UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended August 2, 2003
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-3747
THE CATO CORPORATION AND SUBSIDIARIES
Delaware | 56-0484485 | |
|
||
(State or other jurisdiction
of incorporation) |
(I.R.S. Employer
Identification No.) |
8100 Denmark Road, Charlotte, North Carolina 28273-5975
(704) 554-8510
Not Applicable
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 is an accelerated filer (as defined in Rule 126-2 of the Act).
Yes [X] No [ ] |
As of August 19, 2003, there were 19,864,378 shares of Class A common stock and 5,637,834 shares of Class B common stock outstanding.
THE CATO CORPORATION
FORM 10-Q
August 2, 2003
Table of Contents
Page | |||||
No. | |||||
|
|||||
PART I - FINANCIAL INFORMATION (UNAUDITED)
|
|||||
Condensed Consolidated Statements of Income
For the Three Months and Six Months Ended
August 2, 2003 and August 3, 2002
|
2 | ||||
Condensed Consolidated Balance Sheets
At August 2, 2003, August 3, 2002 and February 1, 2003
|
3 | ||||
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended August 2, 2003 and August 3, 2002
|
4 | ||||
Notes to Condensed Consolidated Financial Statements
For the Three Months and Six Months Ended
August 2, 2003 and August 3, 2002
|
510 | ||||
Managements Discussion and Analysis of
Financial Condition and Results of Operations
|
1115 | ||||
Control Procedures
|
16 | ||||
PART II - OTHER INFORMATION
|
1740 |
Page 2
PART I FINANCIAL INFORMATION
THE CATO CORPORATION
See accompanying notes to condensed consolidated financial statements.
Page 3
THE CATO CORPORATION
See accompanying notes to condensed consolidated financial statements.
Page 4
THE CATO CORPORATION
See accompanying notes to condensed consolidated financial statements.
Page 5
THE CATO CORPORATION
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 August 2,
2003 and August 3, 2002 are unaudited. In the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) considered
necessary for a fair presentation have been included. The results of the
interim period may not
be indicative of the entire year.
The interim financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, included in the Companys
Annual Report on Form 10-K for the fiscal year ended February 1, 2003.
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.
The Companys short-term investments are classified as available-for-sale. As
they are available for current operations, they are classified in 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
Consolidated Balance Sheets and a reduction of interest and other income, net
in the accompanying Statements of Consolidated 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 other income.
Total comprehensive income for the second quarter and six months ended August
2, 2003 was $7,374,000 and $24,969,000, respectively. Total comprehensive
income for the second quarter and six months ended August 3, 2002 was
$12,234,000 and $30,224,000, respectively. Total comprehensive income is
composed of net income and net unrealized gains and losses on
available-for-sale securities.
Merchandise inventories are stated at the lower of cost (first-in, first-out
method) or market as determined by the retail inventory method.
For the six months ended August 2, 2003, the Company repurchased 165,000 shares
of Class A Common Stock for $2,740,619, or an average market price of $16.61
per share, all which incurred in the first quarter of fiscal 2003. For the six
months ended August 3, 2002, the Company repurchased and accepted a combined
total of 110,581 mature shares of Class A Common Stock for $2,260,264, or an
average market price of $20.44 per share. In the second quarter of fiscal
2002, the Company repurchased 61,900 shares of Class A Common Stock for
$1,115,764, or an average
Page 6
THE CATO CORPORATION
NOTE 1 GENERAL (CONTINUED):
market price of $18.03 per share. Additionally, in the first quarter of fiscal
2002, the Company accepted in an option transaction from an officer for payment
of an option exercise, 48,681 mature shares of Class A Common Stock for
$1,144,500, or an average market price of $23.51 per share, the average fair
market value on the date of the exchange.
In May 2003, the Board of Directors increased the quarterly dividend by 7% from
$.15 per share to $.16 per share.
On August 22, 2003, the Company repurchased 5,137,484 shares of Class B Common
Stock from a limited partnership and trust affiliated with Wayland H. Cato,
Jr., a Company founder and Chairman of the Board and a limited partnership
affiliated with Edgar T. Cato, a Company founder and a member of the Board of
Directors. Shares were purchased at $18.50 per share (a 21% discount off the
then market value) for a total cost of $95,043,454 which was funded by the
Company through a new $30 million five-year term loan facility and
approximately $65 million of cash and liquidated short-term investments.
Payments on the new term loan are due in monthly installments of $500,000 plus
accrued interest. Interest is based on LIBOR. Both the repurchase of the
shares from the co-founders and the new term loan facility will be recorded in
the Companys third quarter.
On August 29, 2003, the Company entered into agreements with Mr. Wayland H.
Cato, Jr., a Company founder and Chairman of the Board and Mr. Edgar T. Cato, a
Company founder and a member of the Board of Directors. The agreements provide
for the retirement of Mr. Wayland Cato and Mr. Edgar Cato from the Company and
the Board of Directors effective January 31, 2004. Mr. Wayland Cato will be
available to the Company for consulting services following his retirement. In
the third quarter of fiscal 2003, the Company expects to take a charge of
approximately $2.8 million representing the present value of certain payments
and benefits to Mr. Wayland Cato and Mr. Edgar Cato under the terms of the
agreements. The charge will be approximately $1.8 million on an
after-tax basis, or $.08 per diluted share for the third quarter and year. The
benefits include compensation for three years commencing on the retirement
date, life insurance coverage for three years, continuation of medical
insurance coverage, and assistance with the relocation of their offices and are
in consideration of the consulting services, non-competition covenants and
confidentiality covenants, among other obligations of the retirees.
The provisions for income taxes are based on the Companys estimated annual
effective tax rate. As allowed by SFAS No. 109, Accounting for Income Taxes,
deferred income taxes are calculated annually.
Certain reclassifications have been made to the condensed consolidated
financial statements for prior periods to conform to the current period
presentation.
Page 7
THE CATO CORPORATION
NOTE 2 RECENT ACCOUNTING PRONOUNCEMENTS:
On November 25, 2002 the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, which elaborates on the disclosures to
be made by a guarantor about its obligations under certain
guarantees issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The
interpretation expands on the accounting guidance of SFAS No. 5, Accounting
for Contingencies, SFAS No. 57, Related Party Disclosures, and SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The interpretation
also incorporates, without change, the provisions of FASB Interpretation No.
34, Disclosure of Indirect Guarantees of Indebtedness of Others, which it
supersedes. The initial recognition and measurement provisions of
Interpretation No. 45 apply on a prospective basis to guarantees issued or
modified after December 31, 2002, regardless of the guarantors fiscal
year-end. The disclosures are effective for financial statements of interim or
annual periods ending after December 31, 2002. The Company adopted
Interpretation No. 45 on February 2, 2003 and the impact of this Interpretation
on the Companys financial position or results of operations was not material
and additional disclosure is not required.
On December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide for alternative methods
of transition to SFAS No. 123s fair value method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure provisions of
SFAS No. 123 and APB Opinion No. 28, Interim Financial
Reporting, to require disclosure in the summary of significant policies of the
effects of an entitys accounting policy with respect to stock-based employee
compensation on reported net income and earnings per-share in annual and
interim financial statements. While SFAS No. 148 does not amend SFAS No. 123
to require companies to account for employee stock options using the fair value
method, the disclosure provisions of SFAS No. 148 are applicable to all
companies with stock-based compensation, regardless of whether they account for
that compensation using the fair value method of SFAS No. 123 or the intrinsic
value method of APB Opinion No. 25, Accounting for Stock Issued to Employees.
SFAS No. 148s amendment of the transition and the annual disclosure
requirements of SFAS No. 123 are effective for fiscal years ending after
December 15, 2002.
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option
plans. Accordingly, no compensation expense has been recognized for
stock-based compensation where the option price of the stock approximated the
fair market value of the stock on the date of grant. Had compensation expense
for the stock options granted been determined consistent with SFAS No. 123,
Accounting for
Page 8
THE CATO CORPORATION
NOTE 2 RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED):
Stock-Based Compensation, the Companys net income and basic and diluted
earnings per share amounts for the three months ended August 2, 2003 and August
3, 2002 and for the six months ended August 2, 2003 and August 3, 2002 would
approximate the following proforma amounts (dollars in thousands, except per
share data):
* determined using fair value method
In January 2003, the FASB issued Interpretation No. 46 Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements. This interpretation applies
immediately to variable interest entities created after January 31, 2003 and to
variable interest entities in which an enterprise obtains an interest after
that date. It applies in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise holds
a variable interest it acquired before February 1, 2003.
This interpretation may be applied prospectively with a cumulative-effect
adjustment as of the date on which it is first applied or by restating
previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year restated.
The implementation of this interpretation had no effect on the Companys
financial position or results of operations.
In May 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity
(SFAS 150). SFAS 150 improves the accounting for certain financial
instruments that, under previous guidance, issuers could account for as equity.
The new Statement requires that those instruments be classified as liabilities
in statements of financial position. We do not expect the provisions of SFAS
150 to have a material impact on our financial position or results of
operations.
Page 9
THE CATO CORPORATION
NOTE 3 - EARNINGS PER SHARE:
Earnings per share is calculated by dividing net income by the weighted-average
number of Class A and Class B common shares outstanding during the respective
periods. The weighted-average
shares outstanding is used in the basic earnings per share calculation, while
the weighted-average shares and common stock equivalents outstanding are used
in the diluted earnings per share calculation.
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION:
Income tax payments, net of refunds received, for the six months ended August
2, 2003 and
August 3, 2002 were $9,277,450 and $10,364,500, respectively.
NOTE 5 - FINANCING ARRANGEMENTS:
On August 22, 2003, the Company entered into a new $30 million five-year term
loan facility, the proceeds of which were used to purchase Class B Common Stock
from the Companys founders. Payments are due in monthly installments of
$500,000 plus accrued interest. Interest is based on LIBOR.
On August 22, 2003, the Company entered into a new revolving credit agreement
which provides for borrowings of up to $35 million. The revolving credit
agreement is committed until August 22, 2006, unless extended. This agreement
replaces a prior revolving credit agreement which was due to expire on October
31, 2004. The credit agreement contains various financial covenants and
limitations, including the maintenance of specific financial ratios with which
the Company was in compliance. There were no borrowings outstanding during the
six months ended August 2, 2003 or the fiscal year ended February 1, 2003.
Page 10
THE CATO CORPORATION
NOTE 6 REPORTABLE SEGMENT INFORMATION:
The Company has two reportable segments: retail and credit. The following
schedule summarizes certain segment information (in thousands):
Page 11
THE CATO CORPORATION
RESULTS OF OPERATIONS:
The following table sets forth, for the periods indicated, certain items in the
Companys unaudited Condensed Consolidated Statements of Income as a percentage
of total retail sales:
Comparison of Second Quarter and First Six Months of 2003 with 2002.
Total retail sales for the second quarter were $188.2 million compared to last
years second
quarter sales of $186.9 million, a 1% increase. Same-store sales decreased 7%
in the second quarter of fiscal 2003. For the six months ended August 2, 2003,
total retail sales were $385.5 million compared to last years first six months
sales of $383.5 million, a 1% increase, and
same-store sales decreased 7% for the comparable six month period. The soft
retail sales for the first six months of 2003 resulted from continued difficult
economic conditions. The Company operated 1,051 stores at August 2, 2003
compared to 972 stores at the end of last years second quarter.
Other income for the second quarter of 2003 decreased 1% over the prior years
comparable period. The decrease in the second quarter resulted primarily from
decreased layaway fees. Other income for the first six months of 2003 was
virtually equivalent to the comparable six month period last year.
Cost of goods sold were 70.5% and 67.4% of total retail sales for the second
quarter and first six months of 2003, respectively, compared to 67.3% and 65.3%
for prior years comparable three and six month periods, respectively. The
increase in cost of goods sold as a percent of retail sales for the first six
months of 2003 resulted primarily from lower than planned sales and additional
markdowns taken to bring inventory levels in line with sales trends.
Selling, general and administrative (SG&A) expenses were $44.6 million, or
23.7% and $88.0 million, or 22.8% for the second quarter and first six months
of this year, compared to $44.1
Page 12
THE CATO CORPORATION
RESULTS OF OPERATIONS (CONTINUED):
million, or 23.6% and $89.4 million, or 23.3% of retail sales for prior years
comparable three and six month periods, respectively. SG&A expenses as a
percentage of retail sales increased 10 basis points for the second quarter of
2003 as compared to the prior year and decreased 50 basis points for the first
six months of 2003, as compared to the prior year. The overall decrease in
SG&A expenses for the first six months of 2003 results primarily from reduced
incentive based performance bonus programs.
Depreciation expense was $4.6 million, or 2.4% and $9.0 million or 2.3% of
retail sales, for the second quarter and first six months of fiscal 2003,
compared to $3.3 million, or 1.7% and $6.4 million, or 1.6% of retail sales,
for prior years comparable three and six month periods, respectively. The
increase resulted primarily from the Companys store development and
depreciation of the Companys enterprise-wide information system which was
implemented in August 2002.
CRITICAL ACCOUNTING POLICIES:
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 judgement. 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 and reserves for inventory markdowns.
The Company evaluates the collectibility of accounts receivable and records
allowances for doubtful accounts based on estimates of actual write-offs and
the relative age of accounts. The Companys self-insurance liabilities related
to workers compensation, general and auto insurance liabilities are based on
estimated costs of claims filed and claims incurred but not reported and data
provided by outside actuaries. Merchandise inventories are stated at the lower
of cost (first-in, first-out method) or market as determined by the retail
method. Management makes estimates regarding markdowns based on customer
demand which can impact inventory valuations. Historically, actual results
have not significantly deviated from those determined using the estimates
described above.
STOCK OPTIONS:
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option
plans. Accordingly, no compensation expense has been recognized for
stock-based compensation where the option price of the stock approximated the
fair market value of the stock on the date of grant. Had compensation expense
for
\
Page 13
THE CATO CORPORATION
STOCK OPTIONS (CONTINUED):
the stock options granted been determined consistent with SFAS No. 123,
Accounting for Stock-Based Compensation, the Companys net income and basic
and diluted earnings per share amounts for the three months ended August 2,
2003 and August 3, 2002 and for the six months ended August 2, 2003 and August
3, 2002 would approximate the following proforma amounts (dollars in thousands,
except per share data):
* determined using fair value method
LIQUIDITY AND CAPITAL RESOURCES:
At August 2, 2003, the Company had working capital of $178.3 million, compared
to $155.1 million at August 3, 2002 and $162.6 million at February 1, 2003.
Cash provided by operating activities was $38.0 million for the six months
ended August 2, 2003, compared to $47.7 million for last years comparable six
month period. The decrease in net cash provided by operating activities
resulted primarily from a decrease in net income, payments related to accounts
payable and other liabilities made prior to the end of second quarter of 2003
versus after the end of second quarter 2002 partially offset by a decrease in
inventories. At August 2, 2003, the Company had cash, cash equivalents, and
short-term investments of $126.1 million, compared to $111.0 million at August
3, 2002 and $106.9 million at February 1, 2003.
Net cash used in investing activities totaled $.7 million for the first six
months of 2003 compared to $9.1 million for the comparable period of 2002.
Cash was used to fund capital expenditures for
new, relocated and remodeled stores and for investments in technology.
Additionally, the decrease in cash used was in part related to an increase in
purchases of short-term investments offset by a
Page 14
THE CATO CORPORATION
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
decrease in capital expenditures and an increase in the sale of short-term
investments in fiscal 2003 as compared to fiscal 2002.
Expenditures for property and equipment totaled $9.1 million for the six months
ended August 2, 2003, compared to $14.2 million of expenditures in last years
first six months. The Company expects total capital expenditures to be
approximately $31 million for the current fiscal year. The Company intends to
open approximately 90 new stores, close 10 stores and to relocate 25 stores
during the current fiscal year. For the six months ended August 2, 2003, the
Company had opened 29 new stores and relocated 12 stores.
Net cash used in financing activities totaled $9.5 million for the first six
months of 2003 compared to $6.8 million for the comparable period of 2002. The
increase was due primarily to an increase in its share buyback program,
increase in dividends paid and a reduction in proceeds from stock options
exercised in fiscal 2003 as compared to fiscal 2002.
In May 2003, the Board of Directors increased the quarterly dividend by 7% from
$.15 per share to $.16 per share.
On August 22, 2003, the Company entered into a new $30 million five-year term
loan facility, the proceeds of which were used to purchase Class B Common Stock
from the Companys founders. Payments are due in monthly installments of
$500,000 plus accrued interest. Interest is based on LIBOR.
On August 22, 2003, the Company entered into a new revolving credit agreement
which provides for borrowings of up to $35 million. The revolving credit
agreement is committed until August 22, 2006, unless extended. This agreement
replaces a prior revolving credit agreement which was due to expire on October
31, 2004. The credit agreement contains various financial covenants and
limitations, including the maintenance of specific financial ratios with which
the Company was in compliance. There were no borrowings outstanding during the
six months ended August 2, 2003 or the fiscal year ended February 1, 2003.
The Company does not use derivative financial instruments. At August 2, 2003,
August 3, 2002, and February 1, 2003, the Companys investment portfolio was
primarily invested in governmental debt securities with maturities of up to 36
months. These securities are classified as available-for-sale, and are
recorded on the balance sheet at fair value with unrealized gains and losses
reported as accumulated other comprehensive gains or losses.
The Company believes that its cash, cash equivalents and short-term
investments, together with cash flow from operations and borrowings available
under its revolving credit agreement, will be adequate to fund the Companys
proposed capital expenditures and other operating requirements during fiscal
2003.
Page 15
THE CATO CORPORATION
FORWARD LOOKING STATEMENTS:
Form 10-Q includes forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. All statements
other than statements of historical facts included in the Form 10-Q and located
elsewhere herein regarding the Companys financial position and business
strategy may constitute forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct.
Page 16
THE CATO CORPORATION
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES:
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed by the Company is recorded,
processed, summarized, and reported within the time periods specified in the
appropriate rules and forms of the Securities and Exchange Commission and that
such information is accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial Officer. The
Companys Chief Executive Officer and Chief Financial Officer have evaluated
the Companys disclosure controls and procedures as of August 2, 2003. Each
has concluded that these controls and procedures are effective.
CHANGES IN INTERNAL CONTROLS:
The Companys Chief Executive Officer and Chief Financial Officer (its
principal executive officer and principal financial officer, respectively) have
concluded, based on their evaluation as of a date within 90 days prior to the
filing date of this report, that the Companys disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports filed or submitted by it under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and include controls and procedures designed to
ensure that information required to be disclosed by the Company in such reports
is accumulated and communicated to the Companys management, including the
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
During 2002 and the first quarter of 2003, the Company made payments for the
benefit of entities in which Mr. Wayland H. Cato, Jr., Chairman of the Board,
and Mr. Edgar T. Cato, Former Vice Chairman of the Board and Co-founder and
Director, have a material interest. The Company subsequently determined these
payments were unrelated to the business of the Company. Amounts, including
interest, have been repaid. In the course of the evaluation by the Chief
Executive Officer and the Chief Financial Officer described above, the Company
implemented a change in it internal controls to prevent the payment of similar
expenses in the future. As a result of this change, all future payment
requests for or on behalf of related parties will require the prior review by
and approval of the Chief Financial Officer.
There have been no other significant changes in the Companys internal controls
or in other factors that could significantly affect these controls subsequent
to the date of such evaluation.
Page 17
PART II OTHER INFORMATION
THE CATO CORPORATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Following are the results of the matters voted upon at the Companys
Annual Meeting which was held on May 22, 2003.
Election of Directors:
Adoption of The Cato Corporation 2003 Employee Stock Purchase Plan
ITEM 5. OTHER INFORMATION
The Registrant announced on September 3, 2003 that it had entered into
separate agreements, each dated as of August 29, 2003, with Mr. Wayland H.
Cato, Jr., a founder of the Registrant and Chairman of the Board, and Mr. Edgar
T. Cato, a founder of the Registrant and member of the Board of Directors. The
agreements provide for the retirement of Mr. Wayland Cato and Mr. Edgar Cato
from the Registrant and the Board of Directors effective January 31, 2004. Mr.
Wayland Cato will be available to the Registrant for consulting services
following his retirement.
The Registrant further announced that it expects to take a charge of
approximately $2.8 million in its third quarter ending November 1, 2003,
representing the present value of certain payments and benefits to Mr. Wayland
Cato and Mr. Edgar Cato under the terms of the agreements. The charge will be
approximately $1.8 million on an after-tax basis, or $.08 per diluted share for
the third quarter ending November 1, 2003, and the fiscal year ending January
31, 2004.
Page 18
PART II OTHER INFORMATION
(CONTINUED):
THE CATO CORPORATION
Copies of the agreements are filed with this Quarterly Report on Form 10-Q
as Exhibits 10.1 and 10.2, respectively. A copy of the press release
announcing the agreements is filed as Exhibit 99.1.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
SIGNATURES PAGE AND CERTIFICATES
Page 36
PART II OTHER INFORMATION (CONTINUED):
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.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
Six Months Ended
August 2,
August 3,
August 2,
August 3,
2003
2002
2003
2002
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Dollars in thousands, except per share data)
$
188,218
$
186,900
$
385,522
$
383,517
3,775
3,815
7,681
7,689
191,993
190,715
393,203
391,206
132,616
125,854
259,614
250,314
44,565
44,061
88,010
89,444
4,562
3,254
9,013
6,362
(1,887
)
(1,667
)
(3,014
)
(2,810
)
179,856
171,502
353,623
343,310
12,137
19,213
39,580
47,896
4,406
6,955
14,368
17,338
$
7,731
$
12,258
$
25,212
$
30,558
$
.30
$
.48
$
.99
$
1.20
$
.30
$
.47
$
.98
$
1.18
$
.16
$
.15
$
.31
$
.285
CONDENSED CONSOLIDATED BALANCE SHEETS
August 2,
August 3,
2003
2002
February 1,
(Unaudited)
(Unaudited)
2003
(Dollars in thousands)
$
59,836
$
73,517
$
32,065
66,255
37,474
74,871
53,092
51,973
54,116
79,998
86,372
93,457
1,530
983
1,392
5,651
4,875
4,990
266,362
255,194
260,891
113,131
107,666
113,307
9,617
9,128
9,212
$
389,110
$
371,988
$
383,410
$
52,304
$
62,660
$
66,620
27,698
29,505
28,776
8,012
7,921
2,886
88,014
100,086
98,282
6,310
5,177
6,310
8,700
8,343
8,654
854
839
840
193
202
203
96,087
92,355
94,947
253,226
228,288
235,904
10
(901
)
253
(1,935
)
(2,863
)
(2,375
)
348,435
317,920
329,772
(62,349
)
(59,538
)
(59,608
)
286,086
258,382
270,164
$
389,110
$
371,988
$
383,410
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
August 2,
August 3,
2003
2002
(Unaudited)
(Unaudited)
(Dollars in thousands)
$
25,212
$
30,558
9,013
6,362
4
48
440
261
243
283
1,024
320
13,459
(5,965
)
(1,066
)
(271
)
(15,485
)
8,956
5,126
7,101
37,970
47,653
(9,080
)
(14,174
)
(7,686
)
(234
)
16,055
5,300
(711
)
(9,108
)
(7,874
)
(7,230
)
(2,741
)
(1,116
)
245
263
882
1,283
(9,488
)
(6,800
)
27,771
31,745
32,065
41,772
$
59,836
$
73,517
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 2003
AND AUGUST 3, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 2003
AND AUGUST 3, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 2003
AND AUGUST 3, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 2003
AND AUGUST 3, 2002
Three Months Ended
Six Months Ended
August 2, 2003
August 3, 2002
August 2, 2003
August 3, 2002
$
7,731
$
12,258
$
25,212
$
30,558
*
(131
)
(179
)
(266
)
(391
)
$
7,600
$
12,079
$
24,946
$
30,167
$
.30
$
.48
$
.99
$
1.20
$
.30
$
.47
$
.98
$
1.18
$
.30
$
.47
$
.98
$
1.18
$
.29
$
.46
$
.97
$
1.16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 2003
AND AUGUST 3, 2002
Three Months Ended
Six Months Ended
August 2,
August 3,
August 2,
August 3,
2003
2002
2003
2002
25,478,008
25,516,138
25,458,696
25,397,580
410,325
503,984
391,925
550,970
25,888,333
26,020,122
25,850,621
25,948,550
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 2003
AND AUGUST 3, 2002
Three Months Ended
Six Months Ended
August 2,
August 3,
August 2,
August 3,
2003
2002
2003
2002
$
188,415
$
187,296
$
386,013
$
384,460
3,578
3,419
7,190
6,746
$
191,993
$
190,715
$
393,203
$
391,206
$
11,066
$
17,808
$
37,541
$
45,243
1,071
1,405
2,039
2,653
$
12,137
$
19,213
$
39,580
$
47,896
Three Months Ended
Six Months Ended
August 2,
August 3,
August 2,
August 3,
2003
2002
2003
2002
100.0
%
100.0
%
100.0
%
100.0
%
102.0
102.0
101.9
102.0
70.5
67.3
67.4
65.3
23.7
23.6
22.8
23.3
2.4
1.7
2.3
1.6
(1.0
)
(0.9
)
(0.8
)
(0.7
)
6.4
10.3
10.2
12.5
4.1
6.6
6.5
8.0
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended
Six Months Ended
August 2, 2003
August 3, 2002
August 2, 2003
August 3, 2002
$
7,731
$
12,258
$
25,212
$
30,558
*
(131
)
(179
)
(266
)
(391
)
$
7,600
$
12,079
$
24,946
$
30,167
$
.30
$
.48
$
.99
$
1.20
$
.30
$
.47
$
.98
$
1.18
$
.30
$
.47
$
.98
$
1.18
$
.29
$
.46
$
.97
$
1.16
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTROL AND PROCEDURES
For 72,509,261 ;
Abstaining
3,854,345
For
72,445,256 ;
Abstaining
3,918,350
For 75,597,838 ;
Abstaining
765,768
Abstaining
2,097,861 ;
Against 105,125
(A)
Exhibit No.
ITEM
4.1
Loan Agreement, dated as of August 22, 2003, between the
Registrant and Branch Banking and Trust Company (Not filed
herewith. The Registrant hereby agrees to furnish a copy of
this agreement to the Securities and Exchange Commission upon
request.)
10.1
Agreement, dated as of August 29, 2003, between the Registrant
and Wayland H. Cato, Jr.
10.2
Agreement, dated as of August 29, 2003, between the Registrant
and Edgar T. Cato
99.1
Press Release issued September 3, 2003
(B)
Form 8-K was filed on July 23, 2003 disclosing the July 22,
2003 Press Release whereby the Company entered into an agreement to
purchase the entire holdings of Class B Common Stock from the
Companys Co-Founders.
THE CATO CORPORATION
September 12, 2003
/s/ John P. Derham Cato
Date
John P. Derham Cato
President, Vice Chairman of the Board
and Chief Executive Officer
September 12, 2003
/s/ Michael O. Moore
Date
Michael O. Moore
Executive Vice President
Chief Financial Officer and Secretary
September 12, 2003
/s/ Robert M. Sandler
Date
Robert M. Sandler
Senior Vice President
Controller
Page 19
Exhibit 10.1
STATE OF NORTH CAROLINA | ||
COUNTY OF MECKLENBURG | AGREEMENT |
THIS AGREEMENT (the Agreement), is made and entered into as of the 29th day of August, 2003 (the Effective Date) by and between The Cato Corporation, a Delaware corporation (the Company), and Wayland H. Cato, Jr. (Wayland Cato).
W I T N E S S E T H:
WHEREAS, Wayland Cato is an employee, director and non-executive Chairman of the Board of the Company; and
WHEREAS, the Company and Wayland Cato have negotiated and agreed on the terms of this Agreement providing for his resignation as an employee and director of the Company and for the ongoing obligation of the parties following the effective date of this Agreement and his retirement from the Company.
NOW, THEREFORE, the parties, intending legally to be bound, hereby agree to the mutual terms and conditions set forth below:
1. Continued Services and Retirement. Wayland Cato shall continue to serve as an employee, a director and as non-executive Chairman of the Board of the Company to January 31, 2004 (the Retirement Date) at which time his resignation as an employee, director and the non-executive chairman of the Board of Directors of the Company shall be effective and he shall retire and relinquish all positions and responsibilities with the Company and its subsidiaries and affiliates (the Cato Group) except as specifically set forth herein. Provided, that Wayland Cato shall be entitled, at his option, to resign as a director and/or as the non-executive Chairman of the Board prior to January 31, 2004 without affecting the obligations of the Company set forth herein.
2. Continuing Obligations of Wayland Cato. In consideration of the benefits to Wayland Cato set forth in paragraph 3 hereof, Wayland Cato shall comply with the following obligations to the Cato Group following the Retirement Date:
A. Confidentiality of Company Information. Wayland Cato acknowledges the confidential and proprietary nature of the Confidential Information of the Cato Group and agrees that he will not, without the prior, express written consent of the Chief Executive Officer of the Company, directly or indirectly:
(i) | use or disclose any Confidential Information outside the Cato Group except as required by law, | ||
(ii) | publish any article with respect thereto, |
Page 20
Exhibit 10.1
(iii) | except in the performance of services to the Cato Group, remove from the premises of the Company, or aid in such removal, any such Confidential Information or any property or material related thereto (except as authorized under subparagraph E. below), or | ||
(iv) | sell, exchange or give away or otherwise dispose of any such Confidential Information now or hereafter owned by the Company. |
For purposes of this Agreement, Confidential Information means and includes any and all of the following (whether or not documented):
(i) | vendor information, including but not limited to names of vendors, vendor transaction information, and billing, purchasing or credit history information about vendors; | ||
(ii) | financial information, including but not limited to, financial statements, balance sheets, profit and loss statements, earnings, commissions, benefits and salaries paid to employees, sales data and projections, sales and income forecasts, cost analyses, pricing information, business goals and projections, equipment and inventory data, profit margins, and similar information; | ||
(iii) | all sources and methods of supply, including but not limited to supplier lists, business arrangements, buying and inventory techniques, supply terms, supply and manufacturing contracts, purchasing discounts, distribution agreements, and similar information; | ||
(iv) | all plans and projections for business opportunities for new or developing business, including but not limited to, marketing concepts, business plans, merchandising and marketing techniques, store leases, store site selection and location plans and processes, real estate activities, real estate/expansion information, advertising strategies, product lines, store development, and sales plans; | ||
(v) | all information relating to costs, research and development activities, service performance, quality control measures or strategies, loss prevention measures, operating results, pricing strategies, employee lists and other confidential or proprietary information, software, designs, patents, ideas, machinery, plans, know-how and trade secrets; | ||
(vi) | all other confidential or trade secret information that is used, or is designed to be used in the business of the Cato Group or results from its research or development activities. |
Page 21
Exhibit 10.1
Confidential Information shall not include information that is generally known or available to the public or the industry other than as a result of disclosure by Wayland Cato.
B. Non-solicitation of Cato Group Employees. Wayland Cato agrees that he will not, during the period of time through January 31, 2007, (i) solicit for employment, offer employment to, engage as an employee, independent contractor or in any manner induce or seek to induce any person who is a managerial or administrative employee of the Cato Group to become employed by or engaged as an independent contractor with someone other than the Cato Group, (ii) solicit or encourage any such employee to terminate his or her employment with the Cato Group, or (iii) otherwise interfere with any such employees relationship with the Cato Group. Provided, that the foregoing prohibition shall not apply to the employees currently assigned to the non-executive Chairmans office (namely, Theresa Gebhardt, Sylvia Remeta and Debra Jones) all of whom are anticipated to remain employees of the Company only through December 31, 2003.
C. Non-Competition. Wayland Cato agrees that for the period of time through January 31, 2007 (the Restricted Period) he will not, directly or indirectly, in the Restricted Area (as defined below), Compete (as defined below) with the Cato Group.
For purposes of this Agreement, the Restricted Area means the area within a twenty-five (25) mile radius of any retail store under development, operation or ownership by any member of the Cato Group during the Restricted Period.
For purposes of this Agreement, Compete means to engage in any business activity whatsoever related in any manner or fashion to the operation of retail stores that sell or offer to sell value-priced womens apparel or accessories. Without limiting the generality of the foregoing, Wayland Cato will not, directly or indirectly (whether for compensation or otherwise), alone or as an agent, principal, partner, officer, employee, trustee, director, shareholder or in any other capacity, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or furnish any capital to, or be connected in any manner with, or provide any services as a consultant for, any business which Competes with the Cato Group in the Restricted Area; provided, however, that notwithstanding the foregoing, nothing contained in this letter shall be deemed (i) to preclude Wayland Cato from owning not more than 5% of the publicly traded securities of any entity which Competes with the Cato Group or (ii) to preclude Wayland Cato from owning or having an ownership interest in shopping centers or buildings which may lease property to businesses that Compete with the Cato Group.
D. Consulting Services. During the period following the Retirement Date through January 31, 2007, Wayland Cato will be available on reasonable notice and at reasonable times, either in person or by telephone, to furnish to the Cato Group such advisory or consulting services regarding senior management issues as the Company may reasonably call upon Wayland Cato to furnish, provided that Wayland Cato will not be required to devote more than eighty (80) hours of service during any 12 month period to the Cato Group. The Company will reimburse Wayland Cato for any reasonable expenses he incurs in connection with rendering consulting services requested by the Company.
Page 22
Exhibit 10.1
E. Office Relocation. No later than the Retirement Date, Wayland Cato will relocate his office from the Company premises. Wayland Cato shall be entitled to remove all or any part of the property listed on Schedule 1 from the Company premises without reimbursement or payment to the Company.
3. Obligations of the Company. In consideration of the obligations of Wayland Cato to the Cato Group set forth in paragraph 2 of the Agreement, the Company shall comply with the following obligations to Wayland Cato:
A. Salary and Benefits. The Company will continue Wayland Catos current salary and benefits through January 31, 2004. In the event of Wayland Catos death prior to January 31, 2004, the Company will continue to pay his salary to his estate to January 31, 2004.
B. Continuing Payments. The Company will pay Wayland Cato the sum of $500,000 per year during the three-year period commencing February 1, 2004 in equal monthly installments. In the event of Wayland Catos death subsequent to the Effective Date, the Company will pay Wayland Catos estate a lump sum amount equal to the then aggregate present value (determined using a discount rate equal to the applicable federal short-term rate in effect under Section 1274(d) of the Internal Revenue Code for the month of his death) of the payments payable pursuant to this subparagraph which remain unpaid to January 31, 2007. Such payment to be made as soon as administratively feasible after his death.
C. Group Term Life Insurance. For the three year period commencing on the Retirement Date, the Company will continue to provide group term life insurance to Wayland Cato comparable to that provided to him on January 31, 2004.
D. Split Dollar Life Insurance. The Split-Dollar Life Insurance Agreement dated September 17, 1998 and the Supplemental Compensation Agreement dated September 17, 1998 shall each continue in effect in accordance with their respective terms.
E. Healthcare. Following the Retirement Date and for the remainder of Wayland Catos life, the Company will provide Wayland Cato and his wife, Marion Cato, with the same or comparable group healthcare coverage on the same economic terms and conditions as it provides such coverage to its senior executives. In the event Wayland Cato predeceases Marion Cato, the Company will provide such coverage to her for her life (if she is married to Wayland Cato at the time of his death).
F. Transition Expenses. As soon as is administratively feasible after the Effective Date, the Company will pay Wayland Cato the sum of $100,000 to assist with the cost of the relocation of his office.
The Company shall have no obligations to Wayland Cato following the Effective Date except as is specifically set forth in the Agreement; provided Wayland Cato shall continue
Page 23
Exhibit 10.1
to be entitled to any benefits due to him under the benefit plans listed on Schedule 2 attached hereto.
4. Tax. Wayland Cato acknowledges that income may be imputed to him in connection with the receipt of the benefits provided under the Agreement and that Wayland Cato will be responsible for the payment of all federal or state tax liabilities, penalties, interest, tax payments or tax judgments that could arise as a result of these benefits; provided, that this shall not affect the obligations of the Company under the Supplemental Compensation Agreement referred to in subparagraph 3.D. above. The Company may withhold from any amounts or benefits payable or provided under this Agreement such federal, state and local taxes as are required to be withheld pursuant to any applicable law or regulation.
5. Acknowledgements. Wayland Cato acknowledges that he has carefully read this Agreement, that he knows and understands the contents of this Agreement, that he has consulted with a lawyer regarding this Agreement, and that he executes this Agreement of his own free will. Wayland Cato and the Company agree that the mutual consideration to the parties hereto is fair and reasonable.
6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina.
7. Notices. Any notice or other communications to be given hereunder shall be deemed to have been given or delivered when delivered by hand to the individuals named below or when deposited in the United States mail, registered or certified, with proper postage and registration or certification fees prepaid, addressed to the parties as follows (or to such other address as one party shall give the other in the manner provided herein):
The Cato Corporation
8100 Denmark Road P. O. Box 34216 Charlotte, NC 28234 Attention: Chief Executive Officer |
|||
Mr. Wayland H. Cato, Jr.
782 Soldier Creek Road Sheridan, WY 82801 |
8. Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained herein and supersedes any and all prior and contemporaneous agreements, representations, promises, inducements and understandings of the parties. This written Agreement cannot be varied, contradicted or supplemented by evidence of any prior or contemporaneous oral or written agreements. Moreover, this written Agreement may not be later modified except by a further writing signed by a duly authorized officer of the Company and Wayland Cato.
Page 24
Exhibit 10.1
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
|
||||
Wayland H. Cato, Jr. | ||||
THE CATO CORPORATION | ||||
By: |
|
|||
Its: |
|
Page 25
Exhibit 10.1
Schedule 1
Office furniture and filing cabinets currently located in the Chairmans office complex
1999 Ford Taurus
Oil portrait of Wayland H. Cato, Sr. which is currently in storage
Portraits of individual directors and directors as a group currently located in the Board Room at such time as the Company decides not to display such portraits
Page 26
Exhibit 10.1
Schedule 2
1. The Cato Corporation 401(k) Profit Sharing Plan
2. The Cato Corporation Life and AD&D Plan Option to convert within 31 days following retirement
Page 27
Exhibit 10.2
STATE OF NORTH CAROLINA | ||
COUNTY OF MECKLENBURG | AGREEMENT |
THIS AGREEMENT (the Agreement), is made and entered into as of the 29th day of August, 2003 (the Effective Date) by and between The Cato Corporation, a Delaware corporation (the Company), and Edgar T. Cato (Edgar Cato).
W I T N E S S E T H:
WHEREAS, Edgar Cato is an employee and director of the Company; and
WHEREAS, the Company and Edgar Cato have negotiated and agreed on the terms of this Agreement providing for his resignation as an employee and director of the Company and for the ongoing obligation of the parties following the effective date of this Agreement and his retirement from the Company.
NOW, THEREFORE, the parties, intending legally to be bound, hereby agree to the mutual terms and conditions set forth below:
1. Continued Services and Retirement. Edgar Cato shall continue to serve as an employee and as a director of the Company to January 31, 2004 (the Retirement Date) at which time his resignation as an employee and director shall be effective and he shall retire and relinquish all positions and responsibilities with the Company and its subsidiaries and affiliates (the Cato Group) except as specifically set forth herein. Provided, that Edgar Cato shall be entitled, at his option, to resign as a director prior to January 31, 2004 without affecting the obligations of the Company set forth herein.
2. Continuing Obligations of Edgar Cato. In consideration of the benefits to Edgar Cato set forth in paragraph 3 hereof, Edgar Cato shall comply with the following obligations to the Cato Group following the Retirement Date:
A. Confidentiality of Company Information. Edgar Cato acknowledges the confidential and proprietary nature of the Confidential Information of the Cato Group and agrees that he will not, without the prior, express written consent of the Chief Executive Officer of the Company, directly or indirectly:
(i) | use or disclose any Confidential Information outside the Cato Group except as required by law, | ||
(ii) | publish any article with respect thereto, | ||
(iii) | except in the performance of services to the Cato Group, remove from the premises of the Company, or aid in such removal, any such Confidential |
Page 28
Exhibit 10.2
Information or any property or material related thereto (except as authorized under subparagraph D below), or | |||
(iv) | sell, exchange or give away or otherwise dispose of any such Confidential Information now or hereafter owned by the Company. |
For purposes of this Agreement, Confidential Information means and includes any and all of the following (whether or not documented):
(i) | vendor information, including but not limited to names of vendors, vendor transaction information, and billing, purchasing or credit history information about vendors; | ||
(ii) | financial information, including but not limited to, financial statements, balance sheets, profit and loss statements, earnings, commissions, benefits and salaries paid to employees, sales data and projections, sales and income forecasts, cost analyses, pricing information, business goals and projections, equipment and inventory data, profit margins, and similar information; | ||
(iii) | all sources and methods of supply, including but not limited to supplier lists, business arrangements, buying and inventory techniques, supply terms, supply and manufacturing contracts, purchasing discounts, distribution agreements, and similar information; | ||
(iv) | all plans and projections for business opportunities for new or developing business, including but not limited to, marketing concepts, business plans, merchandising and marketing techniques, store leases, store site selection and location plans and processes, real estate activities, real estate/expansion information, advertising strategies, product lines, store development, and sales plans; | ||
(v) | all information relating to costs, research and development activities, service performance, quality control measures or strategies, loss prevention measures, operating results, pricing strategies, employee lists and other confidential or proprietary information, software, designs, patents, ideas, machinery, plans, know-how and trade secrets; | ||
(vi) | all other confidential or trade secret information that is used, or is designed to be used in the business of the Cato Group or results from its research or development activities. |
Confidential Information shall not include information that is generally known or available to the public or the industry other than as a result of disclosure by Edgar Cato.
Page 29
Exhibit 10.2
B. Non-solicitation of Cato Group Employees. Edgar Cato agrees that he will not, during the period of time through January 31, 2007, (i) solicit for employment, offer employment to, engage as an employee, independent contractor or in any manner induce or seek to induce any person who is a managerial or administrative employee of the Cato Group to become employed by or engaged as an independent contractor with someone other than the Cato Group, (ii) solicit or encourage any such employee to terminate his or her employment with the Cato Group, or (iii) otherwise interfere with any such employees relationship with the Cato Group. Provided, that the foregoing prohibition shall not apply to the employees currently assigned to the non-executive Chairmans office (namely, Theresa Gebhardt, Sylvia Remeta and Debra Jones) all of whom are anticipated to remain employees of the Company only through December 31, 2003.
C. Non-Competition. Edgar Cato agrees that for the period of time through January 31, 2007 (the Restricted Period) he will not, directly or indirectly, in the Restricted Area (as defined below), Compete (as defined below) with the Cato Group.
For purposes of this Agreement, the Restricted Area means the area within a twenty-five (25) mile radius of any retail store under development, operation or ownership by any member of the Cato Group during the Restricted Period.
For purposes of this Agreement, Compete means to engage in any business activity whatsoever related in any manner or fashion to the operation of retail stores that sell or offer to sell value-priced womens apparel or accessories. Without limiting the generality of the foregoing, Edgar Cato will not, directly or indirectly (whether for compensation or otherwise), alone or as an agent, principal, partner, officer, employee, trustee, director, shareholder or in any other capacity, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or furnish any capital to, or be connected in any manner with, or provide any services as a consultant for, any business which Competes with the Cato Group in the Restricted Area; provided, however, that notwithstanding the foregoing, nothing contained in this letter shall be deemed to (i) preclude Edgar Cato from owning not more than 5% of the publicly traded securities of any entity which Competes with the Cato Group or (ii) to preclude Edgar Cato from owning or having an ownership interest in shopping centers or buildings which may lease property to businesses that compete with the Cato Group.
D. Office Relocation. No later than the Retirement Date, Edgar Cato will relocate his office from the Company premises. Edgar Cato shall be entitled to remove all or any part of the property listed on Schedule 1 from the Company premises without reimbursement or payment to the Company.
3. Obligations of the Company. In consideration of the obligations of Edgar Cato to the Cato Group set forth in paragraph 2 of the Agreement, the Company shall comply with the following obligations to Edgar Cato:
A. Salary and Benefits. The Company will continue Edgar Catos current salary and benefits through January 31, 2004. In the event of Edgar Catos death prior to January 31, 2004, the Company will continue to pay his salary to his estate to January 31, 2004.
Page 30
Exhibit 10.2
B. Continuing Payments. The Company will pay Edgar Cato the sum of $50,000 per year during the three-year period commencing February 1, 2004 in equal monthly installments. In the event of Edgar Catos death subsequent to the Effective Date, the Company will pay Edgar Catos estate a lump sum amount equal to the then aggregate present value (determined using a discount rate equal to the applicable federal short-term rate in effect under Section 1274(d) of the Internal Revenue Code for the month of his death) of the payments payable pursuant to this subparagraph which remain unpaid to January 31, 2007. Such payment to be made as soon as administratively feasible after his death.
C. Group Term Life Insurance. For the three year period commencing on the Retirement Date, the Company will continue to provide group term life insurance to Edgar Cato comparable to that provided to him on January 31, 2004.
D. Healthcare. Following the Retirement Date and for the remainder of Edgar Catos life, the Company will provide Edgar Cato and his wife, Judith B. Cato, with the same or comparable group healthcare coverage on the same economic terms and conditions as it provides such coverage to its senior executives. In the event Edgar Cato predeceases Judith B. Cato, the Company will provide such coverage to her for her life (if she is married to Edgar Cato at the time of his death).
E. Life Insurance Option. By giving notice to the Company prior to the Retirement Date, Edgar Cato shall have the option to purchase the following life insurance policies at their respective cash value:
Prudential Policy #75247139
Principal Financial Group Policy #3270890 |
The Company shall have no obligations to Edgar Cato following the Effective Date except as is specifically set forth in the Agreement; provided Edgar Cato shall continue to be entitled to any benefits due to him under the benefit plans listed on Schedule 2 attached hereto.
4. Tax. Edgar Cato acknowledges that income may be imputed to him in connection with the receipt of the benefits provided under the Agreement and that Edgar Cato will be responsible for the payment of all federal or state tax liabilities, penalties, interest, tax payments or tax judgments that could arise as a result of these benefits. The Company may withhold from any amounts or benefits payable or provided under this Agreement such federal, state and local taxes as are required to be withheld pursuant to any applicable law or regulation.
5. Acknowledgements. Edgar Cato acknowledges that he has carefully read this Agreement, that he knows and understands the contents of this Agreement, that he has consulted with a lawyer regarding this Agreement, and that he executes this Agreement of his own free will. Edgar Cato and the Company agree that the mutual consideration to the parties hereto is fair and reasonable.
Page 31
Exhibit 10.2
6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina.
7. Notices. Any notice or other communications to be given hereunder shall be deemed to have been given or delivered when delivered by hand to the individuals named below or when deposited in the United States mail, registered or certified, with proper postage and registration or certification fees prepaid, addressed to the parties as follows (or to such other address as one party shall give the other in the manner provided herein):
The Cato Corporation
8100 Denmark Road P. O. Box 34216 Charlotte, NC 28234 Attention: Chief Executive Officer |
|||
Mr. Edgar T. Cato
3985 Douglas Road Miami, FL 33133-6508 |
8. Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained herein and supersedes any and all prior and contemporaneous agreements, representations, promises, inducements and understandings of the parties. This written Agreement cannot be varied, contradicted or supplemented by evidence of any prior or contemporaneous oral or written agreements. Moreover, this written Agreement may not be later modified except by a further writing signed by a duly authorized officer of the Company and Edgar Cato.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
|
||||
Edgar T. Cato | ||||
THE CATO CORPORATION | ||||
By: |
|
|||
Its: |
|
Page 32
Exhibit 10.2
Schedule 1
Office furniture currently located in Edgar Catos office
Page 33
Exhibit 10.2
Schedule 2
1. | The Cato Corporation 401(k) Profit Sharing Plan |
Page 37
CERTIFICATION
I, John P. Derham Cato, President, Vice Chairman of the Board and Chief
Executive Officer of The Cato Corporation, certify that:
Date: September 12, 2003
/s/ John P. Derham Cato
1.
I have reviewed this quarterly report on Form 10-Q of The Cato
Corporation;
2.
Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4.
The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15(e)) for the registrant and
we have:
a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
quarterly report is being prepared;
b)
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c)
Evaluated the effectiveness of the registrants disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrants
most recent fiscal quarter (the registrants second fiscal quarter in
the case of a quarterly report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal
control over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent
functions):
a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
control over financial reporting.
John P. Derham Cato
President, Vice Chairman of the Board
Page 38
CERTIFICATION
I, Michael O. Moore, Executive Vice President,
Chief Financial Officer and Secretary of The
Cato Corporation, certify that:
Date: September 12, 2003
/s/ Michael O. Moore
1.
I have reviewed this quarterly report on Form 10-Q of The Cato
Corporation;
2.
Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4.
The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15(e)) for the registrant and
we have:
a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
quarterly report is being prepared;
b)
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c)
Evaluated the effectiveness of the registrants disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrants
most recent fiscal quarter (the registrants second fiscal quarter in
the case of a quarterly report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal
control over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent
functions):
a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
control over financial reporting.
Michael O. Moore
Executive Vice President
Page 39
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
In connection with the Quarterly Report of The Cato Corporation (the
Company) on Form 10-Q for the quarter ended August 2, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, John
P. Derham Cato, President, Vice Chairman of the Board and Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. sec. 1350 as adopted
pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that (1) The Report
fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and (2) The information contained in the
Report fairly presents, in all material respects, the financial condition and
result of operations of the Company.
/s/ John P. Derham Cato
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
John P. Derham Cato
President, Vice Chairman of the Board
Page 40
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
In connection with the Quarterly Report of The Cato Corporation (the
Company) on Form 10-Q for the quarter ended August 2, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I,
Michael O. Moore, Executive Vice President, Chief Financial Officer and
Secretary of the Company, certify, pursuant to 18 U.S.C. sec. 1350 as adopted
pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that (1) The Report
fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and (2) The information contained in the
Report fairly presents, in all material respects, the financial condition and
result of operations of the Company.
/s/ Michael O. Moore
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Michael O. Moore
Executive Vice President
Page 34
Exhibit 99.1
NEWS RELEASE | ||
FOR IMMEDIATE RELEASE | ||
CEO Approval | ||
For Further Information Contact: | ||
Michael O. Moore
Executive Vice President Chief Financial Officer 704-551-7201 |
CATO ANNOUNCES RETIREMENT AGREEMENTS WITH COMPANY
FOUNDERS
Charlotte, N.C. (September 3, 2003) The Cato Corporation (NYSE: CTR) announced today that the Company has entered into agreements with Mr. Wayland H. Cato, Jr., a Company founder and Chairman of the Board and Mr. Edgar T. Cato, a Company founder and a member of the Board of Directors. The agreements provide for the retirement of Mr. Wayland Cato and Mr. Edgar Cato from the Company and the Board of Directors effective January 31, 2004. Mr. Wayland Cato will be available to the Company for consulting services following his retirement.
In the third quarter, the Company expects to take a charge of approximately $2.8 million representing the present value of certain payments and benefits to Mr. Wayland Cato and Mr. Edgar Cato under the terms of the agreements. The charge will be approximately $1.8 million on an after-tax basis, or $.08 per diluted share for the third quarter and year. The benefits include compensation for three years commencing on the retirement date, life insurance coverage for three years, continuation of medical insurance coverage, and assistance with the relocation of their offices and are in consideration of the consulting services, non-competition covenants and confidentiality covenants, among other obligations of the retirees.
The retirement agreements were negotiated by the Compensation Committee of the Board of Directors and approved by the independent directors on the Companys Board.
Page 35
Exhibit 99.1
The Cato Corporation is a leading specialty retailer of value-priced womens fashion apparel operating two divisions, Cato and Its Fashion!. The Company primarily offers exclusive merchandise with fashion and quality comparable to mall specialty stores at low prices, every day. As of August 30, 2003, The Cato Corporation operated 1,063 stores in 26 states. Additional information on The Cato Corporation is available at www.catocorp.com.
Statements in this press release not historical in nature, including specifically the Companys expectations regarding the amount of the charge it expects to take in the third quarter as a result of the retirement agreements described above, are considered forward-looking within the meaning of The Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations that are 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: judgments regarding the ultimate valuation of, and accounting treatment accorded to, the benefits to be provided pursuant to the retirement agreements described above, general economic conditions; competitive factors and pricing pressures; the Companys ability to predict fashion trends; consumer apparel buying patterns; adverse weather conditions and inventory risks due to shifts in market demand. The Company does not undertake to publicly update or revise the forward-looking statements even if experience or future changes make it clear that the projected results expressed or implied therein will not be realized. The Company is not responsible for any changes made to this press release by wire or Internet services.
# # #