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, the within named
bargainor, and that he as such _____________________, being
authorized so to do, executed the foregoing instrument for the
purposes therein contained by signing the name of THE HONGKONG AND
SHANGHAI BANKING CORPORATION LIMITED by himself as ____________.
WITNESS MY HAND and Notarial Seal at office this ____ day of
_____________, 1996.
_____________________________
NOTARY PUBLIC
My Commission Expires:
_____________________
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, a Notary Public within and for said State and
County, duly commissioned and qualified, personally appeared David
C. Forell, with whom I am personally acquainted, and who upon oath
acknowledged himself to be the Executive Vice-President of
CATHERINES, INC., a Delaware corporation, the within named
bargainor, and that he as such Executive Vice-President, being
authorized so to do, executed the foregoing instrument for the
purposes therein contained by signing the name of the corporation
by himself as Executive Vice-President.
WITNESS MY HAND and Notarial Seal at office this ____ day of
______________, 1996.
____________________________
NOTARY PUBLIC
My Commission Expires:
_____________________
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, a Notary Public within and for said State and
County, duly commissioned and qualified, personally appeared David
C. Forell, with whom I am personally acquainted, and who upon oath
acknowledged himself to be the Executive Vice-President of
CATHERINES STORES CORPORATION, a Tennessee corporation, the within
named bargainor, and that he as such Executive Vice-President,
being authorized so to do, executed the foregoing instrument for
the purposes therein contained by signing the name of the
corporation by himself as Executive Vice-President.
WITNESS MY HAND and Notarial Seal at office this ____ day of
__________, 1996.
____________________________
NOTARY PUBLIC
My Commission Expires:
______________________
MAXIMUM PRINCIPAL INDEBTEDNESS FOR TENNESSEE RECORDING TAX PURPOSES
IS $0. TRANSFER TAX WAS PREVIOUSLY PAID IN THE REGISTER'S OFFICE
OF SHELBY COUNTY, TENNESSEE UNDER INSTRUMENT NOS. EG 4391 and FM
6558.
Prepared By and Return to:
Lynn A. Gardner
Glankler Brown, PLLC
6000 Poplar Avenue, Suite 200
Memphis, Tennessee 38119
(901) 685-1322
SECOND MODIFICATION AND EXTENSION OF TENNESSEE LEASEHOLD
DEED OF TRUST WITH SECURITY AGREEMENT AND FIXTURE FILING
THIS Second Modification and Extension of Tennessee Leasehold
Deed of Trust with Security Agreement and Fixture Filing (this
"Modification Agreement") is entered into as of the 4th day of
September, 1996, by and among CATHERINES, INC., a Delaware
corporation (hereinafter called "Borrower"), CATHERINES STORES
CORPORATION, a Tennessee corporation (successor by merger to
Catherines Stores Corporation, a Delaware corporation) (hereinafter
called "Parent"), LYNN A. GARDNER and DAVID C. MAY, TRUSTEES
(hereinafter called "Trustees"), FIRST AMERICAN NATIONAL BANK
(hereinafter called "FANB"), HIBERNIA NATIONAL BANK (hereinafter
called "Hibernia"), and THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED (hereinafter called "Hongkong") (FANB, Hibernia
and Hongkong are hereinafter collectively called "Banks").
W I T N E S S E T H:
WHEREAS, on the 31st day of March, 1994, Borrower, FANB,
Parent, and others therein named, executed that certain Credit
Agreement (the "Credit Agreement"); and
WHEREAS, Hibernia and Hongkong became parties to the Credit
Agreement by virtue of that certain Commitment Transfer Supplement
of even date with the Credit Agreement; and
WHEREAS, also on the 31st day of March, 1994, Borrower
executed that certain Tennessee Leasehold Deed of Trust with
Security Agreement and Fixture Filing (the "Leasehold Deed of
Trust") which conveyed to Trustees for the benefit of FANB a
leasehold interest in certain real property (the "Property")
located in the County of Shelby, State of Tennessee, as more
particularly described in the Leasehold Deed of Trust, which was
recorded under Instrument No. EG 4392 in the Register's Office of
Shelby County, Tennessee; and
WHEREAS, on the 29th day of January, 1995, Borrower and Parent
executed that certain Assignment of Real Property Lease Agreement
("Assignment") which was recorded under Instrument No. EX 1066 in
said Register's Office pursuant to which Borrower made a partial
assignment of the Primary Lease, as defined in the Deed of Trust,
to Parent and pursuant to which Parent assumed the obligations of
Borrower under the Primary Lease relating to the Assigned Property,
as defined in the Assignment; and
WHEREAS, on December 6, 1995, the parties modified and
extended the Leasehold Deed of Trust by virtue of a certain First
Modification and Extension of Tennessee Leasehold Deed of Trust
with Security Agreement and Fixture Filing (the "First
Modification") (the Leasehold Deed of Trust and the First
Modification herein collectively referred to as the "Deed of
Trust"); and
WHEREAS, the Deed of Trust secures certain Obligations, as
defined in the Deed of Trust; and
WHEREAS, the Banks are the holders of the Obligations in
accordance with their ratable interest pursuant to the Credit
Agreement, as amended; and
WHEREAS, the parties hereto by means of this Modification
Agreement desire to modify the Deed of Trust for the purpose of
extending the lien of the Deed of Trust from March 15, 1998, until
March 15, 1999, as reflected by certain modifications to the Credit
Agreement which was last amended by that certain Fourth Amendment
to Credit Agreement dated as of even date herewith, without,
however, releasing or affecting the priority of the Deed of Trust;
NOW, THEREFORE, for mutual considerations, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Working Capital Notes and Swingline Note. Each of the
Working Capital Notes and the Swingline Note secured by the Deed of
Trust have been modified and amended as of the date hereof to
extend the maturity dates thereof to March 15, 1999.
2. Extension of Lien of Deed of Trust. The lien of the Deed
of Trust is hereby extended to March 15, 1999.
3. Reaffirmation of Obligations. All terms and provisions
of the Deed of Trust not herein specifically modified or amended
shall remain in full force and effect as if this Modification
Agreement had not been executed and all such terms and provisions
are hereby reaffirmed by the parties hereto. The execution and
delivery of this modification Agreement does not constitute
payment, cancellation, satisfaction, discharge, release,
extinguishment or novation of the principal indebtedness evidenced
by the Notes.
4. Counterparts. This Modification Agreement may be
executed by one or more of the parties to this Modification
Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and
the same instrument.
IN WITNESS WHEREOF, this Modification Agreement is executed as
of the day and year first above written.
CATHERINES, INC., a Delaware corporation
By: ____________________________
David C. Forell
Title: Executive Vice-President
CATHERINES STORES CORPORATION, a Tennessee
corporation
By: ____________________________
David C. Forell
Title: Executive Vice-President
______________________________
Lynn A. Gardner, Trustee
______________________________
David C. May, Trustee
FIRST AMERICAN NATIONAL BANK
By: ____________________________
Title: _________________________
HIBERNIA NATIONAL BANK
By: __________________________
Title: _______________________
THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED
By: ___________________________
Title: ________________________
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, a Notary Public within and for said State and
County, duly commissioned and qualified, personally appeared David
C. Forell, with whom I am personally acquainted, and who upon oath
acknowledged himself to be the Executive Vice-President of
CATHERINES, INC., a Delaware corporation, the within named
bargainor, and that he as such Executive Vice-President, being
authorized so to do, executed the foregoing instrument for the
purposes therein contained by signing the name of the corporation
by himself as Executive Vice-President.
WITNESS MY HAND and Notarial Seal at office this ____ day of
__________________, 1996.
____________________________
NOTARY PUBLIC
My Commission Expires:
_____________________
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, a Notary Public within and for said State and
County, duly commissioned and qualified, personally appeared David
C. Forell, with whom I am personally acquainted, and who upon oath
acknowledged himself to be the Executive Vice-President of
CATHERINES STORES CORPORATION, a Tennessee corporation, the within
named bargainor, and that he as such Executive Vice-President,
being authorized so to do, executed the foregoing instrument for
the purposes therein contained by signing the name of the
corporation by himself as Executive Vice-President.
WITNESS MY HAND and Notarial Seal at office this ___ day of
__________, 1996.
_____________________________
NOTARY PUBLIC
My Commission Expires:
______________________
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, a Notary Public in and for said State and County,
duly commissioned and qualified, personally appeared LYNN A.
GARDNER, TRUSTEE, to me known to be the person described in and who
executed the foregoing instrument and acknowledged that she
executed the same for the purposes therein contained.
WITNESS my hand and Notarial Seal at office this ___ day of
_________________, 1996.
_____________________________
NOTARY PUBLIC
My Commission Expires:
______________________
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, a Notary Public in and for said State and County,
duly commissioned and qualified, personally appeared DAVID C. MAY,
TRUSTEE, to me known to be the person described in and who executed
the foregoing instrument and acknowledged that she executed the
same for the purposes therein contained.
WITNESS my hand and Notarial Seal at office this ____ day of
______________, 1996.
_____________________________
NOTARY PUBLIC
My Commission Expires:
_____________________
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, a Notary Public within and for said State and
County, duly commissioned and qualified, personally appeared
______________ with whom I am personally acquainted, and who upon
oath Acknowledged himself to be the ____________________ of FIRST
AMERICAN NATIONAL BANK, the within named bargainor, and that he as
such ___________________, being authorized so to do, executed the
foregoing instrument for the purposes therein contained by signing
the name of FIRST AMERICAN NATIONAL BANK by himself as _________.
WITNESS MY HAND and Notarial Seal at office this ___ day of
____________, 1996.
________________________
NOTARY PUBLIC
My Commission Expires:
______________________
STATE OF ______________
COUNTY OF _____________
Before me, a Notary Public within and for said State and
County, duly commissioned and qualified, personally appeared
__________________, with whom I am personally acquainted, and who
upon oath acknowledged herself to be the _____________ of HIBERNIA
NATIONAL BANK, the within named bargainor, and that she as such
_____________________, being authorized so to do, executed the
foregoing instrument for the purposes therein contained by signing
the name of HIBERNIA NATIONAL BANK by herself as _______________.
WITNESS MY HAND and Notarial Seal at office this ___ day of
_________________, 1996.
________________________
NOTARY PUBLIC
My Commission Expires:
______________________
STATE OF ____________
COUNTY OF ____________
Before me, a Notary Public within and for said State and
County, duly commissioned and qualified, personally appeared
___________________, with whom I am personally acquainted, and who
upon oath acknowledged himself to be the _______________of THE
HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, the within named
bargainor, and that he as such _________________, being authorized
so to do, executed the foregoing instrument for the purposes
therein contained by signing the name of THE HONGKONG AND SHANGHAI
BANKING CORPORATION LIMITED by himself as ___________________.
WITNESS MY HAND and Notarial Seal at office this ____ day of
__________________, 1996.
______________________
NOTARY PUBLIC
My Commission Expires:
_______________________
Exhibit 10.40
FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (the "Fifth
Amendment"), dated effective as of the 4th day of December, 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"), 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 further amended by virtue of that
certain Second Amendment to Credit Agreement (the "Second
Amendment") dated as of December 6, 1995, that certain Third
Amendment to Credit Agreement dated as of April 26, 1996 (the
"Third Amendment") and that certain Fourth Amendment to Credit
Agreement dated as of September 4, 1996 (the "Fourth Amendment")
(the Credit Agreement, the First Amendment, the Second Amendment,
the Third Amendment and the Fourth Amendment referred to
collectively as the "Agreement").
The Credit Parties have requested that the Banks make certain
changes to the Agreement.
The Banks consent to and approve the foregoing request of the
Credit Parties, subject to the terms and conditions of this Fifth
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 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, the Fourth Amendment and the Fifth 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.
SECTION TWO: AMENDMENTS
2.01 Amendment to Subsection 2.8. Subsection 2.8 to the
Agreement is amended by deleting subsection 2.8 in its entirety and
by substituting in lieu thereof the following:
2.8 Prepayments of the Working Capital Loans and
Swingline Loans. The Company shall prepay the Working
Capital Loans and Swingline Loans so that for at least
thirty (30) consecutive days (the "Pay Down Period") of
each Fiscal Year the aggregate principal amount of
outstanding Working Capital Loans and Swingline Loans
(exclusive of Letters of Credit) shall not exceed
$5,000,000.00. Notwithstanding the foregoing, the Banks
hereby waive the prepayment requirement of this
Subsection 2.8 for the 1996 Fiscal Year.
2.02 Amendment to Subsection 9.1. Subsection 9.1 to the
Agreement is amended by adding the following subparagraph thereto:
(i) A subordinated term loan to be incurred by the
Company on a one-time basis (the "Subordinated Debt")
subject to the following conditions: (A) the
Subordinated Debt shall not exceed $15,000,000.00; (B)
the terms and conditions of the borrowing under the
Subordinated Debt shall be, in the sole discretion of the
Banks, satisfactory in all respects; (C) the loan
documentation evidencing the Subordinated Debt shall
contain provisions in respect of subordination,
amortization, rate of interest and acceleration of the
due date of such interest and acceleration of the due
date of such indebtedness prior to its stated maturity
which, in the sole discretion of the Banks, are
acceptable in form and substance to the Banks; (D) the
payment and financial covenants of the Subordinated Debt
shall be subordinate in all respects to the payment and
financial covenants contained in the Agreement with
respect to the Loans and shall be evidenced by a
subordination agreement in form and substance
satisfactory to the Bank in their sole discretion, to be
executed by the Company, the Subordinated Debt lender and
the Banks, (E) the Banks shall determine, in their sole
discretion, that the Subordinated Debt will not impact
the Company's financials in such a manner as to be
unsatisfactory to the Banks; (F) the Banks shall receive
such other information and documentation with respect to
the Subordinated Debt as the Banks shall deem necessary
and such information and documentation shall be
satisfactory to the Banks: and (G) the Company shall pay
all of the fees and expenses incurred by the Banks,
including legal fees and expenses of Banks' legal
counsel.
2.03 Amendment to Subsection 9.8. Subsection 9.8 to the
Agreement is amended by deleting subsection 9.8 in its entirety and
by substituting in lieu thereof the following:
9.8 Consolidated Net Worth. Permit Consolidated
Net Worth on the last day of any month to be less than
$68,500,000 (the "Minimum Consolidated Net Worth
Requirement") which Minimum Consolidated Net Worth
Requirement shall be adjusted at the end of each Fiscal
Year. Such Minimum Consolidated Net Worth Requirement
shall be increased beginning with the 1997 Fiscal Year by
adding to the preceding Fiscal Year's Minimum
Consolidated Net Worth Requirement one hundred percent
(100%) of Net Income for the preceding Fiscal Year. The
Minimum Consolidated Net Worth Requirement shall be
increased at the end of each Fiscal Year thereafter by
adding to the previous Fiscal Year's Minimum Consolidated
Net Worth Requirement fifty percent (50%) of Net Income
for the preceding Fiscal Year.
2.04 Amendment to Section 9.9. Section 9.9 of the Agreement
is hereby deleted in its entirety and the following substituted
therefor:
9.9 Capital Expenditures. Permit Capital
Expenditures to exceed an aggregate of $11,000,000.00 in
the 1996 Fiscal Year and an aggregate of $8,000,000.00 in
any Fiscal Year thereafter commencing with the 1997
Fiscal Year.
2.05 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 January 31,
1997, to be less than 2.50 to 1.0.
2.06 Amendment to Subsection 9.12. Subsection 9.12 of the
Agreement is hereby deleted in its entirety and the following
substituted therefor:
9.12 Limitation on Dividends. Declare any cash
dividends on any shares of any class of stock of the
Credit Parties or make any payment on account of, or set
apart assets for s inking or other analogous fund for,
the purchase, redemption, retirement or other acquisition
of any shares of any class of stock of the Credit
Parties, whether now or hereafter outstanding, or make
any other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in
obligations of the Credit Parties; except that the
Company or the Parent may declare dividends on any class
or series of stock of the Company or the Parent, provided
that, (i) (A) no Default or Event of Default exists and
(B) the Dividend Ratio for such Fiscal Year exceeds 1.05
to 1.0 or (ii) dividends paid by the Company to the
Parent are used by the Parent to satisfy obligations of
the Parent and the Company under the Consulting Agreement
and the Noncompetition Agreement.
SECTION THREE: CONDITIONS PRECEDENT
3.01 Conditions to the Execution of the Fifth Amendment. The
obligation of the Banks to enter into the Fifth Amendment shall be
subject to the following conditions to the satisfaction of the
Agent:
(a) Fifth Amendment. Each Bank shall have received an
original of the Fifth Amendment duly executed by a duly authorized
officer of each of the Credit Parties.
(b) No Default or Event of Default. No Default or Event of
Default shall have occurred and be continuing on the date of the
Fifth 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 Fifth Amendment.
(c) Amendment Fee. Agent shall have received an amendment
fee of $25,000.00 which shall be distributed on an equal basis to
the Banks by Agent.
(d) Legal Opinion of Counsel to the Credit Parties. Each
Bank shall have received a counterpart of an opinion, dated the
date of the Fifth Amendment, of Waring Cox, counsel to the Credit
Parties, in substantially the form of Exhibit "A".
(e) 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 Fifth Amendment certified by the Secretary or
Assistant Secretary of the relevant Credit Partners as of the date
of the Fifth Amendment, which certificate shall state that the
resolutions thereby certified have not been amended, modified,
revoked or rescinded as of the date of the Fifth Amendment.
(f) Representations and Warranties. The representations,
warranties and disclosures made by the Credit Parties in the
Agreement, as amended by the Fifth 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 Fifth 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 to
so 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
immaterially 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 as amended by the
Fifth Amendment; each corporate Credit Party has taken all
necessary corporate action, and Intex has taken all necessary
partnership action, to authorize the execution, delivery and
performance of the Fifth Amendment. 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 Fifth
Amendment (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). The Fifth Amendment has been duly executed and delivered
on behalf of each such Credit Party. The Fifth Amendment
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 the Fifth Amendment 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.
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 Fifth
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: /s/ 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
Title: Assistant Vice President
HIBERNIA NATIONAL BANK
By: /s/ Colleen Lacy
-------------------------------
Colleen Lacy
Title: Vice President
THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED
By: /s/ Steve Trepiccione
-------------------------------
Steve Trepiccione
Title: AVP
COMPUTERS Exhibit 10.41
NETWORKS
PROFESSIONAL OUTSOURCING AGREEMENT
BETWEEN
CATHERINES STORES CORPORATION
AND
COMPUTERS & NETWORKS, INC.
THIS AGREEMENT entered into December 10, 1996 by and between
COMPUTERS & NETWORKS, INC. (hereinafter referred to as "C&N") and
CATHERINES STORES CORPORATION (herein referred to as the "CLIENT").
WITNESSETH:
IN CONSIDERATION of the mutual promises contained herein, the
parties agree and enter into this Agreement according to the
provisions contained herein:
1. C&N agrees to perform as follows:
a) OUTSOURCING INTENT AND SCOPE. C&N shall provide
requested Information Technology (IT) related
professional outsourcing services to CLIENT which may
include, but are not limited to providing a
Network/Communication Manager (NCM) with the following
responsibilities: manage, operationally maintain and
upgrade LAN/WAN in the Memphis and New York offices,
including hardware, software, communications, data and
user security and user work stations and maintain
documentation of all network components and procedures.
The Novell 3.12 network consists of multiple servers,
including a Unix Oracle database server, a communication
server, and an NT web server. The network currently
serves 250 users, including 45 remote laptop users.
Network connections are achieved with fiber optic cable,
10baseT ethernet, and frame relay to New York Office,
routers, hubs and terminal servers. Client workstations'
Operating Environment is Windows 3.11.
Manage, operationally maintain, upgrade and expense
management of corporate data and voice communication,
including Rolm 9751 model 10 system, DS3/T1 lines and
internet circuit. Manage, maintain, upgrade and expense
management of store data and voice communications for
long distance and local access. C&N will advise on
matters of third party service, with final negotiations
to be done by CLIENT.
C&N shall provide three additional Network Analysts (NA)
that will assist and report to the NCM in the performance
of his or her duties.
The intent of this agreement is to provide personnel for
daily operations and routine user serviceable repairs as
allowed by the manufacturer. Any hardware service
requiring factory authorized personnel, as well as any
repair or replacement parts is specifically excluded.
b) WORK ORDERS. On Monday of each week CLIENT shall approve
and sign completed work orders for the preceding week,
Monday through Sunday. Work orders shall contain a
description of tasks performed and hours worked. Any
overtime reflected in the work orders shall be billed
separately at the overtime rate referenced herein.
Approved work orders shall be made a part hereof and
shall be governed by the terms and conditions of this
Agreement.
c) WORK SCHEDULE. Unless stated otherwise herein, working
hours shall be approximately 8:00am to 5:00pm Monday
through Friday, constituting approximately a 40 hour
week. C&N reserves the right to provide qualified
substitute personnel in the event of an absence due to
vacation, leave, illness, or personal leave. A certified
netware administrator and/or engineer will be provided
when the NCM is on vacation, leave, or training related
to the CLIENT's MIS department. Exceptions to this
schedule shall include circumstances beyond C&N's
control. For the purpose of overtime calculations, the
base rate shall be: $55.00 per hour for the NCM and
$40.00 per for the NAs. Work performed in excess of 40
hours shall be billed at 1.5 times the base hourly rate.
CLIENT will be provided with access to C&Ns 24 hour
dispatch telephone number for support outside the base
schedule.
d) CONFIDENTIALITY AND OWNERSHIP. C&N shall keep all
details concerning the work confidential, and shall not
distribute, sell, or disclose any part of the CLIENT's
system documentation or resulting programs to any other
party. C&N shall safeguard all the CLIENT's programs,
documentation, etc., while in its custody with the same
level of security and safety that it would use to
safeguard its own records. The confidentiality of this
Agreement shall survive any termination of this
agreement. CLIENT agrees to treat the terms of this
agreement as confidential.
e) WARRANTY. C&N warrants that its service shall be of
professional quality conforming to generally accepted IT
professional operating standards. C&N makes no other
warranties, written, oral or implied, including without
limitation any implied warranties of merchantability or
fitness for a specific purpose.
f) SECURITY. C&N agrees to comply with security regulations
in effect at the CLIENT's premises.
g) INVOICES. C&N shall invoice the CLIENT monthly for
services rendered and miscellaneous charges in accordance
with this Agreement. Terms shall be those agreed upon by
"CLIENT" and "C&N" at the execution of this Agreement and
made part hereto. Invoices shall include expenses
involved and work performed from Monday through Sunday of
each week. Overtime, as defined herein, shall be
documented on the approved work orders.
h) TERM. Agreement period will commence on December 10,
1996 and will expire at midnight December 9, 1997.
i) PERSONNEL TERMINATION. C&N will provide employees in
each employee class i.e. NCM and three NAs to service
CLIENT's account. Employees will be used interchangeably
at C&N's sole discretion to best satisfy the CLIENT's
needs on a specific project. In the event that the
employment relationship between an employee who is
performing service for the CLIENT and C&N is terminated,
C&N shall make every reasonable effort to replace the
employee with another employee of comparable background
and experience.
C&N shall terminate immediately the services rendered to
the CLIENT by any C&N employee that CLIENT determines is
not performing at an adequate level consistent with the
employee's background and experience. Prior to
termination, C&N shall have received two letters of
warning from CLIENT to improve said employee's
performance. The letter will explain specifically the
employee's lack of performance prior to the termination
of services. C&N shall make every reasonable effort to
replace such an employee with an employee suitable to the
CLIENT.
2. ADDITIONAL PERSONNEL. C&N shall make additional personnel
available to CLIENT for special projects or to supplement
current staff. The rate for additional personnel shall be:
$55.00 per hour for CNE/CNA/MCSE, $40.00 per hour for all
other personnel. Overtime and expenses shall be reimbursed in
accordance with section 1 paragraph C.
3. The CLIENT agrees to perform and to compensate C&N as follows:
a) COMPENSATION. The CLIENT shall compensate C&N for
outsourcing services at a fixed-price rate of $364,000.00
plus tax paid in twelve monthly payments on the first of
each month. The monthly invoice of $30,333.33 plus tax
not including overtime will be at the fixed-price rate
presented herein for services rendered to CLIENT. A
separate monthly invoice for overtime as well as any
reasonable travel, hotel, meals, or related expenses
involved in work at locations outside the Memphis, TN MSA
shall be reimbursed by the CLIENT, provided that such
arrangements shall be approved in advance by CLIENT.
b) TRAINING. C&N will provide ongoing training for C&N
personnel as it relates to CLIENTs existing technology
platforms, as referenced in section 1, paragraph a.
Additionally, C&N will provide substitute personnel at no
additional charge during any such training period.
Should CLIENT implement a new technology, hardware
platform, telephony system, or application software
specific to the CLIENT's operation, CLIENT agrees to
reimburse C&N for any reasonable training costs
associated with operation, use, or maintenance of said
product, provided that said product or technology is
unique or proprietary to CLIENTs operation.
c) CLIENT'S RESOURCES. The CLIENT shall provide working
space, computer time, system(s) passwords, access to
facilities equipment, systems software, magnetic media,
and supplies as required for performance of services.
d) TAX APPLICABILITY. Any applicable sales tax shall be
payable by CLIENT in addition to the fees stated herein.
4. INDEPENDENT CONTRACTOR. In making and performing this
Agreement, the parties shall act at all times as independent
contractors, and at no time shall either party make any
commitments or incur any charges or expenses for or in the
name of the other party, or be considered the agent, partner,
joint venture, employer or employee of the other party. C&N
employees are not employees of CLIENT for any purpose
whatsoever. C&N may, with prior written approval, incur
charges for CLIENT necessary for the daily operation of the
department.
5. AGREEMENT NOT TO EMPLOY. While this Agreement is in effect
and for a period of six months thereafter, CLIENT and C&N
agree that neither party shall hire or extend an offer of
employment to any of the other party's employees or former
employees, however, in the case of former employees the hiring
limitation shall expire six months after the employee's
termination. This provision may be specifically enforced.
6 SUBCONTRACT. C&N shall not subcontract or permit anyone other
than its personnel to perform any of the work, services or
other performance required of C&N under this Agreement without
prior written approval by the CLIENT.
7. INSURANCE AND LIABILITY.
a) INSURANCE. C&N shall provide workman's compensation
insurance coverage for all its employees. A certificate
of insurance evidencing this coverage shall be provided
to CLIENT upon request. C&N shall maintain comprehensive
general liability and property damage coverage for
injuries to persons and property damage occurring during
the performance of services by C&N under this Agreement,
with limits of $1,000,000 for bodily injury to persons
and $1,000,000 for damage to property. C&N's sole
liability for said injuries and damages shall be to
provide the above described insurance.
b) AGREEMENT LIABILITY LIMITATION.
i) CLIENTs liability shall, in the aggregate, be
limited to the total amount payable under this
Agreement.
ii) C&N shall not be deemed or held to be obligated or
accountable upon or under any warranties or
guaranties, express or implied, statutory, by
operation of law, or otherwise, in any manner or
form, beyond the express warranties set forth in
this Agreement. C&N's liability shall be limited
to the amounts already received for the portion of
the services which are in dispute and the express
liabilities set forth in the Agreement. C&N shall
not be held responsible for any lost profits or for
any claim or demand against the CLIENT by any other
party.
c) CONSEQUENTIAL DAMAGES. Neither party shall be liable to
the other for any indirect, special or consequential
damages.
d) UNCONTROLLABLE ACTS. Neither party shall be responsible
for delays or failures in performance resulting from acts
beyond their reasonable control.
e) STATUTE OF LIMITATION. No action, regardless of form,
arising out of the services under this Agreement, may be
brought by either party more than one year after the
cause of action occurred.
8. MISCELLANEOUS.
a) NOTICES. Any notices provided for in this Agreement
shall be given in writing and transmitted by personal
delivery or prepaid first class registered or certified
mail addressed as follows:
If to CLIENT: CATHERINES STORES CORPORATION
3742 LAMAR AVE
MEMPHIS, TN 38118
ATTN: JULIE BOLAND, NETWORK
COMMUNICATION MANAGER
If to C&N: COMPUTERS & NETWORKS, INC.
2771 COLONY PARK DR.
MEMPHIS, TN 38118
ATTN: DAN COLLINS, PRESIDENT
b) CANCELLATION. Either party can cancel this agreement
with 60 days advance written notice.
c) AGREEMENT MODIFICATIONS. Neither party can waive or
modify any term of this Agreement unless in writing and
signed by both parties.
d) ADDITIONAL SERVICES. All additional services not covered
under this Agreement rendered to the CLIENT by C&N shall
be subject to the same terms and conditions as contained
in the Agreement.
e) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject
matter. All prior agreements are superseded hereby.
f) SEVERABILITY. In the event that the language of any
portion of this Agreement is adjudicated invalid, the
remainder of this Agreement shall remain in force.
g) GOVERNING LAW. This Agreement is governed by the
applicable Tennessee law.
h) ENFORCEMENT COSTS. The prevailing party shall be
entitled to be reimbursed for all costs and expenses
incurred to enforce the terms of this Agreement,
including reasonable attorney's fees.
i) HEADINGS. Headings used in this Agreement are for
reference purposes only and shall not be deemed a part of
this Agreement.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to
be executed by its respective authorized agent effective as of the
date first above written.
COMPUTERS & NETWORKS, INC. CATHERINES STORES CORPORATION
By: /s/ Danny Collins By: /s/ Tony Mann
--------------------------- --------------------------
Danny Collins Tony Mann
Title: President Title: VP-MIS
------------------------ -----------------------
("C&N") ("CLIENT")
Exhibit 11.1
The computation of weighted average number of common shares
outstanding is as follows:
<TABLE>
<CAPTION>
Year Year Year
ended ended ended
Feb. 1, Feb. 3, Jan. 28,
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Weighted average common
shares outstanding 7,479,976 7,656,753 7,724,135
Common stock equivalents--
shares issuable under the
1994 Omnibus Incentive Plan,
the 1992 Nonqualified Stock
Option Plan, and the 1990
Performance Units Plan 90,812 196,837 170,587
--------- --------- ---------
Total Weighted Average
Common Shares Outstanding 7,570,788 7,853,590 7,894,722
========= ========= =========
</TABLE>
The Company repurchased 509,500 shares in fiscal year 1996 reducing
the weighted average common shares outstanding.
Exhibit 13.1
To Our Shareholders:
Catherines Stores Corporation's total sales for the year were
$268.0 million compared to $274.1 in fiscal 1995. The prior fiscal
year contained 53 weeks compared to 52 weeks in the current year.
Based on a comparable 52 week period, total sales declined 1.2% and
comparable stores' sales declined 5.3%. The Company improved its
merchandise margin by 87 basis points over last year and reduced
its costs per store by 4.2%.
Net income for fiscal 1996 was $1.3 million compared to $3.1
million in fiscal 1995, and earnings per share was $0.17 in fiscal
1996 and $0.40 in fiscal 1995. In fiscal 1996, the Company wrote
down $1.0 million of impaired assets after determining that future
expected cash flows from certain stores would be less than the
Company's current investment. Most of the assets written down
related to stores opened in the last two years. In fiscal 1995,
the Company made a similar evaluation that resulted in a $1.9
million write down. In addition, in 1995 the Company incurred
costs of $779,000 to close 12 underperforming stores. After taxes,
these write-downs reduced net income by $0.07 and $0.23 in fiscal
1996 and 1995, respectively.
Merchandising and Marketing Initiatives
- ---------------------------------------
Based on the continued difficult retail environment, the
Company has taken a number of steps to communicate directly with
our customers to better understand their shopping patterns,
preferences and lifestyle needs.
The Company has formed a Consumer Advisory Board in its
headquarters city of Memphis, Tennessee, comprised of current and
past shoppers, representing two of our four formats. In addition,
we have organized focus groups in four major cities where we have
a significant number of stores. Also, a phone survey was
conducted, reaching hundreds of customers who had shopped in our
stores in 1995 but not in 1996. They were questioned as to why
they no longer shopped with us. To learn more about our customers'
preferences, we also mailed an extensive survey that we feel will
provide us with invaluable information to assist us in refocusing
our merchandising and marketing strategies.
While we are still analyzing the results, the surveys indicate
there are specific areas where we can improve our merchandising
strategy and execution. The surveys also revealed many positive
aspects that we can continue to capitalize upon and further
promote.
The Company has also realigned its top merchandising
executives to provide greater concentration on more limited areas
of responsibility. Stanley Grossman is now responsible for
dresses, coats, intimate apparel and accessories for all divisions.
Allen Weinstein is responsible for all sportswear merchandise.
This alignment will give us more focused market coverage and will
enable us to concentrate on common opportunities and trends that
will benefit all of our operating divisions.
During fiscal 1996, we tested a preferred customer program for
the credit card customers of The Answer division. Based on the
results of that test, we are expanding this program to the Added
Dimensions division in fiscal 1997. We continue to offer our
customer perks card (a non credit card, offering special discounts)
in the Catherine's and PS...Plus Sizes, Plus Savings divisions. We
are looking to add additional incentives to these programs and
believe they give the customer a reason to select our stores over
our competitors.
Technology Investment
- ---------------------
Over the past three years, the Company has invested over $2.1
million in hardware, software and training to allow more of our
associates better access to information and increase their personal
efficiency. Last year, the Company established its own training
center and spent over 10,000 hours instructing our staff on basic
personal computer fundamentals. We also trained our store field
personnel, buyers and distributors on our new decision support
tools which allow daily access to sales and style information at
the store level. Our store field personnel now carry laptop
computers so they have instant information as they travel to their
stores.
Two key programs to service our customers are our customer
profile and style locator systems. With the customer profile
system, we capture each customer's name and her purchases at the
point of sale. This information allows us to tailor our direct
mail approach to the specific customer and improve the efficiency
of our direct mail advertising. The style locator system allows
our stores to locate the customer's size and merchandise preference
in any store across the chain. We then are able to send the
customer's selection directly to her home. Both of these programs
allow us to better service our customers.
In fiscal 1997, we expect to invest $4.3 million, through
capital leases, in updating our point of sale equipment and adding
to our merchandise systems. We are replacing our five to six-year
old register equipment with a personal computer based product which
we expect to lease. This new platform at the point of sale will
reduce our polling times and will position us to add other products
and enhancements to improve store efficiency. The enhancements to
the merchandising system are focused on the planning and allocation
functions which will help coordinate and improve the matching of
merchandise purchased to each store's unique, individual needs.
Our overall technology strategy continues to include aligning
with software partners who offer solutions suited for our business
and to lease equipment whenever possible to avoid technological
obsolescence. We believe the investment made in 1996 in training
and technology will be of significant benefit in future years.
Expense Initiatives
- -------------------
We are constantly looking for ways to prudently reduce our
overall expense base while retaining our service levels to both our
customers and our stores. In fiscal 1997, we expect to benefit
from our new point of sale equipment through reduced depreciation
and communication costs. We have instituted a "floor ready"
merchandise program with our vendors which will lead to cost
savings in supplies and faster turnaround of merchandise at the
stores. Changes in the health care industry have enabled us to
shift the risk of rising costs to an insurance provider and to
reduce the cost to the Company and our employees. We are also
evaluating changes in telephone and lighting configurations at the
store level to identify ways to reduce costs without affecting
customer service.
Store Expansion and Cash Flow
- -----------------------------
We currently expect to open between seven and 10 stores and
will remodel or relocate approximately 18 stores. Thus, our total
capital expenditures for fiscal 1997 are expected to be between
$4.0 to 4.5 million excluding leased equipment compared to average
capital expenditures of $9.7 million over the past three years. We
are continuing to evaluate our store base and expect to close at
least five underperforming stores during the year. Where possible
we will also approach landlords to negotiate early termination of
leases for underperforming stores.
Earnings before interest, depreciation, amortization and
income taxes in fiscal 1996 was $12.0 million. At the end of the
year we had approximately $13.4 million combined availability on
our credit lines, which expire in March 1999. Our banks have
worked closely with us over the last year to modify the agreement
so that the Company remains in compliance with all covenants. We
expect to lease our new point of sale equipment partly to preserve
liquidity under our banking agreement.
Conclusion
- ----------
We were certainly disappointed in the Company's fiscal 1996
results. We recognize that we must redouble our efforts to refocus
our merchandise strategy while continuing to review our expense
base for cost reductions. We continue to look for ways that
technology can further enhance our operating results. We still
believe that our customer base of women over 35 who wear large
sizes will expand as the baby boom generation ages. Our employees,
vendors, lenders and shareholders have supported us during a
difficult time for the Company and the retail industry and we
believe our efforts will bring improved results in fiscal 1997 and
beyond.
/s/ Bernard J. Wein
Bernard J. Wein
President & CEO
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.
Overview
The Company's net income for the 52 week year ended February
1, 1997 ("1996") was $1,286,000 compared to $3,111,000 in the 53
week year ended February 3, 1996 ("1995") and $5,600,000 in the 52
week year ended January 28, 1995 ("1994"). Comparable 52 week
stores' sales decreased 5.3% in 1996, increased 0.4% in 1995, and
decreased 0.4% in 1994. Operating income margins were 1.3%, 2.3%,
and 4.1% in 1996, 1995 and 1994, respectively.
During 1996, the Company and its lenders amended their credit
agreement twice, in September and December. The banks agreed to
waive a financial convenant in 1996 and amended this covenant and
certain other required financial ratios for future years. The
Company also agreed to limit its capital expenditures to
$11,000,000 in 1996 and to $8,000,000 in subsequent years.
Furthermore, the agreement was extended to March 15, 1999. This
credit agreement provides a working capital facility of
$25,000,000, a swing line of credit of $3,000,000 and a term loan
which has a remaining balance of $2,250,000. The term loan
requires a quarterly principal payments of $250,000.
In 1996, the Company wrote-off $944,000 of impaired assets
after determining that the future cash flows generated by these
assets would be less than the assets' book value. A similar
analysis in 1995 resulted in a write-off of $1,957,000. In
addition, in 1995 the Company incurred costs of $779,000 to close
12 underperforming stores. After taxes, these write-offs reduced
earnings per common share by $0.07 in 1996 and $0.23 in 1995. The
write-offs had no effect on the Company's cash flow.
Net income per common share was $0.17 for 1996, $0.40 for 1995
and $0.71 for 1994. Without the impairment losses and store
closing costs, earnings per common share would have been $0.24 in
1996 and $0.63 in 1995.
The Company has a contract, which expires in the year 2000
unless renewed, to sell to a third party, without recourse,
accounts receivable created by its private label credit card. The
third party provides all authorization, billing and collection
services for these accounts. At the end of the term, the Company
can repurchase the receivables at face value.
In 1996, the Company, with the approval of its Board of
Directors, repurchased $3,736,000, or 509,500 common shares, of its
outstanding common stock through open-market purchases at
approximately $7.33 per common share. The share repurchases were
financed with borrowings under the bank credit agreement.
Results of Operations
The following table sets forth income statement data, expressed as
a percentage of net sales for 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0 100.0 100.0
Cost of sales, including buying and
occupancy costs 70.3 69.7 68.6
Gross margin 29.7 30.3 31.4
Selling, general and administrative
expenses 27.6 26.5 26.6
Write-down of underperforming and
closed store assets 0.4 1.0 -
Amortization of intangible assets 0.4 0.5 0.7
----- ----- -----
Operating income 1.3 2.3 4.1
Interest and other, net 0.4 0.3 0.4
Income before income taxes 0.9 2.0 3.7
Income taxes 0.4 0.9 1.5
Net income 0.5 1.1 2.2
</TABLE>
1996 Compared to 1995
Net sales decreased 2.2% to $268,002,000 in 1996 from
$274,130,000 in 1995. The sales decrease was primarily
attributable to there being only 52 weeks in 1996 compared to 53
weeks in 1995, offset by the addition of 34 new stores. Comparable
store sales on a 52 week basis decreased 5.3% due to a decrease in
the number of customers and units sold, offset by an increase in
the average units per salescheck and the average unit price.
Gross margin, after buying and occupancy costs, decreased as
a percentage of sales to 29.7% in 1996 from 30.3% in 1995. The
decrease is primarily attributable to occupancy costs of new stores
which represent a historically higher percentage to sales than
occupancy costs of mature stores, offset by a reduction in
promotional markdowns. Merchandise margins increased by 87 basis
points.
Selling, general and administrative expenses increased to
$73,945,000 in 1996 from $72,598,000 in 1995. This increase was
primarily attributable to the pre-opening and operating costs of 34
new stores and higher general office depreciation and employee
benefit costs. Advertising and store payroll were reduced in
reaction to sales trends and to maintain productivity. Average
selling, general and administrative costs per store decreased 4.1%.
As a percentage of sales, selling, general and administrative
expenses increased to 27.6% from 26.5%.
Under the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of" ('SFAS 121"), the
Company wrote-down, to estimated fair market value, unamortized
goodwill, leasehold improvements and furniture and fixtures related
to 14 underperforming locations in 1996 and 40 underperforming
locations in 1995 whose carrying values were impaired. These
non-cash costs were $944,000 in 1996 and $1,957,000 in 1995. In
addition, in 1995 the Company incurred costs of $779,000 for asset
write-offs and other expenses related to the closing of 12 stores.
Amortization of intangibles decreased to $1,168,000 in 1996
from $1,204,000 in 1995 due to fully amortizing certain
intangibles. Interest expense increased to $1,127,000 in 1996 from
$944,000 in 1995 as a result of increased borrowings under the
credit facility, offset by lower interest rates.
The effective tax rate for 1996 was 43.7% compared to 44.0% in
1995. The rate is primarily impacted by non-tax deductible
goodwill charges and state income taxes.
1995 Compared to 1994
Net sales increased 6.9% to $274,130,000 in 1995 from
$256,427,000 in 1994. The sales increase was primarily
attributable to 40 new stores opened in 1995 and there being 53
weeks in 1995 compared to 52 weeks in 1994. Comparable stores'
sales on a 52 week basis increased at a 0.4% rate, due to an
increase in the number of customers and the average unit price,
offset by a reduction in the number of units per salescheck. The
number of units sold remained relatively flat.
Gross margin, after buying and occupancy costs, decreased as
a percentage of sales to 30.3% in 1995 from 31.4% in 1994. The
decrease is primarily attributable to an increase in promotional
markdowns taken to maintain inventories at appropriate levels and
higher depreciation expense. The Company's real estate costs were
flat as a percentage of sales.
Selling, general and administrative expenses increased to
$72,598,000 in 1995 from $68,297,000 in 1994. This increase was
primarily attributable to the pre-opening and operating costs of 40
new stores, and higher advertising and employee health care costs.
As a percentage of sales, selling, general and administrative
expenses decreased to 26.5% from 26.6%. The decrease results
primarily from the elimination of the discount, supplemental and
cost of funds fees assessed under the prior accounts receivable
agreement, partially offset by the increases mentioned above.
In 1995, in connection with the implementation of SFAS 121,
the Company recorded $1,957,000 to write-down to estimated fair
market value, unamortized goodwill, leasehold improvements and
furniture and fixtures related to 40 underperforming locations
whose carrying values were impaired. In addition, the Company
incurred costs of approximately $779,000 for asset write-offs and
other expenses related to the closing of 12 underperforming stores.
Amortization of intangibles decreased to $1,204,000 in 1995
from $1,764,000 in 1994 because a consulting agreement with the
former principal stockholder of an acquired company was fully
amortized. Interest expense was flat.
The effective income tax rate for 1995 was 44.0% compared to
41.7% in 1994. The rate is affected by increased non-tax
deductible goodwill charges, offset by lower effective state income
tax rates resulting from the Company's legal and corporate
reorganization.
Liquidity and Capital Resources
Cash from Operations
- --------------------
Historically, the Company's primary sources of liquidity have
been cash flow from operations and borrowings under its bank credit
agreement.
For the past three years, cash flow from operations was as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income......................... $ 1,286 $ 3,111 $ 5,600
Depreciation and amortitzation..... 8,558 7,236 6,465
Other non-cash charges............. 83 1,897 1,485
Changes in current assets and
liabilities....................... (1,564) (1,289) (131)
------ ------ ------
Cash provided by operating
activities........................ 8,363 10,955 13,419
====== ====== ======
</TABLE>
In 1996 and 1995, lower net income resulted in a decline in
operating cash flow. The Company was able to increase operating
cash flow in 1994 by reducing its non-trade receivables and
increasing its ratio of merchandise payables to inventory.
Banking Arrangements
- --------------------
The Company's amended bank credit agreement provides a
$25,000,000 revolving credit facility and a $5,000,000 term loan,
both secured by substantially all of the Company's assets, except
domestic inventory. Interest is at either the bank's prime rate or
the Eurodollar rate plus 1 1/4%, at the Company's option. The
working capital facility also requires an annual commitment fee of
1/2 of 1% of the average daily amount of available unused
commitment. The working capital facility may also be used to fund
letters of credit. The term loan payments are $250,000 per
quarter. The agreement also provides for a swing line of credit of
$3,000,000 with the Company's agent bank. Under the terms of the
agreement as amended, capital expenditures are limited to
$11,000,000 in 1996 and $8,000,000 in each fiscal year thereafter.
The agreement expires in March 1999.
At February 1, 1997, the Company had $13,432,000 combined
availability under its working capital and swing line of credit,
after considering outstanding letters of credit of $2,568,000. The
Company's peak borrowing under the working capital and swing line
facility during 1996, including outstanding letters of credit, was
$23,157,000 in November 1996. In 1995 and 1994, the peak
borrowings were $17,213,000 in November 1995 and $17,817,000 in
November 1994. Remaining principal payments of bank and other
long-term obligations approximate $2,515,000 and $2,062,000 in 1997
and 1998, respectively.
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 foreseeable future. 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.
Capital Expenditures
- --------------------
The Company's capital expenditures, other than those funded by
capital leases, were $10,780,000 in 1996, $9,873,000 in 1995 and
$8,452,000 in 1994. The majority of capital expenditures were for
fixtures, equipment and leasehold improvements for new, relocated
and remodeled stores. The Company opened 34 new stores in 1996, 40
new stores in 1995, and 35 new stores in 1994. Underperforming
stores are closed upon lease termination, or earlier if possible.
During the three fiscal years ended February 1, 1997, 27 stores
were closed, including nine in 1996.
In 1996, the Company through its master capital lease
agreements financed the purchase of point-of-sale terminals for new
stores and upgraded its data processing systems. The discounted
present value of the additional rental payments was $1,601,000.
The total present value of all capital leases entered into by the
Company as of February 1, 1997 is $3,041,000. At the end of the
initial term of the leases, the Company has the option, to purchase
the equipment, at fair market value, renew the leases or return the
equipment.
Some of the capital lease agreements require the Company to
maintain certain financial ratios, minimum levels of net worth and
working capital. Additionally, some of the capital lease
agreements restrict future liens and indebtedness, sales of assets,
and dividend payments. These covenants are the same as under the
bank credit agreement.
In 1997, the Company expects to open between seven and ten
stores and relocate or remodel approximately 18 current locations.
Anticipated capital expenditures are approximately $4,500,000. The
Company anticipates funding these projects through internally
generated cash flow and borrowings under its bank credit agreement.
Also during 1997, the Company expects to invest $4,300,000 in
updating its point of sale equipment and adding to its merchandise
systems. These capital expenditures are anticipated to be financed
by capital leases.
Working Capital
- ---------------
The Company's working capital, current ratio, and ratio of
sales to average working capital at the end of the last three
fiscal years were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Working capital $22,209 $21,212 $18,749
Current ratio 1.5 1.5 1.5
Ratio of sales to average
working capital 12.3 13.7 13.9
</TABLE>
The increase in working capital resulted primarily from
additional inventory for new stores. The Company funds inventory
purchases through cash flows from operations and favorable payment
terms the Company has established with its vendors.
Common Stock Repurchase
- -----------------------
The Company, with the approval of its Board of Directors,
repurchased $3,736,000, or 509,500 common shares, of its
outstanding common stock through open-market purchases at
approximately $7.33 per common share. The share repurchases were
financed with borrowings under the bank credit agreement.
Inflation
- ---------
Inflation has had only a minor effect on the Company's results
of operations and its internal sources of liquidity and working
capital. Management believes that the Company can maintain margins
by increasing prices to offset inflationary cost increases.
Seasonality
- -----------
The Company's sales do not vary significantly by quarter.
Unlike many other apparel retailers, the Company historically has
realized a larger percentage of its operating income in the first
half of the fiscal year, with the fourth quarter generally creating
a loss to the Company's operating income. Higher margins are
generated during the Easter and Mother's Day seasons due to lower
promotional and clearance markdowns. The Company's operating loss
during the fourth quarter is generally caused by price competition
from other retailers, higher promotional costs and a shift to lower
margin items in the mix of merchandise sold.
Catherines Stores Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,992,339 $ 3,954,808
Receivables 3,051,595 3,780,937
Merchandise inventory 51,933,957 50,077,984
Prepaid expenses and other 3,478,849 3,536,617
Deferred income tax benefits (Note 8) 1,294,000 962,000
----------- -----------
Total current assets 62,750,740 62,312,346
----------- -----------
Property and Equipment, at cost:
Land 500,000 500,000
Buildings and leasehold improvements 22,703,829 18,635,489
Fixtures and equipment 27,799,419 21,316,361
Equipment under capital leases 9,204,817 7,309,076
Improvements in process 425,542 1,719,818
----------- -----------
60,633,607 49,480,744
Less accumulated depreciation
and amortization (25,119,716) (18,083,516)
----------- -----------
35,513,891 31,397,228
----------- -----------
Deferred Income Taxes (Note 8) 388,000 -
Other Assets and Deferred Charges,
net of accumulated amortization of
$1,910,112 and $1,442,558 (Note 4) 2,999,552 3,299,862
Goodwill, net of accumulated
amortization of $4,251,347 and
$3,555,510 23,713,253 24,450,044
----------- -----------
$125,365,436 $121,459,480
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 25,973,186 $ 26,184,815
Accrued expenses (Note 5) 12,053,356 11,870,012
Current maturities of long-term
bank and other debt 2,514,849 3,045,734
----------- -----------
Total current liabilities 40,541,391 41,100,561
----------- -----------
Long-Term Bank and Other Debt, less
current maturities (Note 6) 14,877,902 7,718,518
Deferred Income Taxes (Note 8) - 408,000
Commitments and Contingencies
(Notes 2, 7, and 9)
Stockholders' Equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized,
none issued - -
Common stock, $.01 par value,
50,000,000 shares authorized,
7,191,656 and 7,673,174 shares
issued and outstanding 71,917 76,732
Additional paid-in capital 46,390,691 49,958,108
Retained earnings 23,483,535 22,197,561
----------- -----------
Total stockholders' equity 69,946,143 72,232,401
----------- -----------
$125,365,436 $121,459,480
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these balance sheets.
Catherines Stores Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended
---------------------------------------
February 1, February 3, January 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales $268,001,571 $274,129,516 $256,427,347
Cost of sales,
including buying
and occupancy costs 188,520,002 191,096,720 175,815,887
----------- ----------- -----------
Gross margin 79,481,569 83,032,796 80,611,460
Selling, general and
administrative
expenses 73,944,644 72,598,074 68,296,609
Write-down of under-
performing and closed
store assets (Note 10) 956,231 2,736,261 -
Amortization of
intangible assets 1,167,700 1,204,218 1,764,421
----------- ----------- -----------
Operating income 3,412,994 6,494,243 10,550,430
Interest and other,
net 1,127,020 943,730 950,794
----------- ----------- -----------
Income before income
taxes 2,285,974 5,550,513 9,599,636
Provision for income
taxes (Note 8) 1,000,000 2,440,000 4,000,000
----------- ----------- -----------
Net income $ 1,285,974 $ 3,110,513 $ 5,599,636
=========== =========== ===========
Net income per
common share $ 0.17 $ 0.40 $ 0.71
=========== =========== ===========
Weighted average
number of common
shares outstanding 7,570,788 7,853,590 7,894,722
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
Catherines Stores Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
------ ---------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at January
29, 1994 $79,163 $52,496,633 $13,487,412 $ - $66,063,208
Net income - - 5,599,636 - 5,599,636
Acquisition of
300,000 shares of
treasury stock - - - (2,975,539) (2,975,539)
Net proceeds from
the sale of 25,693
shares of common
stock 36 51,657 - 177,025 228,718
------ ---------- ---------- ---------- ----------
Balance at January
28, 1995 79,199 52,548,290 19,087,048 (2,798,514) 68,916,023
Net income - - 3,110,513 - 3,110,513
Cancellation of
treasury stock (2,779) (2,795,735) - 2,798,514 -
Net proceeds from
the sale of 31,176
shares of common
stock 312 205,553 - - 205,865
------ ---------- ---------- ---------- ----------
Balance at
February 3, 1996 76,732 49,958,108 22,197,561 - 72,232,401
Net income - - 1,285,974 - 1,285,974
Repurchase of
509,500 shares of
common stock (5,095) (3,730,992) - - (3,736,087)
Net proceeds from
the sale of 27,982
shares of common
stock 280 163,575 - - 163,855
------ ---------- ---------- ---------- ----------
Balance at
February 1, 1997 $71,917 $46,390,691 $23,483,535 $ - $69,946,143
====== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
Catherines Stores Corporation and Subsidiaries
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
Years Ended
February 1, February 3, January 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 1,285,974 $ 3,110,513 $ 5,599,636
---------- ---------- ----------
Adjustments to reconcile net
income to net cash provided by
operating activities-
Depreciation and amortization 8,557,880 7,236,139 6,465,422
Write-down of underperforming and
closed store assets (Note 10) 920,980 2,494,203 -
Provision for losses on receivables 164,453 151,057 641,165
Write-off of deferred financing
costs - - 138,093
Change in deferred income taxes (1,128,000) (1,151,000) 240,000
Net change in current assets and
liabilities (Note 3) (1,564,003) (1,289,147) (131,139)
Change in other noncash reserves 302,402 622,789 465,471
Change in other assets (176,785) (219,431) -
---------- ---------- ----------
Total adjustments 7,076,927 7,844,610 7,819,012
---------- ---------- ----------
Net cash provided by operating
activities 8,362,901 10,955,123 13,418,648
---------- ---------- ----------
Cash Flows from Investing Activities:
Capital expenditures ********* (9,872,713) (8,451,782)
---------- ---------- ----------
Net cash used by investing
activities ********* (9,872,713) (8,451,782)
---------- ---------- ----------
Cash Flows from Financing Actitivies:
Sales of common stock 163,855 205,865 228,718
Repurchase of common stock (3,736,087) - (2,975,539)
Proceeds from issuance of
long-term bank debt 8,250,000 3,750,000 5,000,000
Payment of deferred financing costs - - (538,227)
Retirement of long-term bank debt - - (3,450,000)
Principal payments of long-term
bank and other debt (3,222,974) (3,083,871) (5,460,381)
---------- ---------- ----------
Net cash provided (used) by
financing activities 1,454,794 871,994 (7,195,429)
---------- ---------- ----------
Net Change in Cash and Cash
Equivalents (962,469) 1,954,404 (2,228,563)
Cash and Cash Equivalents,
beginning of year 3,954,808 2,000,404 4,228,967
---------- ---------- ----------
Cash and Cash Equivalents,
end of year $ 2,992,339 $ 3,954,808 $ 2,000,404
========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
CATHERINES STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Catherines Stores Corporation ("Catherines"), through its
wholly-owned subsidiaries, operates retail specialty stores selling
women's large-size clothing and accessories in stores located
throughout the United States. Catherines' principal assets are its
investments in its subsidiaries and a retail distribution center.
Catherines provides merchandise buying and distribution services to
the operating subsidiaries.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make 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.
Principles of Consolidation
The consolidated financial statements include the accounts of
Catherines and its subsidiaries (collectively, the "Company").
Significant intercompany balances and transactions are eliminated
in consolidation.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest January
31 of the following calendar year. Fiscal years 1996 and 1994
contained 52 weeks, while fiscal year 1995 contained 53 weeks.
Cash and Cash Equivalents
Cash and cash equivalents include temporary investments in
short-term securities with original maturities of three months or
less.
Merchandise Inventory
Merchandise inventory is stated at the lower of cost (applied
on a first-in, first-out basis using the retail inventory method)
or market. Trade and purchase discounts are recorded as a
reduction of inventory cost in the period in which the merchandise
is received. Certain general and administrative costs associated
with both the buying and distribution of merchandise from the
retail distribution center to the stores are included in inventory.
These costs were approximately $2,646,000 and $2,441,000 at
February 1, 1997 and February 3, 1996, respectively. Purchasing,
distribution and occupancy costs charged to cost of sales were
approximately $42,449,000, $39,301,000 and $35,753,000 in fiscal
years 1996, 1995 and 1994, respectively.
Property and Equipment
Depreciation is provided using the straight-line method based
upon the estimated useful lives of the assets, which are 40 years
for buildings and three to ten years for fixtures and equipment.
Leasehold improvements are amortized over the shorter of their
economic lives or the terms of the leases. Expenditures for
maintenance and repairs are charged to operations, while renewals
and betterments are capitalized. Long-lived assets are reviewed
for impairment upon the occurrence of events or changes in
circumstances that indicate that the carrying value of these
long-lived assets may not be recoverable, as measured by comparing
the assets' net book value to the estimated future cash flows
generated by their use. Impaired assets are recorded at the lesser
of their carrying value or fair value.
Goodwill
Goodwill represents the excess of the purchase price over the
underlying fair value of net assets acquired. Goodwill is being
amortized evenly over 40 years. The Company, at least annually,
evaluates whether events or circumstances have occurred that may
impact the recoverability of goodwill. Upon the occurrence of any
such event or circumstance, the Company remeasures the realizable
portion of goodwill using methodology similar to that for property
and equipment.
Capitalization of Interest
Interest on borrowed funds incurred during the construction of
buildings and significant leasehold improvements is capitalized.
Interest costs capitalized were approximately $58,000, $47,000 and
$19,000 in fiscal years 1996, 1995 and 1994, respectively.
Income Taxes
Provision for income taxes is based on reported results of
operations before income taxes. Deferred income taxes reflect the
future tax consequences attributable to temporary differences
between the Company's assets and liabilities for financial
reporting and income tax purposes, using income tax rates in effect
during the periods presented. The effect of a change in existing
income tax rates is recognized in the income tax provision in the
period that includes the enactment date.
Computation of Net Income per Common Share
Net income per common share is computed as net income divided
by the weighted average number of common shares outstanding during
the period and issuable under the Company's stock option plans (see
Note 9).
Store Preopening Expenses
Costs associated with the opening of new stores are expensed
as incurred.
Advertising
The Company expenses advertising costs when the event
advertised occurs. Advertising expense, included in selling,
general and administrative expenses in the accompanying
consolidated statements of income, was $11,497,000, $11,900,000 and
$10,274,000 in fiscal years 1996, 1995 and 1994, respectively.
Reclassifications
Certain prior year balances have been reclassified to conform
to current year presentation.
(2) Accounts Receivable
The Company sells accounts receivable from its proprietary
credit card to a third party credit provider, without recourse.
The five-year agreement, which expires in March 2000, automatically
renews unless terminated by either party or by mutual agreement.
Under the agreement, the Company sells its receivables from
in-house credit sales on a daily basis. Net proceeds from the sale
of customer accounts receivable to the third party were
approximately $104,232,000 for the year ended February 1, 1997,
$105,603,000 for the year ended February 3, 1996 and $96,438,000
for the year ended January 28, 1995.
The agreement allows the Company to repurchase the accounts
receivable at the end of the five-year term and allows the
purchaser to put the receivables back to the Company at face value
in the event of a change in the Company's ownership. The net
balance of accounts receivable held by the third party was
approximately $75,698,000 at February 1, 1997, $67,232,000 at
February 3, 1996 and $61,444,000 at January 28, 1995.
(3) Statements of Cash Flows
The net change in current assets and liabilities reflected in
the consolidated statements of cash flows was as follows:
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
February 1, February 3, January 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Increase (decrease) in
cash and cash
equivalents -
Receivables $ 544,889 $ 394,881 $ 1,182,123
Merchandise inventory (2,127,375) (5,749,161) (7,848,853)
Prepaid expenses and
other 57,768 (283,077) (541,221)
Accounts payable (211,629) 1,999,529 6,973,985
Accrued expenses 172,344 2,348,681 102,827
---------- ---------- ----------
Total $(1,564,003) $(1,289,147) $ (131,139)
---------- ---------- ----------
</TABLE>
In addition to the transactions in the accompanying consolidated
statements of cash flows, the Company acquired equipment under
capital lease obligations of approximately $1,601,000, $789,000 and
$1,351,000 during fiscal years 1996, 1995 and 1994, respectively.
(4) 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>
February 1, February 3, Amortization
1997 1996 Methods and Periods
----------- ----------- -------------------
<S> <C> <C> <C>
Covenants not to compete $1,324,348 $1,581,606 Straight line over
term of agreements
Trademarks and tradenames 1,112,482 1,149,758 Straight line over
40 years
Deferred financing costs 69,805 242,824 Effective interest
method over term of
financing
Other 492,917 325,674
--------- ---------
Total $2,999,552 $3,299,862
========= =========
</TABLE>
(5) Accrued Expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
----------- -----------
<S> <C> <C>
Payroll and related benefits $ 2,430,673 $ 2,540,098
Taxes other than income taxes 1,138,246 1,793,844
Rent and other related costs 2,307,074 2,453,354
Deferred revenues 1,830,652 1,750,529
Insurance 1,006,664 824,907
Other 3,340,047 2,507,280
---------- ----------
Total $12,053,356 $11,870,012
========== ==========
</TABLE>
(6) Long-Term Bank and Other Debt
Long-term bank and other debt consisted of the following:
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
----------- -----------
<S> <C> <C>
Due to banks:
Term notes $ 2,250,000 $ 3,250,000
Working capital notes 12,000,000 3,750,000
Other:
Capital lease obligations 3,040,939 3,232,576
Other notes and obligations 101,812 128,071
Obligations to a former
stockholder of an acquired
company --- 403,605
---------- ----------
17,392,751 10,764,252
Less current maturities (2,514,849) (3,045,734)
---------- ----------
Total $14,877,902 $ 7,718,518
========== ==========
</TABLE>
The Company's bank credit agreement, as amended, provides a
$5,000,000 term loan and a working capital facility of $25,000,000,
secured by substantially all of the Company's assets, except
domestic inventory. This facility also provides for a swing line
of credit of $3,000,000 with the Company's agent bank. The
interest rate is either the bank's prime rate or LIBOR plus 1 1/4%,
at the Company's option. The weighted average interest rate on
borrowings was 7.3% and 7.7% for the fiscal years ended February
1, 1997 and February 3, 1996. The working capital facility may
also be used to fund letters of credit. The working capital
facility requires an annual commitment fee of 1/2 of 1% of the
average daily unused commitment. Term loan repayments are $250,000
per quarter. The bank credit agreement expires on March 15, 1999.
At February 1, 1997, the Company had approximately $13,432,000
combined availability under its working capital and swing line
facilities, after considering outstanding letters of credit of
approximately $2,568,000. The Company's peak borrowing under the
working capital and swing line facilities during fiscal year 1996,
including outstanding letters of credit, was $23,157,000 in
November 1996. In fiscal years 1995 and 1994 , the peak borrowings
were $17,213,000 in November 1995 and $17,817,000 in November 1994,
respectively. The Company may prepay amounts outstanding under the
working capital, term loan and swing line facility without penalty.
The bank credit agreement requires that the Company maintain
certain financial covenants, one of which was waived for fiscal
year 1996, fincancial ratios and minimum levels of net worth and
working capital. The bank credit agreement also restricts future
liens and indebtedness, sales of assets, dividend payments and
limits repurchases of the Company's common stock. Capital
expenditures are restricted to $11,000,000 for fiscal year 1996 and
$8,000,000 thereafter.
In each of the three fiscal years ended February 1, 1997, the
Company entered into capital leases for data processing and
point-of-sale equipment. The required lease payments for fiscal
year 1997 approximate $1,552,000. At the end of the initial term
of the leases, the Company has the option of purchasing the
equipment at fair market value, renewing the leases or turning in
the equipment. Some of the capital lease agreements contain
requirements and restrictions similar to those of the bank credit
agreement.
Obligations to the former stockholder of an acquired company
consisted of the present value of a covenant not to compete entered
into in connection with the acquisition. The remaining principal
outstanding under this agreement was paid in fiscal year 1996.
Cash interest paid was approximately $901,000, $753,000 and
$849,000 during fiscal years 1996, 1995 and 1994, respectively.
Annual principal requirements on long-term bank and other debt
for the years subsequent to fiscal year 1997 are approximately as
follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1998 $ 2,062,000
1999 12,759,000
2000 16,000
2001 17,000
Thereafter 24,000
</TABLE>
(7) Leases
The Company leases store locations and certain equipment under
operating lease agreements which expire at varying dates through
2008. Most of the store leases include renewal options for an
additional two to ten years, and require the Company to pay taxes,
insurance and certain common area maintenance costs in addition to
specified minimum rents. Most of the store leases also require the
payment of contingent rent based upon a specified percentage of
sales in excess of a base amount.
Total rent expense for all operating leases was as follows:
<TABLE>
<CAPTION>
Years Ended
---------------------------------------
February 1, February 3, January 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Minimum rentals $20,401,261 $18,802,621 $17,191,331
Contingent rentals 334,871 444,282 417,754
---------- ---------- ----------
Total $20,736,132 $19,246,903 $17,609,085
========== ========== ==========
</TABLE>
At February 1, 1997, future minimum rental payments under all
noncancelable operating leases with initial or remaining lease
terms of one year or more were as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1997 $19,781,000
1998 17,506,000
1999 14,130,000
2000 10,661,000
2001 6,674,000
Thereafter 10,548,000
----------
Total $79,300,000
==========
</TABLE>
(8) Income Taxes
Components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------
February 1, February 3, January 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal $ 2,062,000 $ 3,294,000 $3,087,000
State 66,000 467,000 673,000
Deferred (1,128,000) (1,321,000) 240,000
---------- ---------- ---------
Total $ 1,000,000 $ 2,440,000 $4,000,000
========== ========== =========
</TABLE>
Income taxes paid were approximately $1,695,000, $3,335,000
and $4,761,000 for fiscal years 1996, 1995 and 1994, respectively.
A reconciliation of the provision for income taxes to the amount
computed by applying the federal statutory tax rate to income
before income taxes is as follows:
<TABLE>
<CAPTION>
Years Ended
-------------------------------------
February 1, February 3, January 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income
tax rate 35.0% 35.0% 35.0%
State income taxes, net
of federal benefit 1.2 3.0 4.5
Goodwill amortization 11.3 6.6 2.6
Benefit of graduated
federal income tax rate
on income under
$10,000,000 (1.0) (1.0) (1.0)
Other (2.8) 0.4 0.6
---- ---- ----
Total 43.7% 44.0% 41.7%
==== ==== ====
</TABLE>
Deferred income taxes result from differences in the timing of
recognition of revenues and expenses for financial reporting and
income tax purposes. The components of the Company's net deferred
income tax asset (liability) are as follows:
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Difference in book and tax bases
of property and equipment $ 1,934,000 $ 1,112,000
Reserves established for
deferred revenues and
estimated costs 1,724,000 1,610,000
State income tax net operating
loss carryforwards 230,000 ---
---------- ----------
Subtotal 3,888,000 2,722,000
Deferred income tax liabilities:
Difference in book and tax bases
of trademarks and tradenames
and other intangible assets (2,206,000) (2,168,000)
---------- ----------
Net deferred income tax asset $ 1,682,000 $ 554,000
========== ==========
</TABLE>
The deferred income tax assets recorded in the accompanying
consolidated balance sheets represent potential future income tax
benefits. These future income tax benefits are expected to be
realized through the reduction of income taxes otherwise payable
when reversals occur of temporary differences between the
financial reporting and income tax bases of the Company's assets
and liabilities.
(9) Employee Benefit Plans
The Company has established the Catherines, Inc. Retirement
Savings & Profit Sharing Plan for all eligible associates. This
plan allows participants to defer up to 15% of their income and
receive matching employer contributions on a portion of that
deferral. The Company has also established a nonqualified
retirement savings plan for certain officers and key executives.
Those employees who participate in this plan may defer up to 20% of
their income and receive a matching employer contribution on a
portion of that deferral. Participants in these plans become fully
vested in the Company's contribution over five years. The Company
made contributions of approximately $217,000, $235,000 and $154,000
in fiscal years 1996, 1995 and 1994, respectively.
The Profit sharing plan allows the Company to contribute
additional amounts at the discretion of the Board of Directors.
Any such amounts contributed are to be allocated equally among all
eligible participants. The Board of Directors authorized
discretionary contributions of $153,000 and $186,000 for the fiscal
years ended February 3, 1996 and January 28, 1995, respectively.
The Company has accrued approximately $130,000 for discretionary
contributions at February 1, 1997.
The Company has three stock option plans; the 1994 Omnibus
Incentive Plan (the "1994 Plan"), the 1992 Nonqualified Stock
Option Plan (the "1992 Plan") and the 1990 Performance Units Plan
(the "1990 Plan"), and an employee stock purchase plan (the
"ESPP"). The Company accounts for these plans using the intrinsic
value method prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related
interpretations, under which no compensation cost has been
recognized. Had compensation cost for these plans been determined
consistent with Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the
Company's net income and income per common share would have been
reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1996 1995
----------- -----------
<S> <C> <C>
Net Income:
As reported $1,285,974 $3,110,513
Pro forma 911,721 2,893,512
Earnings per share:
As reported $ 0.17 $ 0.40
Pro forma 0.12 0.37
</TABLE>
The effect on fiscal 1996 and 1995 pro forma net income and
income per common share of expensing the estimated fair value of
stock options is not necessarily representative of the effect on
reported earnings in future years due to the vesting period of
stock options and the potential for issuance of additional stock
options in future years.
The weighted average fair value of options granted in fiscal
years 1996 and 1995 were $6.48 and $5.51, respectively. The fair
value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in fiscal years 1996 and 1995:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1996 1995
----------- -----------
<S> <C> <C>
Risk-free interest rate 6.8% 6.7%
Price volatility 51.8% 52.0%
Expected term 4 years 4 years
</TABLE>
Under the 1994 Plan, a committee of the Board of Directors may
grant options to key employees to purchase up to 650,000 shares of
the Company's common stock at not less than the fair market value
at the date of the grant. Nonemployee directors are automatically
granted options each year to purchase the Company's common stock at
fair market value on the date of the Company's annual meeting. All
options become exercisable equally over four years beginning one
year from the date of the grant and expire in ten years. If not
exercised, these options revert back to the plan and can be
reissued as new options. The number of options available to be
granted under this plan at February 1, 1997 was 154,500. All
options available under the 1992 Plan and the 1990 Plan have been
granted.
A summary of the Company's stock option plans at February 1,
1997, February 3, 1996 and January 28, 1995 and changes during the
years then ended is presented in the table and narrative below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of
year 774,200 $ 8.55 615,200 $ 8.93 467,200 $ 8.73
Granted 166,500 9.06 190,000 7.57 153,000 9.75
Exercised (3,600) 1.67 (7,000) 1.67
Forfeited (4,000) 8.25 (24,000) 12.46 (5,000) 16.00
------- ----- ------- ----- ------- -----
Outstanding,
end of year 933,100 8.66 774,200 8.55 615,200 8.93
------- ----- ------- ----- ------- -----
Exercisable,
end of year 535,350 412,200 308,450
</TABLE>
Of the 933,100 options outstanding at February 1, 1997,
695,100 have exercise prices between $1.67 and $10.00, with a
weighted average price of $6.91 and a weighted average contractual
life of 6.6 years. Of these options, 333,350 are exercisable;
their weighted average exercise price is $5.01. The remaining
234,000 options have exercise prices between $10.50 and $16.00,
with a weighted average exercise price of $13.86 and a weighted
average remaining contractual life of 5.7 years. Of these options,
202,000 are exercisable; their weighted average exercise price is
$13.63.
The ESPP allows full-time employees with at least one year of
service to contribute 1% to 10% of their pay towards the purchase
of the Company's common stock up to a maximum of $25,000.
Purchases are made quarterly at the lesser of 85% of the stock's
closing market price on the first or last business day of the
quarter. During fiscal years 1996, 1995 and
1994; 24,382, 24,176 and 25,693 common shares were purchased under
the ESPP, respectively. Net proceeds were approximately $158,000,
$193,000 and $229,000 for fiscal years 1996, 1995 and 1994,
respectively. There are 155,607 shares remaining available under
the ESPP. The weighted average fair value of shares sold in fiscal
year 1996 was $6.48.
The Company has employment agreements with each of its three
most senior officers. The agreements provide for severance
payments if the executives are terminated for other than cause,
varying from one-and-one-half to two years' salary and bonus. If
all three officers were terminated, the Company's maximum
obligation would be approximately $2,800,000. In the event that an
executive is entitled to severance payments he is also entitled to
the continuation of health and insurance benefits and certain
additional retirement benefits pursuant to executive annuity and
life insurance agreements for a specified period of time following
termination of employment. The agreements expire June 1, 1998 and
are automatically extended for additional one-year periods unless
either party gives notice of termination at least one year prior to
the expiration date.
(10) Write-down of Underperforming and Closed Store Assets
In the fourth quarter of 1995, the Company implemented the
provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This statement requires that
long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If the expected future cash flows
are less than the carrying amount of the asset, an impairment loss
is recognized. The Company incurred a pre-tax charge of
approximately $944,000 in fiscal year 1996 and approximately
$1,957,000 in fiscal year 1995 related to the unamortized goodwill,
leasehold improvements and furniture and fixtures of 14
underperforming stores in fiscal year 1996 and 40 underperforming
stores in fiscal year 1995. Also in fiscal year 1995, the Company
incurred charges of approximately $779,000, from the write-off of
assets and other costs related to the closing of 12 underperforming
stores.
(11) Quarterly Financial Data (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended February 1, 1997
----------------------------------
First Second Third Fourth(4) Total
----- ------ ----- --------- -----
<S> <C> <C> <C> <C> <C>
Net Sales $70,464 $68,833 $65,642 $63,063 $268,002
Operating Income 3,901 3,248 376 (4,112) 3,413
Net Income $ 2,155 $ 1,736 $ 41 $(2,646) $ 1,286
Weighted Average
Number of Common
Shares(2) 7,834 7,870 7,504 7,249 7,571
Earnings per Share(1) $ 0.28 $ 0.22 $ 0.01 $ (0.36) $ 0.17
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended February 3, 1996
----------------------------------
First Second Third Fourth(3) Total
----- ------ ----- --------- -----
<S> <C> <C> <C> <C> <C>
Net Sales $67,858 $68,964 $69,505 $67,803 $274,130
Operating Income 4,047 4,622 1,383 (3,558) 6,494
Net Income $ 2,301 $ 2,644 $ 675 $(2,509) $ 3,111
Weighted Average
Number of Common
Shares 7,801 7,878 7,921 7,823 7,854
Earnings per Share(1) $ 0.29 $ 0.34 $ 0.09 $ (0.32) $ 0.40
</TABLE>
(1) The sum of the quarterly earnings per share amounts does
not equal the annual amount reported, as per share
amounts are computed independently for each quarter while
the full year is based on the annual weighted average
common and common equivalent shares outstanding.
(2) In the third quarter of fiscal year 1996, the Company
repurchased 509,500 shares of its outstanding common
stock.
(3) Includes asset impairment and store closing costs of
approximately $2,736,000 before taxes or $0.23 per
common share after taxes.
(4) Includes asset impairment charges of approximately
$944,000 before taxes or $0.07 per common share after
taxes.
Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------------------
1996 1995 1994 1993 1992(1)
---- ---- ---- ---- ----
(Dollars in thousands, except per share and per square foot data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net Sales $ 268,002 $ 274,130 $ 256,427 $ 244,743 $ 170,585
Operating Income 3,413(5) 6,494(4) 10,550 13,339 10,319
Net income $ 1,286 $ 3,111 $ 5,600 $ 7,325 $ 5,195
========= ========= ========= ========= =========
Net Income per
common share $ 0.17(5) $ 0.40(4) $ 0.71 $ 0.91 $ 0.70
========= ========= ========= ========= =========
Weighted average
number of common
shares outstanding
(2,3) 7,570,788 7,853,590 7,894,722 8,054,150 7,402,605
========= ========= ========= ========= =========
Balance Sheet Data:
Working capital $ 23,011 $ 21,212 $ 18,749 $ 18,172 $ 17,248
Total assets 125,365 121,459 113,335 105,428 98,791
Long-term bank and
other debt 14,878 7,719 6,387 4,974 11,636
Selected Operating Data:
Comparable store net
sales increase
(decrease) (5.3)% 0.4% (0.04)% 2.7% 7.0%
Number of stores
Beginning of year 432 404 375 352 223
Opened 34 40 35 25 133(1)
Closed 9 12 6 2 4
End of year 457 432 404 375 352
Total square feet
at end of year
(in 000's) 1,664 1,516 1,404 1,239 1,173(1)
Average net sales
per store $ 603 $ 656 $ 658 $ 673 $ 654
Average net sales
per square foot 169 188 194 203 202
========= ========= ========= ========= =========
</TABLE>
(1) On November 3, 1992, the Company acquired Virginia
Specialty Stores, Inc. ("Virginia") for approximately
$17,000,000. The transaction was accounted for as a
purchase. Virginia is included in the consolidated
results from that date forward. This added 107 stores to
the Company's base.
(2) The Company repurchased 509,500 and 300,000 shares of its
outstanding common stock in 1996 and 1994, respectively.
(3) In April 1992, the Company sold 214,005 shares of common
stock in a public offering. In November 1992, the
Company sold 320,000 shares of common stock to help
finance the acquisition of Virginia. In April 1993, the
Company sold 377,000 shares of common stock to partially
fund the acquisition, construction and renovation of its
corporate office and distribution center.
(4) In the fourth quarter of 1995, the Company implemented
the provisions of SFAS 121 and closed 12 stores resulting
in a charge of $2,736,000 before taxes or $0.23 per
common share after taxes.
(5) Includes asset impairment charges of $944,000 before tax
or $0.07 per common share after taxes.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Catherines Stores Corporation:
We have audited the accompanying consolidated balance sheets
of CATHERINES STORES CORPORATION (a Tennessee corporation) and
subsidiaries as of February 1, 1997 and February 3, 1996, and the
related consolidated statements of income, stockholders' equity and
cash flows for each of the three fiscal years ended February 1,
1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Catherines Stores Corporation and
subsidiaries as of February 1, 1997 and February 3, 1996, and the
consolidated results of their operations and their cash flows for
each of the three fiscal years ended February 1, 1997, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 11, 1997.
OTHER CORPORATE OFFICERS
E. Glenn Irelan
Executive Vice President/Stores, Marketing and Real Estate
James A. Spector
Senior Vice President/Human Resources
B. Allen Weinstein
Senior Vice President/Merchandising
Jerry L. Cross
Vice President/Merchandising
Dorothy M. Dawson
Vice President/Treasurer
GiGi L. DeJesus
Vice President/Product Development
Donna B. Giles
Vice President/Stores
Morrison B. Kimball
Vice President/Distribution Center
M. Anthony Mann
Vice President/Management Information Systems
Joan E. Munsee
Vice President/Merchandising
Linda L. Parish
Vice President/Stores
Joanne C. Rovelli
Vice President/Merchandising
William D. Serex
Vice President/Real Estate
David S. Silberman
Vice President/Merchandising
Donna L. Thomas
Vice President/Merchandising
Michael S. Marcus
Controller
Joseph M. Gohn
Assistant Secretary
DIRECTORS
Bernard J. Wein
Chairman of the Board, President and Chief Executive Officer
David C. Forell
Executive Vice President and Chief Financial Officer
Stanley H. Grossman
Executive Vice President and Secretary
James H. Lindy
Principal, Lindy and Associates
Allen B. Morgan, Jr.
Chairman and Chief Executive Officer, Morgan Keegan and Co., Inc.
Wellford L. Sanders, Jr.
Partner - McGuire, Woods, Battle & Boothe LLP, Attorneys at Law
Elliot J. Stone
Management Consultant, Former Chairman of Jordan Marsh Department
Stores
Exhibit 23.1
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference of our reports included (or incorporated
by reference) in this Form 10-K, into the Company's previously
filed registration statements of the Catherines Stores Corporation
1994 Omnibus Incentive Plan on Form S-8 (File No. 33-79598), the
Catherines Stores Corporation 1992 Nonqualified Stock Option Plan
on Form S-8 (File No. 33-48964), the Catherines Stores Corporation
1992 Employee Stock Purchase Plan on Form S-8 (File No. 33-48968)
and the Catherines Stores Corporation 1990 Performance Units Plan
on Form S-8 (File No. 33-47070)
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
April 30, 1997.
Exhibit 23.2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Catherines Stores Corporation:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in
Catherines Stores Corporation's 1996 annual report to shareholders
incorporated by reference in this Form 10-K, and have issued our
report thereon dated March 11, 1997. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole.
The schedules listed in Item 14(a)2 on page 9 are the
responsibility of the Company's management and are presented for
the purpose of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements
and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 11, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000875194
<NAME> CATHERINES STORES CORPORATION
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> FEB-1-1997 FEB-1-1997
<PERIOD-START> NOV-2-1997 FEB-4-1997
<PERIOD-END> FEB-1-1997 FEB-1-1997
<CASH> 2,992 2,992
<SECURITIES> 0 0
<RECEIVABLES> 3,052 3,052
<ALLOWANCES> 0 0
<INVENTORY> 51,934 51,934
<CURRENT-ASSETS> 62,751 62,751
<PP&E> 60,634 60,634
<DEPRECIATION> (25,120) (25,120)
<TOTAL-ASSETS> 125,365 125,365
<CURRENT-LIABILITIES> 40,541 40,451
<BONDS> 0 0
0 0
0 0
<COMMON> 46,463 46,463
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 125,365 125,365
<SALES> 63,063 268,002
<TOTAL-REVENUES> 63,063 268,002
<CGS> 47,427 188,520
<TOTAL-COSTS> 47,427 188,520
<OTHER-EXPENSES> 19,472 76,069
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 265 1,127
<INCOME-PRETAX> (4,112) 2,286
<INCOME-TAX> (1,732) 1,000
<INCOME-CONTINUING> (2,645) 1,286
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,645) 1,286
<EPS-PRIMARY> (.36) .17
<EPS-DILUTED> (.36) .17
</TABLE>
