The Cato Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 3, 2007
OR
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o |
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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 1-31340
THE CATO CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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56-0484485 |
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(State or other jurisdiction
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(I.R.S. Employer |
of incorporation or organization)
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Identification No.) |
8100 Denmark Road, Charlotte, North Carolina 28273-5975
(Address of principal executive offices)
(Zip Code)
(704) 554-8510
(Registrants 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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or
a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule
12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer o Non-Accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of November 20, 2007, there were 29,475,345 shares of Class A common stock and 1,743,525
shares of Class B common stock outstanding.
THE CATO CORPORATION
FORM 10-Q
Quarter Ended November 3, 2007
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
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Three Months Ended |
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Nine Months Ended |
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November 3, |
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October 28, |
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November 3, |
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October 28, |
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2007 |
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2006 |
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2007 |
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2006 |
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(Unaudited) |
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(Unaudited) |
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(Unaudited) |
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(Unaudited) |
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(Dollars in thousands, except per share data) |
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REVENUES |
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Retail sales |
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$ |
181,870 |
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$ |
187,727 |
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$ |
624,977 |
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$ |
632,101 |
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Other income (principally finance charges, late fees and
layaway charges) |
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2,968 |
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3,155 |
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9,024 |
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9,686 |
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Total revenues |
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184,838 |
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190,882 |
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634,001 |
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641,787 |
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COSTS AND EXPENSES, NET |
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Cost of goods sold |
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126,080 |
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127,229 |
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417,015 |
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413,087 |
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Selling, general and administrative |
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51,303 |
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51,482 |
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154,903 |
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157,831 |
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Depreciation |
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5,684 |
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5,169 |
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16,698 |
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15,561 |
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Interest and other income |
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(2,176 |
) |
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(2,131 |
) |
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(6,385 |
) |
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(5,624 |
) |
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180,891 |
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181,749 |
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582,231 |
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580,855 |
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Income before income taxes |
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3,947 |
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9,133 |
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51,770 |
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60,932 |
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Income tax expense |
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1,011 |
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3,272 |
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17,654 |
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22,179 |
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Net Income |
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$ |
2,936 |
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$ |
5,861 |
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$ |
34,116 |
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$ |
38,753 |
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Basic earnings per share |
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$ |
0.09 |
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$ |
0.19 |
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$ |
1.08 |
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$ |
1.24 |
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Basic weighted average shares |
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31,891,308 |
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31,298,253 |
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31,713,755 |
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31,270,347 |
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Diluted earnings per share |
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$ |
0.09 |
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$ |
0.18 |
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$ |
1.07 |
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$ |
1.22 |
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Diluted weighted average shares |
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31,988,081 |
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31,846,241 |
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32,020,584 |
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31,795,150 |
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Dividends per share |
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$ |
.165 |
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$ |
0.15 |
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$ |
0.48 |
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$ |
0.43 |
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Comprehensive income: |
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Net income |
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$ |
2,936 |
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$ |
5,861 |
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$ |
34,116 |
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$ |
38,753 |
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Unrealized gains on available-for-sale securities, net
of deferred income tax expense |
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215 |
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78 |
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193 |
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112 |
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Net comprehensive income |
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$ |
3,151 |
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$ |
5,939 |
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$ |
34,309 |
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$ |
38,865 |
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See notes to condensed consolidated financial statements.
2
THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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November 3, |
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October 28, |
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February 3, |
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2007 |
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2006 |
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2007 |
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(Unaudited) |
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(Unaudited) |
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(Dollars in thousands) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
20,187 |
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$ |
21,428 |
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$ |
24,833 |
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Short-term investments |
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126,797 |
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86,229 |
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98,709 |
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Accounts receivable, net of allowance for doubtful accounts of $3,194,
$3,585 and $3,554 at November 3, 2007, October 28, 2006 and
February 3, 2007, respectively |
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44,470 |
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45,229 |
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45,958 |
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Merchandise inventories |
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114,066 |
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110,078 |
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115,918 |
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Deferred income taxes |
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7,415 |
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8,462 |
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7,508 |
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Prepaid expenses |
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7,208 |
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2,438 |
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6,587 |
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Total Current Assets |
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320,143 |
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273,864 |
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299,513 |
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Property and equipment net |
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125,377 |
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130,255 |
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128,461 |
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Other assets |
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4,617 |
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11,150 |
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4,348 |
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Total Assets |
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$ |
450,137 |
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$ |
415,269 |
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$ |
432,322 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
88,169 |
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$ |
63,542 |
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$ |
77,046 |
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Accrued expenses |
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34,646 |
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34,334 |
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29,526 |
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Accrued bonus and benefits |
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1,881 |
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11,511 |
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10,756 |
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Accrued income taxes |
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2,259 |
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5,803 |
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5,721 |
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Total Current Liabilities |
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126,955 |
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115,190 |
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123,049 |
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Deferred income taxes |
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8,817 |
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9,261 |
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8,817 |
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Other noncurrent liabilities (primarily deferred rent) |
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23,266 |
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23,187 |
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23,663 |
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Commitments and contingencies: |
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Stockholders Equity: |
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Preferred stock, $100 par value per share, 100,000 shares authorized,
none issued |
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¾ |
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¾ |
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¾ |
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Class A common stock, $.033 par value per share, 50,000,000
shares authorized; issued 36,100,759 shares, 35,922,824 shares
and 35,955,815 shares at November 3, 2007, October 28, 2006 and
February 3, 2007, respectively |
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1,203 |
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1,197 |
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1,199 |
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Convertible Class B common stock, $.033 par value per share,
15,000,000 shares authorized; issued 1,743,525 shares,
690,525 shares and 690,525 shares at November 3, 2007,
October 28, 2006 and February 3, 2007, respectively |
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58 |
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23 |
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23 |
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Additional paid-in capital |
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57,639 |
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41,318 |
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42,475 |
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Retained earnings |
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346,901 |
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319,716 |
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327,684 |
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Accumulated other comprehensive income |
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418 |
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190 |
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225 |
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406,219 |
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362,444 |
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371,606 |
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Less Class A common stock in treasury, at cost
(6,128,015 Class A shares at November 3, 2007, and
5,093,609 Class A shares at October 28, 2006 and
February 3, 2007, respectively) |
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(115,120 |
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(94,813 |
) |
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(94,813 |
) |
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Total Stockholders Equity |
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291,099 |
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267,631 |
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276,793 |
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Total Liabilities and Stockholders Equity |
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$ |
450,137 |
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$ |
415,269 |
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$ |
432,322 |
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See notes to condensed consolidated financial statements.
3
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Nine Months Ended |
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November 3, |
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October 28, |
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2007 |
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2006 |
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(Unaudited) |
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(Unaudited) |
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(Dollars in thousands) |
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OPERATING ACTIVITIES |
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Net income |
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$ |
34,116 |
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$ |
38,753 |
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Adjustments to reconcile net income to net cash provided by
operating activities: |
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Depreciation |
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16,698 |
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|
15,561 |
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Provision for doubtful accounts |
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1,812 |
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|
2,111 |
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Share-based compensation |
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1,282 |
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|
983 |
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Excess tax benefits from share-based compensation |
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(5,460 |
) |
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(312 |
) |
Deferred income taxes |
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¾ |
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|
64 |
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Loss on disposal of property and equipment |
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500 |
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|
1,323 |
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Changes in operating assets and liabilities which provided
(used) cash: |
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Accounts receivable |
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(324 |
) |
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2,304 |
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Merchandise inventories |
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1,852 |
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(6,708 |
) |
Prepaid and other assets |
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(890 |
) |
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(416 |
) |
Accrued income taxes |
|
|
2,360 |
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|
(1,125 |
) |
Accounts payable, accrued expenses and other liabilities |
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5,651 |
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(20,327 |
) |
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Net cash provided by operating activities |
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57,597 |
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|
34,461 |
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INVESTING ACTIVITIES |
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Expenditures for property and equipment |
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(14,288 |
) |
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(23,169 |
) |
Purchases of short-term investments |
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(154,470 |
) |
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|
(114,143 |
) |
Sales of short-term investments |
|
|
126,669 |
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|
114,110 |
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Net cash used in investing activities |
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|
(42,089 |
) |
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|
(23,202 |
) |
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FINANCING ACTIVITIES |
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Change in cash overdrafts included in accounts payable |
|
|
(500 |
) |
|
|
600 |
|
Dividends paid |
|
|
(15,279 |
) |
|
|
(13,508 |
) |
Purchases of treasury stock |
|
|
(18,314 |
) |
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|
¾ |
|
Proceeds from employee stock purchase plan |
|
|
461 |
|
|
|
395 |
|
Excess tax benefits from share-based compensation |
|
|
5,460 |
|
|
|
312 |
|
Proceeds from stock options exercised |
|
|
8,018 |
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|
|
636 |
|
|
|
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Net cash used in financing activities |
|
|
(20,154 |
) |
|
|
(11,565 |
) |
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Net decrease in cash and cash equivalents |
|
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(4,646 |
) |
|
|
(306 |
) |
|
|
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|
|
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Cash and cash equivalents at beginning of period |
|
|
24,833 |
|
|
|
21,734 |
|
|
|
|
|
|
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|
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|
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Cash and cash equivalents at end of period |
|
$ |
20,187 |
|
|
$ |
21,428 |
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
4
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 3, 2007 AND OCTOBER 28, 2006
NOTE 1 GENERAL:
The condensed 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
and for the periods ended November 3, 2007 and October 28, 2006 are unaudited. In the opinion of
management, all adjustments considered necessary for a fair presentation have been included. All
such adjustments are of a normal, recurring nature. The results of the interim period may not be
indicative of the results expected for the entire year.
The interim financial statements should be read in conjunction with the consolidated financial
statements and notes thereto, included in the Companys Annual Report on Form 10-K for the fiscal
year ended February 3, 2007.
The year-end condensed consolidated balance sheet data presented for fiscal year ended February 3,
2007 was derived from audited financial statements, but does not include all disclosures required
by accounting principles generally accepted in the United States of America.
Cash equivalents consist of highly liquid investments with original maturities of three months or
less. Investments with original maturities beyond three months are classified as short-term
investments. The fair values of short-term investments are based on quoted market prices.
Short-term investments are classified as available-for-sale. As they are available for current
operations, they are classified in the Condensed Consolidated Balance Sheets as current assets.
Available-for-sale securities are carried at fair value, with unrealized gains and temporary
losses, net of income taxes, reported as a component of accumulated other comprehensive income.
Other than temporary declines in fair value of investments are recorded as a reduction in the cost
of the investments in the accompanying Condensed Consolidated Balance Sheets and a reduction of
interest and other income in the accompanying Condensed Consolidated Statements of Income and
Comprehensive Income. The cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. The amortization of premiums, accretion of discounts and
realized gains and losses are included in interest and other income.
Merchandise inventories are stated at the lower of cost (first-in, first-out method) or market as
determined by the retail inventory method.
On May 24, 2007, the Board of Directors increased the quarterly dividend by 10% from $.15 per share
to $.165 per share, or an annualized rate of $.66 per share.
NOTE 2 EARNINGS PER SHARE:
FASB No. 128 requires dual presentation of basic EPS and diluted EPS on the face of all income
statements for all entities with complex capital structures. The Company has presented one basic
EPS and one diluted EPS amount for all common shares in the accompanying consolidated statement of
income. While the Companys articles of incorporation provide the right for the
5
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 3, 2007 AND OCTOBER 28, 2006
NOTE 2 EARNINGS PER SHARE (CONTINUED):
Board of Directors to declare dividends on Class A shares without declaration of commensurate
dividends on Class B shares, the Company has historically paid the same dividends to both Class A
and Class B shareholders and the Board of Directors has resolved to continue this practice.
Accordingly, the Companys allocation of income for purposes of EPS computation is the same for
Class A and Class B shares and the EPS amounts reported herein are applicable to both Class A and
Class B shares.
Basic EPS is computed as net income divided by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that could occur from
common shares issuable through stock options and the Employee Stock Purchase Plan and the potential
vestings of restricted stock computed using the treasury stock method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
November 3, |
|
October 28, |
|
November 3, |
|
October 28, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Weighted-average shares outstanding |
|
|
31,891,308 |
|
|
|
31,298,253 |
|
|
|
31,713,755 |
|
|
|
31,270,347 |
|
Dilutive effect of : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
40,486 |
|
|
|
523,476 |
|
|
|
254,722 |
|
|
|
511,307 |
|
Restricted stock |
|
|
55,100 |
|
|
|
24,512 |
|
|
|
50,524 |
|
|
|
13,496 |
|
Employee stock purchase plan |
|
|
1,187 |
|
|
|
¾ |
|
|
|
1,583 |
|
|
|
¾ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares and common
stock equivalents outstanding |
|
|
31,988,081 |
|
|
|
31,846,241 |
|
|
|
32,020,584 |
|
|
|
31,795,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3 SUPPLEMENTAL CASH FLOW INFORMATION:
Income tax payments, net of refunds received, for the nine months ended November 3, 2007 and
October 28, 2006 were $15,216,000 and $21,121,000, respectively. Cash paid for interest for the
nine months ended November 3, 2007 and October 28, 2006 was zero for both periods ended,
respectively.
NOTE 4 FINANCING ARRANGEMENTS:
At November 3, 2007, the Company had an unsecured revolving credit agreement, which provided for
borrowings of up to $35 million. The revolving credit agreement was amended October 29, 2007 and
has been extended from August 2008 to August 2010. The credit agreement contains various financial
covenants and limitations, including the maintenance of specific financial ratios with which the
Company was in compliance as of November 3, 2007. There were no borrowings outstanding under this
credit facility during the first nine months ended November 3, 2007 or October 28, 2006,
respectively, or the fiscal year ended February 3, 2007. Interest on any borrowings is based on
LIBOR, which was 4.68% at November 3, 2007.
6
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 3, 2007 AND OCTOBER 28, 2006
NOTE 4 FINANCING ARRANGEMENTS (CONTINUED):
At November 3, 2007 and October 28, 2006 the Company had approximately $2,544,000 and $2,151,000,
respectively, of outstanding irrevocable letters of credit relating to purchase commitments.
NOTE 5 REPORTABLE SEGMENT INFORMATION:
The Company has two reportable segments: retail and credit. The Company operated its womens
fashion specialty retail stores in 31 states at November 3, 2007, principally in the southeastern
United States. The Company offers its own credit card to its customers and all related credit
authorizations, payment processing, and collection efforts are performed by a separate subsidiary
of the Company.
The following schedule summarizes certain segment information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
November 3, 2007 |
|
Retail |
|
Credit |
|
Total |
|
November 3, 2007 |
|
Retail |
|
Credit |
|
Total |
Revenues |
|
$ |
182,215 |
|
|
$ |
2,623 |
|
|
$ |
184,838 |
|
|
Revenues |
|
$ |
626,220 |
|
|
$ |
7,781 |
|
|
$ |
634,001 |
|
Depreciation |
|
|
5,656 |
|
|
|
28 |
|
|
|
5,684 |
|
|
Depreciation |
|
|
16,620 |
|
|
|
78 |
|
|
|
16,698 |
|
Interest and other
income |
|
|
(2,176 |
) |
|
|
|
|
|
|
(2,176 |
) |
|
Interest and other income |
|
|
(6,385 |
) |
|
|
|
|
|
|
(6,385 |
) |
Income before taxes |
|
|
2,803 |
|
|
|
1,144 |
|
|
|
3,947 |
|
|
Income before taxes |
|
|
48,370 |
|
|
|
3,400 |
|
|
|
51,770 |
|
Total assets |
|
|
380,967 |
|
|
|
69,170 |
|
|
|
450,137 |
|
|
Total assets |
|
|
380,967 |
|
|
|
69,170 |
|
|
|
450,137 |
|
Capital expenditures |
|
|
4,720 |
|
|
|
|
|
|
|
4,720 |
|
|
Capital expenditures |
|
|
14,169 |
|
|
|
119 |
|
|
|
14,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
October 28, 2006 |
|
Retail |
|
Credit |
|
Total |
|
October 28, 2006 |
|
Retail |
|
Credit |
|
Total |
Revenues |
|
$ |
188,171 |
|
|
$ |
2,711 |
|
|
$ |
190,882 |
|
|
Revenues |
|
$ |
633,718 |
|
|
$ |
8,069 |
|
|
$ |
641,787 |
|
Depreciation |
|
|
5,142 |
|
|
|
27 |
|
|
|
5,169 |
|
|
Depreciation |
|
|
15,494 |
|
|
|
67 |
|
|
|
15,561 |
|
Interest and other
income |
|
|
(2,131 |
) |
|
|
|
|
|
|
(2,131 |
) |
|
Interest and other income |
|
|
(5,624 |
) |
|
|
|
|
|
|
(5,624 |
) |
Income before taxes |
|
|
7,948 |
|
|
|
1,185 |
|
|
|
9,133 |
|
|
Income before taxes |
|
|
57,753 |
|
|
|
3,179 |
|
|
|
60,932 |
|
Total assets |
|
|
345,075 |
|
|
|
70,194 |
|
|
|
415,269 |
|
|
Total assets |
|
|
345,075 |
|
|
|
70,194 |
|
|
|
415,269 |
|
Capital expenditures |
|
|
5,797 |
|
|
|
2 |
|
|
|
5,799 |
|
|
Capital expenditures |
|
|
23,146 |
|
|
|
23 |
|
|
|
23,169 |
|
The Company evaluates performance based on income before taxes. The Company does not allocate
certain corporate expenses or income taxes to the credit segment.
The following schedule summarizes the direct expenses of the credit segment which are reflected in
selling, general and administrative expenses (in thousands):
7
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 3, 2007 AND OCTOBER 28, 2006
NOTE
5 REPORTABLE SEGMENT INFORMATION (CONTINUED):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
November 3, |
|
|
October 28, |
|
|
November 3, |
|
|
October 28, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Bad debt expense |
|
$ |
678 |
|
|
$ |
722 |
|
|
$ |
1,812 |
|
|
$ |
2,303 |
|
Payroll |
|
|
251 |
|
|
|
246 |
|
|
|
738 |
|
|
|
760 |
|
Postage |
|
|
235 |
|
|
|
239 |
|
|
|
748 |
|
|
|
780 |
|
Other expenses |
|
|
287 |
|
|
|
292 |
|
|
|
1,005 |
|
|
|
980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
$ |
1,451 |
|
|
$ |
1,499 |
|
|
$ |
4,303 |
|
|
$ |
4,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6 STOCK BASED COMPENSATION:
Effective January 29, 2006, the Company began recording compensation expense associated with stock
options and other forms of equity compensation in accordance with Statement of Financial Accounting
Standards (SFAS) No. 123R, Share-Based Payment, as interpreted by SEC Staff Accounting Bulletin
No. 107. Prior to January 29, 2006, the Company had accounted for stock options according to the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, and therefore no related compensation expense was recorded
for awards granted with no intrinsic value at the date of the grant. The Company adopted the
modified prospective transition method provided under SFAS No. 123R, and, consequently, has not
adjusted results from prior periods to retroactively reflect compensation expense. Under this
transition method, compensation cost associated with stock options recognized in fiscal 2006 and
2007 includes: quarterly amortization related to the remaining unvested portion of all stock
option awards granted prior to January 29, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123 and quarterly amortization related to all
stock option awards granted subsequent to January 29, 2006, based on the grant date fair value
estimated in accordance with the provisions of SFAS No. 123R.
As of November 3, 2007, the Company had three long-term compensation plans pursuant to which
stock-based compensation was outstanding or could be granted. The Companys 1987 Non-Qualified
Stock Option Plan authorized 5,850,000 shares for the granting of options to officers and key
employees. The 1999 Incentive Compensation Plan and 2004 Incentive Compensation Plan authorized
1,000,000 and 1,350,000 shares, respectively, for the granting of various forms of equity-based
awards, including restricted stock and stock options to officers and key employees. The 1999 Plan
has expired as to the ability to grant new awards.
8
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 3, 2007 AND OCTOBER 28, 2006
NOTE 6 STOCK BASED COMPENSATION (CONTINUED):
The following table presents the number of options and shares of restricted stock initially
authorized and available to grant under each of the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1987 |
|
1999 |
|
2004 |
|
|
|
|
Plan |
|
Plan |
|
Plan |
|
Total |
Options and/or restricted stock initially authorized |
|
|
5,850,000 |
|
|
|
1,000,000 |
|
|
|
1,350,000 |
|
|
|
8,200,000 |
|
Options and/or restricted stock available for grant: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007 |
|
|
9,277 |
|
|
|
|
|
|
|
1,091,618 |
|
|
|
1,100,895 |
|
November 3, 2007 |
|
|
9,277 |
|
|
|
|
|
|
|
1,003,909 |
|
|
|
1,013,186 |
|
Stock option awards outstanding under the Companys current plans were granted at exercise prices
which were equal to the market value of the Companys stock on the date of grant, vest over five
years and expire no later than ten years after the grant date.
The following is a summary of the changes in stock options outstanding during the nine months ended
November 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Weighted |
|
Average |
|
|
|
|
|
|
|
|
Average |
|
Remaining |
|
Aggregate |
|
|
|
|
|
|
Exercise |
|
Contractual |
|
Intrinsic |
|
|
Shares |
|
Price |
|
Term |
|
Value (a) |
Options outstanding at February 3, 2007 |
|
|
1,236,675 |
|
|
$ |
8.01 |
|
|
1.86 years |
|
$ |
18,363,084 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
2,400 |
|
|
|
14.86 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
1,083,200 |
|
|
|
7.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at November 3, 2007 |
|
|
151,075 |
|
|
$ |
12.30 |
|
|
4.78 years |
|
$ |
1,218,037 |
|
Vested and exercisable at November 3, 2007 |
|
|
102,025 |
|
|
$ |
11.08 |
|
|
3.85 years |
|
$ |
946,662 |
|
|
|
|
(a) |
|
The intrinsic value of a stock option is the amount by which the market value of the underlying
stock exceeds the exercise price of the option. |
No options were granted in fiscal 2006 or the first nine months of fiscal 2007.
As of November 3, 2007, there was approximately $196,000 of total unrecognized compensation cost
related to nonvested options, which is expected to be recognized over a remaining weighted-average
vesting period of 1.64 years. The total intrinsic value of options exercised during the third
quarter and nine months ended November 3, 2007 was approximately $28,000 and $15,336,000,
respectively.
9
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 3, 2007 AND OCTOBER 28, 2006
NOTE 6 STOCK BASED COMPENSATION (CONTINUED):
Effective with the adoption of SFAS No. 123R, the Company began recognizing share-based
compensation expense ratably over the vesting period, net of estimated forfeitures. The Company
recognized share-based compensation expense of $470,000 and $1,282,000 for the third quarter and
nine month period ended November 3, 2007, respectively, compared to $357,000 and $983,000 for the
third quarter and nine month period ended October 28, 2006, respectively. These expenses are
classified as a component of selling, general and administrative expenses.
Prior to the adoption of SFAS No. 123R, the Company presented all benefits of tax deductions
resulting from the exercise of share-based compensation as operating cash flows in the Statements
of Cash Flows. SFAS No. 123R requires the benefits of tax deductions in excess of the compensation
cost recognized for those options (excess tax benefits) to be classified as financing cash flows.
For the nine months ended November 3, 2007 and October 28, 2006, the Company reported $5,460,000
and $312,000 of excess tax benefits as a financing cash inflow in addition to $8,479,000 and
$1,031,000 in cash proceeds received from the exercise of stock options and Employee Stock Purchase
Plan purchases, respectively.
The Companys Employee Stock Purchase Plan allows eligible full-time employees to purchase a
limited number of shares of the Companys Class A Common Stock during each semi-annual offering
period at a 15% discount through payroll deductions. During the nine months ended
November 3, 2007 and October 28, 2006, the Company sold 25,535 and 21,982 shares to employees at an
average discount of $3.19 and $3.17 per share, respectively, under the Employee Stock Purchase
Plan. The compensation expense recognized for the 15% discount given under the Employee Stock
Purchase Plan was approximately $81,000 and $70,000 for the nine months ended November 3, 2007 and
October 28, 2006, respectively.
In accordance with SFAS No. 123R, the fair value of current restricted stock awards is estimated on
the date of grant based on the market price of the Companys stock and is amortized to compensation
expense on a straight-line basis over the related vesting periods. As of November 3, 2007 and
October 28, 2006, there was $5,330,000 and $4,364,000 of total unrecognized compensation cost
related to nonvested restricted stock awards, which have a remaining weighted-average vesting
period of 3.76 years and 4.5 years, respectively. The total fair value of the shares recognized as
compensation expense during the third quarter and nine months ended November 3, 2007 was $397,000
and $1,095,000 compared to $285,000 and $795,000 for the third quarter and nine months ended
October 28, 2006.
10
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 3, 2007 AND OCTOBER 28, 2006
NOTE
6 STOCK BASED COMPENSATION (CONTINUED):
The following summary shows the changes in the shares of restricted stock outstanding during the
nine months ended November 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Number of |
|
|
Grant Date Fair |
|
|
|
Shares |
|
|
Value Per Share |
|
Restricted stock awards at February 3, 2007 |
|
|
214,882 |
|
|
$ |
22.92 |
|
Granted |
|
|
100,226 |
|
|
|
21.87 |
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
11,017 |
|
|
|
22.67 |
|
|
|
|
|
|
|
|
Restricted stock awards at November 3, 2007 |
|
|
304,091 |
|
|
$ |
22.59 |
|
NOTE
7 INCOME TAXES:
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an Interpretation of FASB Statement No. 109. This Interpretation prescribes the
recognition threshold a tax position is required to meet before being recognized in the financial
statements. The Interpretation also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods and disclosure of uncertain
tax positions. The Interpretation is effective for fiscal years beginning after December 15, 2006.
The Company adopted Financial Standards Accounting Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of FASB Statement No. 109, on February 4, 2007.
As a result of the implementation of FASB Interpretation No. 48, the Company recognized a
transition adjustment increasing beginning retained earnings by $362,000. At February 4, 2007, the
Company had a liability of approximately $6,200,000 for unrecognized tax benefits, approximately
$4,200,000 of which would affect the effective tax rate if recognized. The Company recognizes
interest and penalties related to uncertain tax positions in income tax expense. As of February 4,
2007, the Company had approximately $3,900,000 of accrued interest and penalties related to
uncertain tax positions. The tax years after 2003 remain open to examination by the major taxing
jurisdictions to which the Company is subject.
Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We
believe we have adequately provided for any reasonable foreseeable outcome related to these
matters. However, our future results may include favorable or unfavorable adjustments to our
estimated tax liabilities in the period the assessments are made or resolved or when statutes of
limitation on potential assessments expire. As a result, the Companys effective tax rate may
fluctuate significantly on a quarterly basis.
As of the nine months ending November 3, 2007, there have been no significant changes in
unrecognized tax benefits.
11
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 3, 2007 AND OCTOBER 28, 2006
NOTE
8 RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED):
In September 2006, FASB issued SFAS 157, Fair Value Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosure of fair value measurements.
SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15,
2007. The Company is in the process of evaluating the impact that the adoption of SFAS 157 will
have on its financial statements.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS 159 permits entities to choose to measure many financial instruments
and certain other items at fair value. SFAS 159 applies to all entities that elect the fair value
option. The provisions of SFAS 159 are effective for fiscal years beginning after November 15,
2007. The Company is currently evaluating the impact, if any, that the adoption of SFAS 159 will
have on the Companys financial statements.
In
December 2007, FASB issued SFAS 141 (Revised 2007),
Business Combinations. The objective of SFAS 141 (Revised
2007) is to improve the relevance, representational faithfulness, and comparability of
the information that a reporting entity provides in its financial reports about a business
combination and its effects. SFAS 141 (Revised 2007) requires an acquirer to recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date. SFAS 141 (Revised 2007) also
requires the acquirer to recognize and measure the goodwill acquired in a business combination or a
gain from a bargain purchase and how to evaluate the nature and financial effects of the business
combination. SFAS 141 (Revised 2007) is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The Company is in the process of evaluating the impact, if any,
that the adoption of SFAS 141 (Revised 2007) will have on its financial statements.
In December 2007, FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51. The objective of SFAS 160 is to improve the relevance,
comparability, and transparency of the financial information that a reporting entity provides in
its consolidated financial statements. SFAS 160 amends ARB No. 51 to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of
a subsidiary. SFAS 160 also changes the way the consolidated income statement is presented,
establishes a single method of accounting for changes in a parents ownership interest in a
subsidiary that do not result in deconsolidation, requires that a parent recognize a gain or loss
in net income when a subsidiary is deconsolidated and expanded disclosures in the consolidated
financial statements that clearly identify and distinguish between the interests of the parents
owners and the interest of the noncontrolling owners of a subsidiary. SFAS 160 is effective for
financial statements issued for the fiscal years beginning on or after December 15, 2008. The
Company is in the process of evaluating the impact, if any, that the adoption of SFAS 160 will have
on its financial statements.
12
THE CATO CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING INFORMATION:
The following information should be read along with the Unaudited Condensed Consolidated Financial
Statements, including the accompanying Notes appearing in this report. Any of the following are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended:
(1) statements in this Form 10-Q that reflect projections or expectations of our future financial
or economic performance; (2) statements that are not historical information; (3) statements of our
beliefs, intentions, plans and objectives for future operations, including those contained in
Managements Discussion and Analysis of Financial Condition and Results of Operations;
(4) statements relating to our operations or activities for fiscal 2007 and beyond, including, but
not limited to, statements regarding expected amounts of capital expenditures and store openings,
relocations, remodelings and closures; and (5) statements relating to our future contingencies.
When possible, we have attempted to identify forward-looking statements by using words such as
expects, anticipates, approximates, believes, estimates, hopes, intends, may,
plans, should and variations of such words and similar expressions. We can give no assurance
that actual results or events will not differ materially from those expressed or implied in any
such forward-looking statements. Forward-looking statements included in this report are based on
information available to us as of the filing date of this report, but subject to known and unknown
risks, uncertainties and other factors that could cause actual results to differ materially from
those contemplated by the forward-looking statements. Such factors include, but are not limited to,
the following: general economic conditions; competitive factors and pricing pressures; our ability
to predict fashion trends; consumer apparel buying patterns; adverse weather conditions; inventory
risks due to shifts in market demand; and other factors discussed under Risk Factors in Part I,
Item 1A of our annual report on Form 10-K for the fiscal year ended February 3, 2007 (fiscal 2006),
as amended or supplemented, and in other reports we file with or furnish to the SEC from time to
time. We do not undertake, and expressly decline, any obligation to update any such forward-looking
information contained in this report, whether as a result of new information, future events, or
otherwise.
As used herein, the terms we, our, us (or similar terms), the Company or Cato include
The Cato Corporation and its subsidiaries, except that when used with reference to common stock
or other securities described herein and in describing the positions held by management of the
Company, such terms include only The Cato Corporation.
13
THE CATO CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CRITICAL ACCOUNTING POLICIES:
The Companys accounting policies are more fully described in Note 1 to the Consolidated Financial
Statements in the Companys Annual Report on Form 10-K for the Fiscal Year Ended February 3, 2007.
As disclosed in Note 1, the preparation of the Companys financial statements in conformity with
generally accepted accounting principles requires management to make estimates and assumptions
about future events that affect the amounts reported in the financial statements and accompanying
notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment. Actual results inevitably will differ
from those estimates, and such differences may be material to the financial statements. The most
significant accounting estimates inherent in the preparation of the Companys financial statements
include the allowance for doubtful accounts receivable, reserves relating to workers compensation,
general and auto insurance liabilities, reserves for inventory markdowns, shrinkage accrual,
calculation of asset impairment and reserves for uncertain tax positions.
The Companys critical accounting policies and estimates are discussed with the Audit Committee.
14
THE CATO CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS:
The following table sets forth, for the periods indicated, certain items in the Companys unaudited
Condensed Consolidated Statements of Income and Comprehensive Income as a percentage of total
retail sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
November 3, |
|
October 28, |
|
November 3, |
|
October 28, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Total retail sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Total revenues |
|
|
101.6 |
|
|
|
101.7 |
|
|
|
101.4 |
|
|
|
101.5 |
|
Cost of goods sold |
|
|
69.3 |
|
|
|
67.8 |
|
|
|
66.7 |
|
|
|
65.3 |
|
Selling, general and administrative |
|
|
28.2 |
|
|
|
27.4 |
|
|
|
24.8 |
|
|
|
25.0 |
|
Depreciation |
|
|
3.1 |
|
|
|
2.7 |
|
|
|
2.6 |
|
|
|
2.5 |
|
Interest and other income |
|
|
(1.2 |
) |
|
|
(1.1 |
) |
|
|
(1.0 |
) |
|
|
(0.9 |
) |
Income before income taxes |
|
|
2.2 |
|
|
|
4.9 |
|
|
|
8.3 |
|
|
|
9.6 |
|
Net income |
|
|
1.6 |
|
|
|
3.1 |
|
|
|
5.5 |
|
|
|
6.1 |
|
Comparison of Third Quarter and First Nine Months of 2007 with 2006.
Total retail sales for the third quarter were $181.9 million compared to last years third quarter
sales of $187.7 million, a 3.1% decrease. Same-store sales decreased 4.6% in the third quarter of
fiscal 2007. For the nine months ended November 3, 2007, total retail sales were $625.0 million
compared to last years first nine months sales of $632.1 million, a 1% decrease, and same-store
sales decreased 3.3% for the comparable nine month period. The third quarter and nine months sales
results reflect the difficult retail environment that the Company has faced and expects to face
through the fourth quarter.
Total revenues, comprised of retail sales and other income (principally, finance charges and late
fees on customer accounts receivable and layaway fees), were $184.8 million and $634.0 million for
the third quarter and nine months ended November 3, 2007, respectively, compared to $190.9 million
and $641.8 million for the third quarter and nine months ended October 28, 2006, respectively. The
Company operated 1,321 stores at November 3, 2007 compared to 1,270 stores at the end of last
years third quarter. For the first nine months of 2007 the Company opened 49 stores, relocated 16
stores and closed 4 stores. The Company expects to open approximately 60 to 65 stores and close
approximately 15 stores during its full fiscal 2007 year.
Credit revenue of $2.6 million represented 1.4% of total revenues in the third quarter of 2007,
compared to 2006 credit revenue of $2.7 million or 1.4% of total revenues. The slight reduction in
credit revenue was due to lower finance charge and late fee income from lower sales under the
Companys proprietary credit card compared to the prior year. Credit revenue is comprised of
interest earned on the Companys private label credit card portfolio and related fee income.
Related expenses include principally bad debt expense, payroll, postage and other administrative
expenses and totaled
15
THE CATO CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS
OF OPERATIONS (CONTINUED):
$1.5 million in the third quarter of 2007, flat to last years third quarter expenses of $1.5
million. Bad debt expense and administrative expenses were lower compared to the third quarter of 2006,
partially offset by higher payroll expense.
Other income in total, as included in total revenues, was $3.0 million and $9.0 million for the
third quarter and first nine months of fiscal 2007, compared to $3.2 million and $9.7 million for
the prior years comparable three and nine months periods, respectively. The overall decrease
resulted primarily from lower finance and layaway charges.
Cost of goods sold was $126.1 million, or 69.3% of retail sales and $417.0 million or 66.7% of
retail sales for the third quarter and first nine months of fiscal 2007, compared to $127.2
million, or 67.8% of retail sales and $413.1 million, or 65.3% of retail sales for the prior years
comparable three and nine month periods, respectively. The overall increase in cost of goods sold
as a percent of retail sales for the third quarter of fiscal 2007 resulted primarily from higher
markdowns and occupancy costs, partially offset by lower freight cost. The overall increase in
cost of goods sold as a percent of retail sales for the first nine months of fiscal 2007 resulted
primarily from higher occupancy cost and higher markdowns. The increase in markdowns was primarily
due to lower sell-throughs of regular priced merchandise. Cost of goods sold includes merchandise
costs, net of discounts and allowances, buying costs, distribution costs, occupancy costs, freight
and inventory shrinkage. Net merchandise costs and in-bound freight are capitalized as inventory
costs. Buying and distribution costs include payroll, payroll-related costs and operating expenses
for the buying departments and distribution center. Occupancy expenses include rent, real estate
taxes, insurance, common area maintenance, utilities and maintenance for stores and distribution
facilities. Total gross margin dollars (retail sales less cost of goods sold) decreased by 7.8% to
$55.8 million and by 5.0% to $208.0 million for the third quarter and first nine months of fiscal
2007 compared to $60.5 million and $219.0 million for the prior years comparable three and nine
month periods, respectively. Gross margin as presented may not be comparable to those of other
entities.
Selling, general and administrative expenses (SG&A) primarily include corporate and store
payroll, related payroll taxes and benefits, insurance, supplies, advertising, bank and credit card
processing fees and bad debts. SG&A expenses were $51.3 million, or 28.2% of retail sales and
$154.9 million, or 24.8% of retail sales for the third quarter and first nine months of fiscal
2007, compared to $51.5 million, or 27.4% of retail sales and $157.8 million, or 25.0% of retail
sales for prior years comparable three and nine months periods, respectively. SG&A expenses as a
percentage of retail sales increased 80 basis points for the third quarter of fiscal 2007 as
compared to the prior year and decreased 20 basis points for the first nine months of fiscal 2007,
as compared to the prior year. The increase in SG&A expenses as a percentage of retail sales for
the third quarter of fiscal 2007 was primarily attributable to an increase in store salary expense,
partially offset by a decrease in incentive-based compensation expenses. The overall dollar
decrease in SG&A expenses for the third quarter of fiscal 2007 resulted primarily from decreased
incentive-based compensation and timing of
16
THE CATO CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS
OF OPERATIONS (CONTINUED):
advertising expenses. For the first nine months of fiscal 2007, the decrease in SG&A expenses as a
percentage of retail sales and the overall dollar decrease in SG&A expense resulted primarily from
decreased incentive-based compensation expenses, partially offset by increased payroll, workers
compensation and group health insurance expenses.
Depreciation expense was $5.7 million, or 3.1% of retail sales and $16.7 million or 2.6% of retail
sales, for the third quarter and first nine months of fiscal 2007, compared to $5.2 million, or
2.7% of retail sales and $15.6 million, or 2.5% of retail sales, for prior years comparable three
and nine month periods, respectively.
Interest and other income was $2.2 million, or 1.2% of retail sales and $6.4 million, or 1.0% of
retail sales for the third quarter and first nine months of fiscal 2007, compared to $2.1 million,
or 1.1% of retail sales and $5.6 million, or 0.9% of retail sales, for the prior years comparable
three and nine month periods, respectively. The increase in the third quarter and first nine months
of fiscal 2007 resulted primarily from higher interest rates and higher investment balances.
Income tax expense was $1.0 million, or 0.6% of retail sales and $17.7 million, or 2.8% of retail
sales, for the third quarter and first nine months of fiscal 2007, compared to $3.3 million, or
1.8% of retail sales and $22.2 million, or 3.5% of retail sales, for the prior years comparable
three and nine month periods. The decrease for the third quarter and nine month period resulted
from lower pre-tax income and a lower effective tax rate primarily due to higher tax credits as a
percentage of pre-tax income. The effective income tax rate for the third quarter and first nine
months of fiscal 2007 was 25.6% and 34.1% respectively, compared to 35.8% and 36.4% for the prior
years comparable three and nine month periods, respectively.
LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK:
The Company has consistently maintained a strong liquidity position. Cash provided by operating
activities during the first nine months of fiscal 2007 was $57.6 million as compared to $34.5
million in the first nine months of fiscal 2006. These amounts enable the Company to fund its
regular operating needs, capital expenditure program, cash dividend payments and purchase of treasury
stock. In addition, the Company maintains a $35 million unsecured revolving credit facility for short-term
financing of seasonal cash needs. There were no outstanding borrowings on this facility at
November 3, 2007.
17
THE CATO CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK (CONTINUED):
Cash provided by operating activities for the first nine months of fiscal 2007 was primarily
generated by earnings adjusted for depreciation and changes in working capital. The increase of
$23.1 million for the first nine months of fiscal 2007 as compared to the first nine months of
fiscal 2006 was primarily due to a decrease in inventories and an increase in accounts payable and
other liabilities in fiscal 2007, partially offset by lower net income in fiscal 2007.
The Company believes that its cash, cash equivalents and short-term investments, together with cash
flows from operations and borrowings available under its revolving credit agreement, will be
adequate to fund the Companys planned capital expenditures, dividends, purchase of treasury stock
and other operating requirements for fiscal 2007 and for the foreseeable future.
At November 3, 2007, the Company had working capital of $193.2 million compared to $158.7 million
at October 28, 2006. Additionally, the Company had $1.9 million invested in privately managed
investment funds at November 3, 2007 and October 28, 2006, which are included in other assets on
the Condensed Consolidated Balance Sheets.
At November 3, 2007, the Company had an unsecured revolving credit agreement, which provided for
borrowings of up to $35 million. The revolving credit agreement is committed until August 2010.
The credit agreement contains various financial covenants and limitations, including the
maintenance of specific financial ratios with which the Company was in compliance as of November 3,
2007. There were no borrowings outstanding under these credit facilities during the first nine
months ended November 3, 2007 or the fiscal year ended February 3, 2007.
At November 3, 2007 and October 28, 2006, the Company had approximately $2.5 million and $2.2
million, respectively, of outstanding irrevocable letters of credit relating to purchase
commitments.
Expenditures for property and equipment totaled $14.3 million in the first nine months of fiscal
2007, compared to $23.2 million in last years first nine months. The expenditures for the first nine
months of 2007 were primarily for store development and investments in new technology. For the
full fiscal 2007 year, the Company expects to invest approximately $19.2 million for capital
expenditures. This includes expenditures to open 60 to 65 new stores, relocate 18 stores and
remodel 15 stores.
Net cash used in investing activities totaled $42.1 million in the first nine months of fiscal 2007
compared to $23.2 million provided for the comparable period of 2006. The increase was due
primarily to the net increase in purchases over sales of short-term investments.
On May 24, 2007, the Board of Directors increased the quarterly dividend by 10% from $.15 per share
to $.165 per share, or an annualized rate of $.66 per share.
18
THE CATO CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK (CONTINUED):
On August 31, 2007, the Board authorized an increase in the Companys share repurchase program of
two million shares. There is no specified expiration on any shares authorized in the program. For
the nine months ended November 3, 2007, the Company has repurchased or accepted 1,034,406 shares at
a cost of $20,309,042.
The Company does not use derivative financial instruments. At November 3, 2007, the Companys
investment portfolio was primarily invested in governmental and other debt securities with
maturities less than 36 months. These securities are classified as available-for-sale and are
recorded on the balance sheet at fair value, with unrealized gains and temporary losses reported
net of taxes as accumulated other comprehensive income. Other than temporary declines in fair value
of investments are recorded as a reduction in the cost of investments in the accompanying Condensed
Consolidated Balance Sheets.
19
THE CATO CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The Company is subject to market rate risk from exposure to changes in interest rates based on its
financing, investing and cash management activities, but the Company does not believe such exposure
is material.
ITEM 4. CONTROLS AND PROCEDURES:
We carried out an evaluation, with the participation of our principal executive officer and
principal financial officer, of the effectiveness of our disclosure controls and procedures as of
November 3, 2007. Based on this evaluation, our principal executive officer and principal
financial officer concluded that, as of November 3, 2007, our disclosure controls and procedures,
as defined in Rule 13a-15(e), under the Securities Exchange Act of 1934 (the Exchange Act), were
effective to ensure that information we are required to disclose in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms and that such
information is accumulated and communicated to our management, including our principal executive
officer and principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:
No change in the Companys internal control over financial reporting (as defined in Exchange Act
Rule 13a-15(f)) has occurred during the Companys fiscal quarter ended November 3, 2007 that has
materially affected, or is reasonably likely to materially affect, the Companys internal control
over financial reporting.
20
PART II OTHER INFORMATION
THE CATO CORPORATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM
1A. RISK FACTORS
In addition to the other information in this report, you should carefully consider the factors
discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for our fiscal year
ended February 3, 2007. These risks could materially affect our business, financial condition or
future results; however, they are not the only risks we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial may also materially adversely
affect our business, financial condition or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table summarizes the Companys purchases of its common stock for the three
months ended November 3, 2007:
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
(or Approximate Dollar |
|
|
|
Total Number |
|
|
|
|
|
|
Part of Publicly |
|
|
Value) of Shares that may |
|
|
|
Of Shares |
|
|
Average Price |
|
|
Announced Plans or |
|
|
Yet be Purchased Under |
|
Period |
|
Purchased |
|
|
Paid per Share (2) |
|
|
Programs (1) |
|
|
The Plans or Programs (1) |
|
August 2007 |
|
|
306,500 |
|
|
$ |
19.39 |
|
|
|
306,500 |
|
|
|
|
|
September 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2007 |
|
|
522,015 |
|
|
|
18.96 |
|
|
|
522,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
828,515 |
|
|
$ |
19.12 |
|
|
|
828,515 |
|
|
2.728 million shares |
|
|
|
|
|
|
(1) |
|
On August 30, 2007, the Companys board of directors authorized an increase in the
share repurchase program of two million shares. At the third quarter ending November 3,
2007, the Company had 2.728 million shares remaining in open authorizations. There is no
specified expiration date for the Companys repurchase program. During the month of November 2007,
the Company repurchased 761,900 additional shares at a cost of $14,120,000. |
|
(2) |
|
Prices include trading costs. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
21
ITEM 6. EXHIBITS
|
|
|
Exhibit No. |
|
Item |
|
3.1
|
|
Registrants Restated Certificate of Incorporation of the
Registrant dated March 6, 1987, incorporated by reference to
Exhibit 4.1 to Form S-8 of the Registrant filed February 7, 2000
(SEC File No. 333-96283). |
|
|
|
3.2
|
|
Registrants By Laws as amended and restated, incorporated by
reference to Exhibit 99.2 to Form 8-K of the Registrant Filed
December 10, 2007. |
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
|
|
|
32.1
|
|
Section 1350 Certification of Chief Executive Officer. |
|
|
|
32.2
|
|
Section 1350 Certification of Chief Financial Officer. |
22
PART II OTHER INFORMATION
THE CATO CORPORATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
THE CATO CORPORATION |
|
|
|
|
|
|
|
December 12, 2007
|
|
/s/ John P. D. Cato |
|
|
|
|
John P. D. Cato
|
|
|
|
|
Chairman, President and |
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
December 12, 2007
|
|
/s/ Thomas W. Stoltz |
|
|
|
|
Thomas W. Stoltz
|
|
|
|
|
Executive Vice President |
|
|
|
|
Chief Financial Officer |
|
|
|
|
|
|
|
December 12, 2007
|
|
/s/ John R. Howe |
|
|
|
|
John R. Howe
|
|
|
|
|
Senior Vice President |
|
|
|
|
Controller |
|
|
23