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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

     
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
For the quarterly period ended   August 3, 2002
   

OR

     
[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________to__________________

     
Commission file number   0-3747
   

THE CATO CORPORATION AND SUBSIDIARIES

(Exact name of registrant as specified in its charter)
     
Delaware   56-0484485
(State or other jurisdiction   (I.R.S. Employer
of incorporation)   Identification No.)

8100 Denmark Road, Charlotte, North Carolina 28273-5975

(Address of principal executive offices)
(Zip Code)

(704) 554-8510

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   X            No      

As of August 20, 2002, there were 19,419,703 shares of Class A Common Stock and 6,085,149 shares of Class B Common Stock outstanding.

 

 

THE CATO CORPORATION

FORM 10-Q

August 3, 2002

Table of Contents

             
        Page
        No.
       
PART I — FINANCIAL INFORMATION (UNAUDITED)
        
 
        
 
Condensed Consolidated Statements of Income
     2  
   
For the Three Months and Six Months Ended August 3, 2002 and August 4, 2001
        
 
        
 
Condensed Consolidated Balance Sheets
     3  
   
At August 3, 2002, August 4, 2001 and February 2, 2002
        
 
        
 
Condensed Consolidated Statements of Cash Flows
     4  
   
For the Six Months Ended August 3, 2002 and August 4, 2001
        
 
        
 
Notes to Condensed Consolidated Financial Statements
     5–8  
   
For the Three Months and Six Months Ended August 3, 2002 and August 4, 2001
        
 
        
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     9-12  
 
        
PART II — OTHER INFORMATION
     13-16  

 

 

Page 2

PART I FINANCIAL INFORMATION

THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

                                     
        Three Months Ended   Six Months Ended
       
 
        August 3,   August 4,   August 3,   August 4,
        2002   2001   2002   2001
       
 
 
 
        (Dollars in thousands, except per share data)
REVENUES
                                
 
Retail sales
   $ 186,900     $ 172,444     $ 383,517     $ 352,792  
 
Other income (principally finance, late, and layaway charges)
     5,488       4,957       10,512       10,340  
 
    
     
     
     
 
   
Total revenues
     192,388       177,401       394,029       363,132  
 
    
     
     
     
 
 
                                
COSTS AND EXPENSES
                                
 
Cost of goods sold
     124,838       118,093       249,298       234,484  
 
Selling, general and administrative
     45,077       39,898       90,460       82,126  
 
Depreciation
     3,254       2,534       6,362       5,150  
 
Interest
     6       10       13       21  
 
    
     
     
     
 
   
Total expenses
     173,175       160,535       346,133       321,781  
 
    
     
     
     
 
 
                                
INCOME BEFORE INCOME TAXES
     19,213       16,866       47,896       41,351  
 
                                
Income tax expense
     6,955       5,903       17,338       14,473  
 
    
     
     
     
 
 
                                
NET INCOME
   $ 12,258     $ 10,963     $ 30,558     $ 26,878  
 
    
     
     
     
 
 
                                
BASIC EARNINGS PER SHARE
   $ .48     $ .43     $ 1.20     $ 1.06  
 
    
     
     
     
 
 
                                
DILUTED EARNINGS PER SHARE
   $ .47     $ .42     $ 1.18     $ 1.03  
 
    
     
     
     
 
 
                                
DIVIDENDS PER SHARE
   $ .15     $ .135     $ .285     $ .26  
 
    
     
     
     
 

See accompanying notes to condensed consolidated financial statements.

 

 

Page 3

THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

                                 
            August 3,   August 4,   February 2,
            2002   2001   2002
            (Unaudited)   (Unaudited)    
           
 
 
            (Dollars in thousands)
ASSETS
                        
Current Assets
                        
 
Cash and cash equivalents
   $ 73,517     $ 21,990     $ 41,772  
 
Short-term investments
     37,474       66,553       42,923  
 
Accounts receivable — net
     51,973       46,489       52,293  
 
Merchandise inventories
     86,372       77,496       80,407  
 
Deferred income taxes
     983       1,554       777  
 
Prepaid expenses
     4,875       4,633       5,036  
 
    
     
     
 
   
Total Current Assets
     255,194       218,715       223,208  
Property and equipment — net
     107,666       92,436       100,137  
Other assets
     9,128       9,084       8,696  
 
    
     
     
 
       
Total
   $ 371,988     $ 320,235     $ 332,041  
 
    
     
     
 
 
                        
LIABILITIES AND SHAREHOLDERS’ EQUITY
                        
Current Liabilities
                        
 
Accounts payable
   $ 62,660     $ 53,121     $ 57,495  
 
Accrued expenses
     29,505       23,005       25,260  
 
Income taxes payable
     7,921       6,530       820  
 
    
     
     
 
   
Total Current Liabilities
     100,086       82,656       83,575  
Deferred income taxes
     5,177       5,386       5,177  
Other noncurrent liabilities
     8,343       7,447       8,591  
Shareholders’ Equity
                        
 
Preferred stock, $100 par value per share, 100,000 shares authorized, none issued
     —       —       —  
 
Class A common stock, $.033 par value per share, 50,000,000 shares authorized; issued 25,156,782 shares, 24,880,750 shares and 25,011,732 shares at August 3, 2002, August 4, 2001, and February 2, 2002, respectively
     839       830       833  
 
Convertible Class B common stock, $.033 par value per share, 15,000,000 shares authorized; issued and outstanding 6,085,149 shares, 5,563,483 shares and 5,812,649 shares at August 3, 2002, August 4, 2001 and February 2, 2002, respectively
     202       186       194  
Additional paid-in capital
     92,355       80,392       86,948  
Retained earnings
     228,288       195,550       204,961  
Accumulated other comprehensive losses
     (901 )     (837 )     (567 )
Unearned compensation – restricted stock awards
     (2,863 )     (541 )     (394 )
 
    
     
     
 
 
     317,920       275,580       291,975  
Less Class A common stock in treasury, at cost (5,737,079 shares at August 3, 2002, 5,220,719 shares at August 4, 2001, and 5,626,498 shares at February 2, 2002)
     (59,538 )     (50,834 )     (57,277 )
 
    
     
     
 
   
Total Shareholders’ Equity
     258,382       224,746       234,698  
 
    
     
     
 
     
Total
   $ 371,988     $ 320,235     $ 332,041  
 
    
     
     
 

See accompanying notes to condensed consolidated financial statements.

 

 

Page 4

THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                       
          Six Months Ended
         
          August 3,   August 4,
          2002   2001
         
 
          (Dollars in thousands)
OPERATING ACTIVITIES
                
 
Net income
   $ 30,558     $ 26,878  
 
Adjustments to reconcile net income to net cash provided by operating activities:
                
   
Depreciation
     6,362       5,150  
   
Amortization of investment premiums
     48       84  
   
Compensation expense related to restricted stock awards
     261       148  
   
Loss on disposal of property and equipment
     283       152  
   
Changes in operating assets and liabilities which provided (used) cash:
                
     
Accounts receivable
     320       483  
     
Merchandise inventories
     (5,965 )     1,665  
     
Other assets
     (271 )     382  
     
Accrued income taxes
     7,101       824  
     
Accounts payable and other liabilities
     8,956       (8,295 )
 
    
     
 
 
                
 
Net cash provided by operating activities
     47,653       27,471  
 
    
     
 
INVESTING ACTIVITIES
                
 
Expenditures for property and equipment
     (14,174 )     (11,919 )
 
Purchases of short-term investments
     (234 )     (25,163 )
 
Sales of short-term investments
     5,300       16,484  
 
    
     
 
 
Net cash used in investing activities
     (9,108 )     (20,598 )
 
    
     
 
FINANCING ACTIVITIES
                
 
Dividends paid
     (7,230 )     (6,603 )
 
Purchases of treasury stock
     (1,116 )     (7,111 )
 
Proceeds from employee stock purchase plan
     263       211  
 
Proceeds from stock options exercised
     1,283       3,419  
 
    
     
 
 
                
 
Net cash used in financing activities
     (6,800 )     (10,084 )
 
    
     
 
 
                
 
Net increase (decrease) in cash and cash equivalents
     31,745       (3,211 )
 
                
 
Cash and cash equivalents at beginning of period
     41,772       25,201  
 
    
     
 
 
                
 
Cash and cash equivalents at end of period
   $ 73,517     $ 21,990  
 
    
     
 

See accompanying notes to condensed consolidated financial statements.

 

 

Page 5

THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 3, 2002
AND AUGUST 4, 2001

NOTE 1 — GENERAL:

The consolidated financial statements have been prepared from the accounting records of The Cato Corporation and its wholly-owned subsidiaries (the Company), and all amounts shown as of August 3, 2002 and August 4, 2001 are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of the interim period may not be indicative of the entire year.

The interim financial statements should be read in conjunction with the financial statements and notes thereto, included in the Company’s Annual Report in Form 10-K for the fiscal year ended February 2, 2002.

The Company’s short-term investments are classified as available-for-sale securities, and therefore, are carried at fair value, with unrealized gains and losses, net of income taxes, reported as a component of other comprehensive income.

Total comprehensive income for the second quarter and six months ended August 3, 2002 was $12,234,000 and $30,224,000, respectively. Total comprehensive income for the second quarter and six months ended August 4, 2001 was $11,319,000 and $26,925,000, respectively. Total comprehensive income is composed of net income and net unrealized gains and losses on available-for-sale securities.

Merchandise inventories are stated at the lower of cost (first-in, first-out method) or market as determined by the retail inventory method.

In the second quarter of fiscal 2002, the Company repurchased 61,900 shares of Class A common stock for a total of $1,115,764, or an average price of $18.03 per share. Additionally, in the first quarter of 2002, the Company accepted 48,681 mature shares of Class A common stock from an officer in an option transaction for $1,144,500, or an average price of $23.51 per share. For the six months ended August 3, 2002, the Company repurchased and accepted a combined total of 110,581 shares of Class A common stock for $2,260,264, or an average price of $20.44 per share. For the six months ended August 4, 2001, the Company repurchased 452,500 shares of Class A common stock for a total of $6,938,925, or an average price of $15.33 per share and accepted 9,071 mature shares of Class A common stock from an officer in an option transaction for $171,669, or an average price of $18.93 per share, for a combined total of 461,571 shares of Class A common stock for $7,110,594, or an average price of $15.41 per share.

In May 2002, the Board of Directors increased the quarterly dividend by 11% from $.135 per share to $.15 per share.

The provisions for income taxes are based on the Company’s estimated annual effective tax rate. As allowed by SFAS No. 109, “Accounting for Income Taxes”, deferred income taxes are calculated annually.

 

 

Page 6

THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 3, 2002
AND AUGUST 4, 2001

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS:

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”. SFAS 142 includes requirements to test goodwill and indefinite lived intangible assets for impairment rather than amortize them. The Company adopted SFAS No. 142 on February 3, 2002, and the adoption of this statement had no impact on the Company’s consolidated results of operations and financial position, as the Company had no indefinite lived intangible assets.

In August 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment of Disposal of Long-Lived Assets”. SFAS No. 144 supercedes SFAS No. 121, “Accounting for Impairment of Long-Lived Assets to be Disposed Of” and Accounting Principles Board Opinion (APB) No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”. Along with establishing a single accounting model, based on the framework established in SFAS No. 121 for impairment of long-lived assets, this standard retains the basic provisions of APB No. 30 for the presentation of discontinued operations in the income statement, but broadens that presentation to include a component of the entity. The Company adopted SFAS No. 144 on February 3, 2002, and the adoption of this statement had no material impact on the Company’s consolidated results of operations and financial position.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This statement is effective for exit or disposal activities initiated after December 31, 2002. Liabilities for costs associated with an exit activity should be initially measured at fair value, when incurred. This statement applies to costs associated with an exit activity that does not involve an entity newly acquired in a business combination, or a disposal activity covered by SFAS No. 144. The Company does not believe that this statement will have a material impact on its financial position or its results of operations.

 

 

Page 7

THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 3, 2002
AND AUGUST 4, 2001

NOTE 3 — EARNINGS PER SHARE:

Earnings per share is calculated by dividing net income by the weighted-average number of Class A and Class B common shares outstanding during the respective periods. The weighted-average shares outstanding is used in the basic earnings per share calculation, while the weighted-average shares and common stock equivalents outstanding is used in the diluted earnings per share calculation.

                                 
    Three Months Ended   Six Months Ended
   
 
    August 3,   August 4,   August 3,   August 4,
    2002   2001   2002   2001
   
 
 
 
Weighted-average shares outstanding
     25,516,138       25,338,372       25,397,580       25,312,414  
Dilutive effect of stock options
     503,984       669,707       550,970       674,021  
 
    
     
     
     
 
Weighted-average shares and common stock equivalents outstanding
     26,020,122       26,008,079