cato10q3qtr2015.htm - Generated by SEC Publisher for SEC Filing

 

Table of Contents

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 October 31, 2015

 

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                1-31340               

 

THE CATO CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

56-0484485

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer 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

 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes

X

No

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer  þ    Accelerated filer  ¨     Non-accelerated filer  ¨     Smaller reporting company ¨

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

 

No

X

 

As of October 31, 2015, there were 26,155,617 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 October 31, 2015

Table of Contents

 

Page No.

 

PART I – FINANCIAL INFORMATION (UNAUDITED)

 

 

 

 

 

Item 1.

Financial Statements (Unaudited):

 

 

 

 

Condensed Consolidated Statements of Income and Comprehensive Income

3

 

 

For the Three Months and Nine Months Ended October 31, 2015 and November 1, 2014

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

4

 

 

At October 31, 2015, January 31, 2015 and November 1, 2014

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

5

 

 

For the Nine Months Ended October 31, 2015 and November 1, 2014

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6 – 18

 

 

For the Three Months and Nine Months Ended October 31, 2015 and November 1, 2014

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19 – 25

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

 

 

 

 

Item 4.

Controls and Procedures

26

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

27

 

 

 

 

 

Item 1A.

Risk Factors

27

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

27

 

 

 

 

 

Item 4.

Mine Safety Disclosures

28

 

 

 

 

 

Item 5.

Other Information

28

 

 

 

 

 

Item 6.

Exhibits

28

 

 

 

 

 

Signatures

29

 

 

 

 

 

 

           

 

 

2


 

Table of Contents

 

PART I FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND

COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

October 31, 2015

 

November 1, 2014

 

October 31, 2015

 

November 1, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

REVENUES

 

 

 

 

 

 

 

 

 

 

 

  Retail sales

$

223,311

 

$

213,785

 

$

754,101

 

$

740,023

  Other revenue (principally finance charges, late fees and

 

 

 

 

 

 

 

 

 

 

 

    layaway charges)

 

2,156

 

 

2,225

 

 

6,534

 

 

6,778

    Total revenues

 

225,467

 

 

216,010

 

 

760,635

 

 

746,801

 

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES, NET

 

 

 

 

 

 

 

 

 

 

 

  Cost of goods sold (exclusive of depreciation shown below)

 

140,263

 

 

136,495

 

 

457,266

 

 

449,496

  Selling, general and administrative (exclusive of depreciation

 

 

 

 

 

 

 

 

 

 

 

    shown below)

 

70,659

 

 

67,623

 

 

206,354

 

 

203,442

  Depreciation

 

6,040

 

 

5,422

 

 

16,968

 

 

16,297

  Interest and other income

 

(857)

 

 

(686)

 

 

(2,259)

 

 

(2,527)

    Cost and expenses, net

 

216,105

 

 

208,854

 

 

678,329

 

 

666,708

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

9,362

 

 

7,156

 

 

82,306

 

 

80,093

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

1,043

 

 

1,464

 

 

27,310

 

 

28,743

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

8,319

 

$

5,692

 

$

54,996

 

$

51,350

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

0.30

 

$

0.20

 

$

1.97

 

$

1.82

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

$

0.30

 

$

0.20

 

$

1.97

 

$

1.82

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

$

0.30

 

$

0.30

 

$

0.90

 

$

0.90

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net income

$

8,319

 

$

5,692

 

$

54,996

 

$

51,350

Unrealized gain (loss) on available-for-sale securities, net of

 

 

 

 

 

 

 

 

 

 

 

   deferred income taxes of $125 and ($18) for the three and

 

 

 

 

 

 

 

 

 

 

 

   nine months ended October 31, 2015 and ($21) and $0 for

 

 

 

 

 

 

 

 

 

 

 

   the three and nine months ended November 1, 2014, respectively

 

207

 

 

(35)

 

 

(27)

 

 

1

Comprehensive income

$

8,526

 

$

5,657

 

$

54,969

 

$

51,351

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements (unaudited).

3


 
Table of Contents

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 31, 2015

 

January 31, 2015

 

November 1, 2014

 

 

 

 

 

 

 

 

 

ASSETS

(Dollars in thousands)

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

43,425

 

$

93,946

 

$

83,749

Short-term investments

 

216,602

 

 

162,185

 

 

157,548

Restricted cash and investments

 

4,473

 

 

4,479

 

 

4,686

Accounts receivable, net of allowance for doubtful accounts of

 

 

 

 

 

 

 

 

     $1,542, $1,542 and $1,741 at October 31, 2015, January 31, 2015

 

 

 

 

 

 

 

 

     and November 1, 2014, respectively

 

38,205

 

 

41,023

 

 

40,555

Merchandise inventories

 

136,101

 

 

137,549

 

 

127,786

Deferred income taxes

 

4,308

 

 

4,291

 

 

4,720

Prepaid expenses

 

9,247

 

 

10,978

 

 

6,165

      Total Current Assets

 

452,361

 

 

454,451

 

 

425,209

Property and equipment – net

 

139,512

 

 

135,181

 

 

145,962

Noncurrent deferred income taxes

 

4,567

 

 

3,363

 

 

1,375

Other assets

 

21,937

 

 

15,283

 

 

9,943

      Total Assets

$

618,377

 

$

608,278

 

$

582,489

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

$

104,495

 

$

111,674

 

$

94,135

Accrued expenses

 

48,119

 

 

48,404

 

 

45,300

Accrued bonus and benefits

 

10,095

 

 

19,567

 

 

14,541

Accrued income taxes

 

11,284

 

 

14,256

 

 

17,844

      Total Current Liabilities

 

173,993

 

 

193,901

 

 

171,820

Other noncurrent liabilities (primarily deferred rent)

 

36,847

 

 

34,179

 

 

32,994

 

 

 

 

 

 

 

 

 

Commitments and contingencies:

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

Stockholders' 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 26,155,617 shares, 26,174,684 shares

 

 

 

 

 

 

 

 

   and 26,168,286 shares at October 31, 2015, January 31, 2015 and

 

 

 

 

 

 

 

 

   November 1, 2014, respectively

 

877

 

 

873

 

 

872

Convertible Class B common stock, $.033 par value per share,

 

 

 

 

 

 

 

 

   15,000,000 shares authorized; issued 1,743,525 shares at

 

 

 

 

 

 

 

 

   October 31, 2015, January 31, 2015 and November 1, 2014, respectively

 

58

 

 

58

 

 

58

Additional paid-in capital

 

88,729

 

 

85,029

 

 

83,779

Retained earnings

 

317,114

 

 

293,452

 

 

292,187

Accumulated other comprehensive income 

 

759

 

 

786

 

 

779

         Total Stockholders' Equity

 

407,537

 

 

380,198

 

 

377,675

         Total Liabilities and Stockholders' Equity

$

618,377

 

$

608,278

 

$

582,489

See notes to condensed consolidated financial statements (unaudited).

4


 
Table of Contents

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

Nine Months Ended

 

 

October 31, 2015

 

November 1, 2014

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

Net income

$

54,996

 

$

51,350

 

Adjustments to reconcile net income to net cash provided

 

 

 

 

 

 

       by operating activities:

 

 

 

 

 

 

   Depreciation

 

16,968

 

 

16,297

 

   Provision for doubtful accounts

 

717

 

 

805

 

   Purchase premium and premium amortization of investments

 

(4,453)

 

 

258

 

   Share-based compensation

 

3,074

 

 

2,678

 

   Excess tax benefits from share-based compensation

 

(192)

 

 

(181)

 

   Deferred income taxes

 

(1,204)

 

 

-

 

   Loss on disposal and write-offs of property and equipment

 

353

 

 

618

 

   Changes in operating assets and liabilities which provided

 

 

 

 

 

 

       (used) cash:

 

 

 

 

 

 

        Accounts receivable

 

2,101

 

 

(2,136)

 

        Merchandise inventories

 

1,448

 

 

23,075

 

        Prepaid and other assets

 

(126)

 

 

(495)

 

        Accrued income taxes

 

(2,780)

 

 

3,170

 

        Accounts payable, accrued expenses and other liabilities

 

(13,157)

 

 

(4,358)

 

Net cash provided by operating activities

 

57,745

 

 

91,081

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

Expenditures for property and equipment 

 

(22,432)

 

 

(21,380)

 

Purchase of short-term investments

 

(101,726)

 

 

(33,050)

 

Sales of short-term investments

 

51,693

 

 

36,320

 

Purchase of Other Assets

 

(5,402)

 

 

(1,286)

 

Sales of Other Assets

 

298

 

 

85

 

Change in restricted cash and investments

 

6

 

 

15

 

Net cash used in investing activities

 

(77,563)

 

 

(19,296)

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

Dividends paid

 

(25,202)

 

 

(25,508)

 

Repurchase of common stock

 

(6,148)

 

 

(42,615)

 

Proceeds from employee stock purchase plan

 

455

 

 

468

 

Excess tax benefits from share-based compensation

 

192

 

 

181

 

Proceeds from stock options exercised

 

-

 

 

11

 

Net cash used in financing activities

 

(30,703)

 

 

(67,463)

 

 

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

(50,521)

 

 

4,322

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

93,946

 

 

79,427

 

Effect of exchange rate on cash

 

-

 

 

-

 

Cash and cash equivalents at end of period

$

43,425

 

$

83,749

 

 

 

 

 

 

 

 

Non-cash investing activity:

 

 

 

 

 

 

Accrued plant and equipment

$

(665)

 

$

(3,681)

 

 

See notes to condensed consolidated financial statements (unaudited).

5


 

Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND  NINE MONTHS ENDED OCTOBER 31, 2015 AND NOVEMBER 1, 2014

 

 

 

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 October 31, 2015 and November 1, 2014 are unaudited.  In the opinion of management, all adjustments considered necessary for a fair statement have been included.  All such adjustments are of a normal, recurring nature unless otherwise noted.  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 Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015.  Amounts as of January 31, 2015 have been derived from the audited balance sheet, but do not include all disclosures required by accounting principles generally accepted in the United States of America.

 

During the first quarter of 2015, the Company determined that it had improperly calculated a long-term deferred tax liability in prior periods due to the inclusion of certain insurance premium amounts related to its captive insurance company.  The Company recorded a favorable out of period adjustment during the three month period ended May 2, 2015 which resulted in a decrease in its long-term deferred tax liability by $1.2 million, decreased its Income tax expense by $1.0 million and increased its Accrued income taxes by $0.2 million.  The Condensed Consolidated Statements of Income and Comprehensive Income, Balance Sheet and Statement of Cash Flows for the nine months ended October 31, 2015 reflect the above amounts.  The correction is not deemed material to prior period or current period consolidated financial statements.

 

The Company has changed the classification of certain items in its Consolidated Statements of Cash Flows to conform the November 1, 2014 presentation with our fiscal 2014 Form 10-K to show approximately $1.2  million of cash outflows related to the purchase and sale of other assets previously reported in operating activities as investing activities. The correction is not deemed material to prior periods or current period Consolidated Financial Statements.

 

On November 24, 2015, the Board of Directors maintained the quarterly dividend at $0.30 per share.

6


 

Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND  NINE MONTHS ENDED OCTOBER 31, 2015 AND NOVEMBER 1, 2014

 

 

 

NOTE 2 - EARNINGS PER SHARE:

 

Accounting Standard Codification (“ASC”) 260 – Earnings Per Share requires dual presentation of basic and diluted Earnings Per Share (“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 Condensed Consolidated Statements of Income and Comprehensive Income.  While the Company’s certificate of incorporation provides the right for the 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 Company’s allocation of income for purposes of the 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 less earnings allocated to non-vested equity awards 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.   

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

October 31, 2015

 

 

November 1, 2014

 

 

October 31, 2015

 

 

November 1, 2014

 

 

(Dollars in thousands)

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

8,319

 

$

5,692

 

$

54,996

 

$

51,350

 

Earnings allocated to non-vested equity awards

 

 

(175)

 

 

(113)

 

 

(1,145)

 

 

(1,001)

 

Net earnings available to common stockholders

 

$

8,144

 

$

5,579

 

$

53,851

 

$

50,349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

27,368,931

 

 

27,359,660

 

 

27,396,760

 

 

27,673,293

 

Dilutive effect of stock options

 

 

5,234

 

 

4,493

 

 

5,703

 

 

2,640

 

Diluted weighted average common shares outstanding

 

 

27,374,165

 

 

27,364,153

 

 

27,402,463

 

 

27,675,933

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share (Class A and B Shares)

 

$

0.30

 

$

0.20

 

$

1.97

 

$

1.82

 

Diluted earnings per share (Class A and B Shares)

 

$

0.30

 

$

0.20

 

$

1.97

 

$

1.82

7


 

Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND  NINE MONTHS ENDED OCTOBER 31, 2015 AND NOVEMBER 1, 2014

 

 

 

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

 

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the three months ended October 31, 2015:

 

 

 

Changes in Accumulated Other

 

 

 

Comprehensive Income (a)

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

and (Losses) on

 

 

 

 

 

 

 

Available-for-Sale

 

 

 

 

 

 

 

Securities

 

 

 

 

Beginning Balance at August 1, 2015

 

$

552

 

 

 

 

   Other comprehensive income before

 

 

 

 

 

 

 

   reclassifications

 

 

227

 

 

 

 

 

 

 

 

 

 

 

 

   Amounts reclassified from accumulated

 

 

 

 

 

 

 

   other comprehensive income (b)

 

 

(20)

 

 

 

 

 

 

 

 

 

 

 

 

Net current-period other comprehensive income

 

 

207

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance at October 31, 2015

 

$

759

 

 

 

 

 

 

 

 

 

 

 

 

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to Other Comprehensive Income.

 

(b) Includes ($32) impact of Accumulated other comprehensive income reclassifications into Interest and other

income for net gains on available-for-sale securities. The tax impact of this reclassification was ($12).

 

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the nine months ended October 31, 2015:

 

 

 

Changes in Accumulated Other

 

 

 

Comprehensive Income (a)

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

and (Losses) on

 

 

 

 

 

 

 

Available-for-Sale

 

 

 

 

 

 

 

Securities

 

 

 

 

Beginning Balance at January 31, 2015

 

$

786

 

 

 

 

   Other comprehensive income before

 

 

 

 

 

 

 

   reclassifications

 

 

(154)

 

 

 

 

 

 

 

 

 

 

 

 

   Amounts reclassified from accumulated

 

 

 

 

 

 

 

   other comprehensive income (b)

 

 

127

 

 

 

 

 

 

 

 

 

 

 

 

Net current-period other comprehensive income

 

 

(27)

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance at October 31, 2015

 

$

759

 

 

 

 

 

 

 

 

 

 

 

 

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to Other Comprehensive Income.

 

(b) Includes $203 impact of Accumulated other comprehensive income reclassifications into Interest and other

income for net gains on available-for-sale securities. The tax impact of this reclassification was $76.

8


 

Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND  NINE MONTHS ENDED OCTOBER 31, 2015 AND NOVEMBER 1, 2014

 

 

 

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME (CONTINUED):

 

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the three months ended November 1, 2014:

 

 

 

Changes in Accumulated Other

 

 

 

Comprehensive Income (a)

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

and (Losses) on

 

 

 

 

 

 

 

Available-for-Sale

 

 

 

 

 

 

 

Securities

 

 

 

 

Beginning Balance at August 2, 2014

 

$

814

 

 

 

 

   Other comprehensive income before

 

 

 

 

 

 

 

   reclassifications

 

 

(40)

 

 

 

 

 

 

 

 

 

 

 

 

   Amounts reclassified from accumulated

 

 

 

 

 

 

 

   other comprehensive income (b)

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

Net current-period other comprehensive income

 

 

(35)

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance at November 1, 2014

 

$

779

 

 

 

 

 

 

 

 

 

 

 

 

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to Other Comprehensive Income.

 

(b) Includes $8 impact of Accumulated other comprehensive income reclassifications into Interest and other

income for net gains on available-for-sale securities. The tax impact of this reclassification was $3.

 

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the nine months ended November 1, 2014:

 

 

 

Changes in Accumulated Other

 

 

 

Comprehensive Income (a)

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

and (Losses) on

 

 

 

 

 

 

 

Available-for-Sale

 

 

 

 

 

 

 

Securities

 

 

 

 

Beginning Balance at February 1, 2014

 

$

778

 

 

 

 

   Other comprehensive income before

 

 

 

 

 

 

 

   reclassifications

 

 

141

 

 

 

 

 

 

 

 

 

 

 

 

   Amounts reclassified from accumulated

 

 

 

 

 

 

 

   other comprehensive income (b)

 

 

(140)

 

 

 

 

 

 

 

 

 

 

 

 

Net current-period other comprehensive income

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance at November 1, 2014

 

$

779

 

 

 

 

 

 

 

 

 

 

 

 

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to Other Comprehensive Income.

 

(b) Includes $224 impact of Accumulated other comprehensive income reclassifications into Interest and other

income for net gains on available-for-sale securities. The tax impact of this reclassification was $84.

9


 

Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND  NINE MONTHS ENDED OCTOBER 31, 2015 AND NOVEMBER 1, 2014

 

 

 

NOTE 4 – FINANCING ARRANGEMENTS:

 

As of October 31, 2015, the Company had an unsecured revolving credit agreement to borrow $35.0 million less the balance of any revocable letters of credit as discussed below.  The revolving credit agreement is committed until August 2018.  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 October 31, 2015.  There were no borrowings outstanding under this credit facility during the periods ended October 31, 2015, January 31, 2015 or November 1, 2014.  The weighted average interest rate under the credit facility was zero at October 31, 2015 due to no borrowings during the year.

 

At October 31, 2015 and January 31, 2015, the Company had no outstanding revocable letters of credit relating to purchase commitments. At November 1, 2014, the Company had approximately $0.4 million of outstanding revocable letters of credit related to purchase commitments.



NOTE 5 – REPORTABLE SEGMENT INFORMATION:

 

The Company has determined that it has four operating segments, as defined under ASC 280-10, including Cato, It’s Fashion, Versona and Credit.  As outlined in ASC 280-10, the Company has two reportable segments: Retail and Credit.  The Company has aggregated its three retail operating segments, including e-commerce, based on the aggregation criteria outlined in ASC 280-10, which states that two or more operating segments may be aggregated into a single reportable segment if aggregation is consistent with the objective and basic principles of ASC 280-10, which require the segments to have similar economic characteristics, similar product, similar production processes, similar clients and similar methods of distribution. 

 

The Company’s retail operating segments have similar economic characteristics and similar operating, financial and competitive risks.  They are similar in nature of product, as they all offer women’s apparel, shoes and accessories.  Merchandise inventory for the Company’s retail operating segments is sourced from the same countries and some of the same vendors, using similar production processes.  Merchandise for the Company’s operating segments is distributed to retail stores in a similar manner through the Company’s single distribution center and is subsequently distributed to clients in a similar manner.

                         

The Company operates its women’s fashion specialty retail stores in 32 states as of October 31, 2015, principally in the southeastern United States. The Company offers its own credit card to its customers and all credit authorizations, payment processing and collection efforts are performed by a separate subsidiary of the Company.

 

10


 

Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND  NINE MONTHS ENDED OCTOBER 31, 2015 AND NOVEMBER 1, 2014

 

 

 

NOTE 5 – REPORTABLE SEGMENT INFORMATION (CONTINUED):

 

The following schedule summarizes certain segment information (in thousands):

 

Three Months Ended

 

 

 

 

Nine Months Ended

 

 

 

October 31, 2015

Retail

Credit

Total

 

October 31, 2015

Retail

Credit

Total

 

 

 

 

 

 

 

 

 

Revenues

$224,179

$1,288

$225,467

 

Revenues

$756,591

$4,044

$760,635

Depreciation

6,028

12

6,040

 

Depreciation

16,931

37

16,968

Interest and other income

(857)

-

(857)

 

Interest and other income

(2,259)

-

(2,259)

Income before taxes

8,917

445

9,362

 

Income before taxes

80,914

1,392

82,306

Total assets

561,709

56,668

618,377

 

Total assets

561,709

56,668

618,377

Capital expenditures

11,030

-

11,030

 

Capital expenditures

22,432

-

22,432

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

Nine Months Ended

 

 

 

November 1, 2014

Retail

Credit

Total

 

November 1, 2014

Retail

Credit

Total

 

 

 

 

 

 

 

 

 

Revenues

$214,569

$1,441

$216,010

 

Revenues

$742,448

$4,353

$746,801

Depreciation

5,412

10

5,422

 

Depreciation

16,262

35

16,297

Interest and other income

(686)

-

(686)

 

Interest and other income

(2,527)

-

(2,527)

Income before taxes

6,630

526

7,156

 

Income before taxes

78,509

1,584

80,093

Total assets

514,727

67,762

582,489

 

Total assets

514,727

67,762

582,489

Capital expenditures

7,414

-

7,414

 

Capital expenditures

21,380

-

21,380

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company evaluates segment 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):

 

 

Three Months Ended

 

Nine Months Ended

 

 

October 31, 2015

 

 

November 1, 2014

 

 

October 31, 2015

 

 

November 1, 2014

 

 

 

 

 

 

 

 

 

 

 

 

Bad debt expense

$

219

 

$

257

 

$

717

 

$

805

Payroll

 

219

 

 

213

 

 

648

 

 

630

Postage

 

149

 

 

181

 

 

540

 

 

559

Other expenses

 

244

 

 

254

 

 

710

 

 

740

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses

$

831

 

$

905

 

$

2,615

 

$

2,734

11


 

Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND  NINE MONTHS ENDED OCTOBER 31, 2015 AND NOVEMBER 1, 2014

 

 

 

NOTE 6 – STOCK BASED COMPENSATION:

 

As of October 31, 2015, the Company had three long-term compensation plans pursuant to which stock-based compensation was outstanding or could be granted. The Company’s 1987 Non-Qualified Stock Option Plan is for the granting of options to officers and key employees.  As of October 31, 2015, there were no available stock options for grant under this plan. The 2013 Incentive Compensation Plan and 2004 Amended and Restated Incentive Compensation Plan are for the granting of various forms of equity-based awards, including restricted stock and stock options for grant, to officers, directors and key employees. Effective May 23, 2013, shares for grant were no longer available under the 2004 Amended and Restated Incentive Compensation Plan.

 

The following table presents the number of options and shares of restricted stock initially authorized and available for grant under each of the plans as of October 31, 2015:

 

 

1987

 

2004

 

2013

 

 

 

Plan

 

Plan

 

Plan

 

Total

Options and/or restricted stock initially authorized

5,850,000

 

1,350,000

 

1,500,000

 

8,700,000

Options and/or restricted stock available for grant:

 

 

 

 

 

 

 

      January 31, 2015

-

 

-

 

1,287,396

 

1,287,396

      October 31, 2015

-

 

-

 

1,130,088

 

1,130,088

 

In accordance with ASC 718, the fair value of current restricted stock awards is estimated on the date of grant based on the market price of the Company’s stock and is amortized to compensation expense on a straight-line basis over the related vesting periods. As of October 31, 2015, January 31, 2015 and November 1, 2014, there was  $13,371,000 , $10,357,000  and $11,343,000  of total unrecognized compensation expense related to nonvested restricted stock awards, which had a remaining weighted-average vesting period of 2.9 years, 2.6 years and 2.9 years, respectively. The total fair value of the shares recognized as compensation expense during the three and nine months ended October 31, 2015 was $1,040,000 and $2,981,000, respectively, compared to $893,000 and $2,582,000, respectively, for the three and nine months ended November 1, 2014. These expenses are classified as a component of Selling, general and administrative expenses in the Condensed Consolidated Statements of Income.

 

The following summary shows the changes in the shares of unvested restricted stock outstanding during the nine months ended October 31, 2015:

 

 

 

 

 

Weighted Average

 

Number of

 

 

Grant Date Fair

 

Shares

 

 

Value Per Share

Restricted stock awards at January 31, 2015

552,495

 

$

26.19

Granted

159,673

 

 

39.60

Vested

(87,130)

 

 

26.03

Forfeited or expired

(21,383)

 

 

28.03

Restricted stock awards at October 31, 2015

603,655

 

$

29.70

12


 

Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND  NINE MONTHS ENDED OCTOBER 31, 2015 AND NOVEMBER 1, 2014

 

 

 

NOTE 6 – STOCK BASED COMPENSATION (CONTINUED):

 

The Company’s Employee Stock Purchase Plan allows eligible full-time employees to purchase a limited number of shares of the Company’s Class A Common Stock during each semi-annual offering period at a 15% discount through payroll deductions. During the nine months ended October 31, 2015 and November 1, 2014, the Company sold 15,245 and 19,743 shares to employees at an average discount of $5.27 and $4.19 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 $80,000 and $83,000 for the nine months ended October 31, 2015 and November 1, 2014, respectively. These expenses are classified as a component of Selling, general and administrative expenses.



NOTE 7 – FAIR VALUE MEASUREMENTS:

 

The following tables set forth information regarding the Company’s financial assets that are measured at fair value (in thousands) as of October 31, 2015, January 31, 2015 and November 1, 2014:

 

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

 

 

 

in Active

 

Significant

 

 

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

 

 

 

 

Identical

 

Observable

 

Unobservable

 

 

October 31, 2015

 

Assets

 

Inputs

 

Inputs

Description

 

 

Level 1

 

Level 2

 

Level 3

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

    State/Municipal Bonds

 

$

197,601

 

$

-

 

$

197,601

 

$

-

    Corporate Bonds

 

 

19,128

 

 

-

 

 

19,128

 

 

-

    U.S. Treasury Notes

 

 

2,602

 

 

2,602

 

 

-

 

 

-

    Cash Surrender Value of Life Insurance

 

 

6,455

 

 

-

 

 

-

 

 

6,455

    Privately Managed Funds

 

 

9

 

 

-

 

 

-

 

 

9

    Corporate Equities

 

 

638

 

 

638

 

 

-

 

 

-

    Certificates of Deposit

 

 

100

 

 

100

 

 

-

 

 

-

Total Assets

 

$

226,533

 

$

3,340

 

$

216,729

 

$

6,464

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

    Deferred Compensation

 

 

(6,231)

 

 

-

 

 

-

 

 

(6,231)

Total Liabilities

 

$

(6,231)

 

$

-

 

$

-

 

$

(6,231)

 

 

 

 

 

 

 

 

 

 

 

 

 

13


 

Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND  NINE MONTHS ENDED OCTOBER 31, 2015 AND NOVEMBER 1, 2014

 

 

 

 

 

 

 

 

Quote Prices

 

 

 

 

 

 

 

 

 

 

 

in Active

 

Significant

 

 

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

 

 

 

 

Identical

 

Observable

 

Unobservable

 

 

 

January 31, 2015

 

Assets

 

Inputs

 

Inputs

Description

 

 

 

Level 1

 

Level 2

 

Level 3

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

    State/Municipal Bonds

 

$

148,650

 

$

-

 

$

148,650

 

$

-

    Corporate Bonds

 

 

14,052

 

 

-

 

 

14,052

 

 

-

    Auction Rate Securities (ARS)

 

 

-

 

 

-

 

 

-

 

 

-

    U.S. Treasury Notes

 

 

3,758

 

 

3,758

 

 

-

 

 

-

    Cash Surrender Value of Life Insurance

 

 

4,558

 

 

-

 

 

-

 

 

4,558

    Privately Managed Funds

 

 

306

 

 

-

 

 

-

 

 

306

    Corporate Equities

 

 

613

 

 

613

 

 

-

 

 

-

    Certificates of Deposit

 

 

100

 

 

100

 

 

-

 

 

-

Total Assets

 

$

172,037

 

$

4,471

 

$

162,702

 

$

4,864

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

    Deferred Compensation

 

 

(4,272)

 

 

-

 

 

-

 

 

(4,272)

Total Liabilities

 

$

(4,272)

 

$

-

 

$

-

 

$

(4,272)

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

 

 

in Active

 

Significant

 

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

 

 

 

Identical

 

Observable

 

Unobservable

 

 

November 1, 2014

 

Assets

 

Inputs

 

Inputs

Description

 

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

    State/Municipal Bonds

$

149,893

 

$

-

 

$

149,893

 

$

-

    Corporate Bonds

 

8,384

 

 

-

 

 

8,384

 

 

-

    Auction Rate Securities (ARS)

 

3,140

 

 

-

 

 

-

 

 

3,140

    U.S. Treasury Notes

 

3,754

 

 

3,754

 

 

-

 

 

-

    Cash Surrender Value of Life Insurance

 

3,852

 

 

-

 

 

-

 

 

3,852

    Privately Managed Funds

 

308

 

 

-

 

 

-

 

 

308

    Corporate Equities

 

642

 

 

642

 

 

-

 

 

-

    Certificates of Deposit

 

100

 

 

100

 

 

-

 

 

-

Total Assets

$

170,073

 

$

4,496

 

$

158,277

 

$

7,300

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

    Deferred Compensation

 

(4,201)

 

 

-

 

 

-

 

 

(4,201)

Total Liabilities

$

(4,201)

 

$

-

 

$

-

 

$

(4,201)