SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended Commission File
January 30, 1999 Number 000-19372
REGISTRANT: CATHERINES STORES CORPORATION
State of Incorporation: Tennessee I.R.S. Employer Identification
Number: 62-1350411
Address of Principal Executive Offices: Registrant's Telephone Number:
3742 Lamar Avenue 901-363-3900
Memphis, Tennessee 38118
SECURITIES REGISTERED SECURITIES REGISTERED
PURSUANT TO SECTION PURSUANT TO SECTION
12(b) OF THE ACT: 12(g) OF THE ACT:
None Common Stock, $0.01 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ____X____ No _________
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
As of March 31, 1999, there were 6,974,349 shares of Common Stock
outstanding. The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of March 31, 1999, was $48,820,443 based on
the last reported sales price per share on the NASDAQ National Market System on
that date.
Documents incorporated by reference:
1. Portions of the Annual Report to Shareholders for the fiscal year ended
January 30, 1999 are incorporated by reference into Part II - Items 5, 6, 7 and
8 and Part IV - Item 14 (a)1.
2. Portions of the Company's Proxy Statement (the "Proxy Statement")
relating to the Annual Meeting to be held on June 2, 1999 which has been filed
with the Commission are incorporated by reference into Part III - Items 10, 11,
12 and 13.
PART I
ITEM 1. BUSINESS
Overview
Catherines Stores Corporation, (the "Company"), through its wholly owned
subsidiaries, Catherines, Inc. ("Catherines"), Catherines of California, Inc.,
and Catherines of Pennsylvania, Inc., and through a limited partnership,
Catherines Partners, LP, is a leading specialty retailer of large-size women's
apparel, operating 432 stores in 40 states and the District of Columbia. The
Company operates four separate divisions with distinct merchandising concepts
and marketing strategies.
The Catherine's division operates 214 stores in medium-sized cities,
primarily in the Southeast, Southwest and Midwest, and competes principally on
the basis of merchandise selection and customer service. The PS...Plus Sizes,
Plus Savings ("Plus Sizes") division operates 111 stores in major metropolitan
areas such as Chicago, Washington, D.C., Houston, Dallas, Detroit, Seattle and
Los Angeles and competes principally on the basis of merchandise selection and
price. Both divisions' stores offer a full assortment of merchandise, primarily
at budget to moderate prices. The merchandise assortment emphasizes casual
fashions. The stores carry a complete range of large sizes, including sizes over
26 that frequently are not offered by the Company's competitors.
The Added Dimensions division operates 79 stores in medium-sized cities
throughout the Southeast and Midwest offering full price, high quality
merchandise. Added Dimensions has an extensive private label sportswear
merchandise program which allows it to offer exclusive fashions to its
customers. The Answer division operates 28 stores in major metropolitan areas.
Stores in the Washington, D.C., Detroit and Chicago areas account for
approximately two-thirds of The Answer's stores. Both divisions' stores offer a
full assortment of sportswear, dresses, coats and more limited assortments of
intimate apparel and accessories at moderate to better prices. The merchandise
assortment is predominately career-oriented.
Customer Base
The Company seeks to serve the primary apparel and accessory needs of women
who wear size 14 or larger. The Company estimates that almost 50 million
American women are overweight. The Company's target customer is over 35 years of
age, has traditional but fashion-conscious tastes, and is primarily concerned
with fit and value in apparel selection. The Company believes that customers are
attracted to its stores by the Company's emphasis on broad assortments, quality,
fit, value and customer service.
Merchandising
The Company's stores offer sportswear, dresses, intimate apparel, coats and
accessories. Sportswear makes up over half of the Company's sales. The
Catherine's and Plus Sizes divisions offer a broad assortment of merchandise in
sizes over 26, making the Company one of the few retailers to emphasize these
sizes.
The majority of the Company's merchandising mix is composed of brand name
product lines which appeal to a wide spectrum of customer tastes. Brand name
merchandise is purchased primarily from domestic vendors including Judy's Group,
Lady Hazen, Requirements Women, Jessica Howard and Victoria Jones Woman.
Private label merchandise made exclusively for the Company comprises
approximately 35% of the merchandise mix. Significant private label categories
include jackets, pants, sweaters, blouses, skirts, tops, coats, activewear,
suits and hosiery. Trademarks owned and used include "CST Studio", "CST Sport",
"Maggie Barnes", "Kathy White", "Liz & Me", "AD Sport", "Grove Avenue" and "Jon
Lawrence." Private label merchandise, which carries a higher initial markup,
allows the Company to offer its customers exclusive merchandise at attractive
prices and to control size specifications and quality. The Company employs a
vice-president of product development and a three-person product development
staff to design the styles and develop fit specifications. The Company expects
to continue to expand its private label merchandise.
Personalized customer service is emphasized in all operating divisions.
Sales associates are trained in techniques that emphasize product knowledge,
wardrobing and telephone contact to better advise and service the customers.
Personnel in all operating divisions provide fitting room service. Personalized
service is supplemented by store procedures designed to allow the customer to
efficiently make purchases and by merchandise presentation. Sales associates can
also use the Company's systems to locate garments in a size, style or color
requested by the customer but not available in the associate's store.
The Company's point-of-sale registers capture financial, credit and
statistical information at the time of each merchandise transaction. This
information is used on a regular basis to evaluate and adjust each store's
merchandise mix. Merchandise assortments are tailored to each store, with
merchandise selected and distributed based on each store's profile and sales
experience.
All four operating divisions carry a broad selection of merchandise.
Catherine's and Plus Sizes focus on budget to moderate price points, while Added
Dimensions and The Answer concentrate on moderate to better price points.
Catherine's, Plus Sizes and Added Dimensions are competitively priced while The
Answer prices below competitors. All divisions centrally control markdowns which
are taken during the season on slow selling styles. At the end of the season,
merchandise is consolidated and liquidated through clearance sales.
Purchasing and Distribution
A significant portion of the Company's merchandise is purchased from
domestic vendors who offer brand name merchandise not generally sold by the
Company's competitors. The Company attempts to obtain exclusive merchandise from
these vendors for the Company, including merchandise for the Company's larger
sizes.
In addition to domestically purchased brand name merchandise, the Company
also has private label merchandise produced in the Far East. A group of the
Company's buyers visits manufacturers in several Far Eastern countries twice a
year to arrange for merchandise to be manufactured for the Company under its own
private labels. Approximately 15% of the Company's merchandise is purchased
overseas. Such purchases are made in U.S. dollars and generally are financed by
letters of credit. To date, the Company has not experienced difficulties in
purchasing merchandise overseas or importing such merchandise into the United
States. If political instability in a country where imported merchandise is
produced or other factors disrupt or curtail overseas production, the Company
believes it would have adequate alternate sources of merchandise.
At January 30, 1999, the Company employed one executive vice-president of
merchandising, one senior vice-president of merchandising, four vice-presidents
of merchandising, 19 buyers and 8 associate buyers. The merchandise and buying
staff is supplemented by a vice-president of product development and a
three-person product development staff, which designs, develops fit
specifications, controls quality and procures private label merchandise. The
Catherine's and Plus Sizes buyers are based in Memphis and visit New York City
approximately eight times per year to make purchases. Added Dimensions' and The
Answer's merchandising and buying organization operates from leased facilities
in New York City. In fiscal 1998, the Company purchased merchandise from
approximately 600 vendors. The Company's ten largest domestic vendors accounted
for 24% of the Company's purchases with no single vendor accounting for more
than 3% of the Company's domestic purchases. The Company believes its
relationships with its vendors are strong and that the loss of any one vendor
would not have a material adverse effect on the Company's business.
The Company purchased and implemented a new merchandise planning and
allocation system in fiscal 1998. In connection with the implementation of the
new system, the Company re-aligned the merchandising organization to create a
new department to perform only merchandise planning and allocation functions.
The number of people in the merchandising area has not changed; however, there
are now fewer buyers and more planners and allocators. In addition to the
buyers, the Company also employs one Vice President of Planning and
Distribution, one Director of Planning and Distribution, 7 merchandise planners
and 9 merchandise distributors.
Almost all of the Company's purchases are shipped to the Company's 213,000
square foot distribution center in Memphis, Tennessee. At the distribution
center, which is designed to handle up to approximately 1,000 stores,
merchandise is received, counted, and sorted for distribution to the Company's
stores. A merchandise distribution and planning staff determines the quantities
to be shipped to each store based on the store's needs and merchandise profile.
After the merchandise is picked and packed by store, it is shipped to the stores
daily via commercial package delivery services.
Store Operations
As of January 30, 1999, the Company operated 432 stores in 40 states and
the District of Columbia. The following table sets forth the location of these
stores:
Store Locations by State
State Total State Total
Alabama 14 Mississippi 6
Arkansas 4 Missouri 10
Arizona 4 Nebraska 3
California 16 New Jersey 6
Colorado 4 New Mexico 1
Connecticut 1 New York 14
District of Columbia 1 North Carolina 20
Delaware 2 Oklahoma 6
Florida 22 Ohio 34
Georgia 23 Oregon 4
Idaho 1 Pennsylvania 9
Illinois 26 Rhode Island 1
Indiana 16 South Carolina 14
Iowa 5 South Dakota 1
Kansas 3 Tennessee 21
Kentucky 4 Texas 36
Louisiana 17 Virginia 20
Maryland 11 Washington 7
Massachusetts 5 Wisconsin 7
Michigan 24 West Virginia 2
Minnesota 7
The Company's stores range in size from approximately 2,000 to 8,100 square
feet and average approximately 3,750 square feet. In order to be in a position
to provide a broader assortment of merchandise in its stores, the Company
expects future stores for all divisions to be as large or larger than the
current average and intends, where warranted, to expand smaller existing stores,
either by expanding in existing locations or by moving to larger locations as
leases expire, to take advantage of market opportunities to increase sales.
Over 89% of the Company's stores are located in strip shopping centers or
are free standing. The remaining stores are located in shopping malls. The
Company believes its locations generally are in high traffic areas and offer
adequate parking. The Company seeks to create an atmosphere of excitement
through its new merchandise flow, sales promotions, merchandise presentation and
the quality, value and depth of its merchandise assortments.
Each store is generally staffed by a store manager, a comanager and/or one
or more assistant managers, and several sales associates. Most store managers
have a least five years of retail experience. Store managers report to district
managers, who in turn report to the Company's Regional Directors of Stores.
The Company periodically reviews its store base and determines whether
particular stores need to be improved or closed. During the last 5 years, the
Company opened 27% of its current store base and remodeled/relocated 31% of its
current store base. The Company generally closes a store at the end of a lease
term when the operating profit generated by the store is insufficient to make a
contribution to fixed corporate overhead. Stores are closed prior to lease
expiration when they are unprofitable and have, in the Company's opinion,
limited potential for improvement and the Company has reached satisfactory
agreement with the landlord for closing the location. The Company closed 14
stores in fiscal year 1998, 20 stores in fiscal year 1997 and 9 stores in fiscal
year 1996. The Company plans to close an additional 15 stores.
During fiscal 1998, the Company opened 3 stores and relocated, remodeled or
expanded 28 stores. The average capital cost to build a new store is
approximately $140,000 plus inventory requirements of approximately $110,000 per
store (of which approximately 45% is financed by vendor accounts payable).
The Company expects to open between 10 and 12 stores and to relocate,
remodel or expand up to 43 stores in fiscal 1999. The Company believes there are
adequate real estate opportunities to open additional stores in the markets it
currently serves and to enter new markets in its overall trade areas.
Marketing
The Company uses direct mail as its primary advertising medium. The Company
builds its mailing list by capturing customer name, address, payment and
purchase information at the point-of-sale. Using this list of two million names,
each of the Company's operating divisions sends approximately 30 direct mail
pieces per year designed to attract customers to its stores for special values
or discounts. In fiscal 1998, advertising expense was 3.9% of net sales with
direct mail accounting for 88% of the total.
The Company offers two types of customer loyalty programs. Catherine's and
Plus Sizes offers a "Perks" card which is purchased by the customer and entitles
her to a discount on all purchases for one year. Added Dimensions and The Answer
provide in house charge customers with a "Preferred Customer" program, which
entitles them to a gift certificate when certain purchase levels are reached. In
January 1999, the Company decided to discontinue the "Preferred Customer"
program. On March 1, 1999, Added Dimensions and The Answer began offering a
program similar to the "Perks" program.
In addition, the Company believes its stores' locations in convenient high
traffic mall and highly visible strip shopping centers, and its creative store
displays, attract customers.
Credit Operations
The Company offers each operating divisions' customers the convenience of a
private label credit card. Sales made with the private label card accounted for
33% of the Company's fiscal 1998 net sales. The Company's credit card is held by
more than 1,164,000 customers. The Company also permits its customers to pay in
cash, with personal checks, third party cards or by using its layaway plan.
The Company uses Hurley State Bank ("HSB"), a subsidiary of Associates
First Capital Corporation, to finance and service its private label credit card
program. HSB, through its affiliate SPS Payment Systems, provides the following
services: new account approval, credit authorization, billing and account
collection. Under this agreement, the Company sells its receivables from
in-house credit sales on a daily basis without recourse, at face value. The
agreement allows the Company to repurchase the accounts receivable at the end of
the five-year term at face value and allows the purchaser to put the accounts
receivable back to the Company at face value in the event of a change in the
Company's ownership. The balance of accounts receivable held by HSB, on January
30, 1999, was approximately $90,838,000.
Merchandise Information Systems
The Company uses a sophisticated on-line merchandise information system
which was purchased from and is maintained by a third party. The Company
operates its own in-house computer facility. Buyers are on-line with the system
and are provided with detailed daily sales and inventory information, from which
they make decisions regarding purchases and markdowns. The District Managers use
laptop computers to access daily sales, inventory information and other
information that can be used in making staffing and merchandise decisions. The
distribution center uses the system to facilitate the recording of merchandise
receipts, the printing of tickets and the distribution of merchandise. This
system also allows the Company to capture, at the point-of-sale, customer
profile information which is used as a customer mailing list for direct mail
promotion of sales events.
The Company scans merchandise price tickets at the point-of-sale and
point-of-sale computers automatically determine the correct price through a
price look-up capability. The computers also capture financial, credit and
statistical information and provide reports on sales by department and class for
financial reporting purposes, and weekly reports on sales by style, color and
size for use by the Company's buyers and management. The merchandise
distributors use this information on a regular basis to evaluate and adjust each
store's merchandise mix.
The Company purchased and implemented a new merchandise planning and
allocation system in fiscal 1998. The new system has enhanced the Company's
analytical capabilities, which allows for better store merchandise assortments.
Employees
As of January 30, 1999, the Company had approximately 1,730 full-time
equivalent employees. The Company has a significant number of part-time store
employees and, as is typical in the retail industry, has experienced high
turnover in its retail sales personnel. However, the Company has not experienced
significant difficulty in hiring qualified personnel. Of the total work force,
approximately 300 employees are employed in the Company's corporate offices and
distribution center. Some of the Company's distribution center employees are
represented by the Upholstery and Allied Industries Division of the United
Steelworkers of America. The Company and the union have ratified their contract,
which expires in 2001. Management believes there has been no material effect on
its operations from this representation.
Competition
All aspects of the women's retail apparel business are highly competitive.
The Company's primary competitors are department stores, specialty retailers,
discount stores and mail order companies. Many of these competitors are larger
and have greater financial, marketing and other resources than the Company. The
Company believes that the breadth of its merchandise assortments, including
sizes over 26, its advertising programs, its customer service and its ability to
obtain desirable store locations are important factors in enabling it to compete
effectively.
Trademarks
The Company owns all rights to the trademarks and trade names it believes
are necessary to conduct its business as presently operated. The Company
believes that its trade names, "Catherine's," "PS...Plus Sizes, Plus Savings, "
"Added Dimensions" and "The Answer, The Elegant Large-Size Discounter," are
material to its business.
ITEM 2. PROPERTIES
The Company leases all of its stores and believes the lease terms are
generally favorable. At January 30, 1999, the average base rent for the
Company's 432 stores was $12.41 per square foot. Lease terms range from one to
thirteen years and approximately 50% contain renewal options. Approximately 75%
of the leases have percentage rent clauses. Most of the leases also require the
Company to pay a pro rata share of taxes and common area maintenance. Some of
the leases for recently opened stores permit the Company to terminate the lease
within two to three years after commencement of the lease term if sales fail to
meet minimum thresholds.
The Company owns its corporate offices and its distribution center. The
distribution center was designed to handle up to 1,000 stores. Management feels
that these facilities will adequately handle the Company's office space and
distribution requirements for the foreseeable future.
The following table sets forth, as of January 30, 1999, the number of
leases that will expire in each of the indicated calendar years (including
renewal options):
Number of
Calendar Year Leases Expiring
1999 49
2000 51
2001 96
2002 60
2003 57
Thereafter 119
---
432
===
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation incidental
to the conduct of its business, substantially all of which is covered by
existing insurance coverage. The Company believes that no currently pending
litigation to which it is a party will have a material adverse effect on its
consolidated financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
MARKET PRICE INFORMATION
The Company's Common Stock is traded on the National Market System of the
National Association of Security Dealers, Inc. Automated Quotation System (the
"NASDAQ National Market System") under the symbol "CATH." The high and low sales
prices per share of the Common Stock as reported on the NASDAQ National Market
System and the number of security holders are incorporated by reference to the
Annual Report to Shareholders under the caption "Market Price Information".
The Company has not heretofore paid cash dividends and it is not
anticipated that the Company will pay such dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to the Annual Report to Shareholders under the
caption "Selected Financial Data".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference to the Annual Report to Shareholders under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to the Annual Report to Shareholders under the
caption "Financial Statements".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Proxy Statement under the caption
"Election of Directors".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Proxy Statement under the caption
"Executive Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Proxy Statement under the caption
"Ownership of Common Stock by Directors, Officers and Certain Beneficial
Owners".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Proxy Statement under the caption
"Compensation Committee Interlocks and Insider Participation".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Consolidated Financial Statements
Statements incorporated herein by reference to the Annual Report to
Shareholders:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.
CONSOLIDATED BALANCE SHEETS as of January 30, 1999 and
January 31, 1998.
CONSOLIDATED STATEMENTS OF INCOME for the Years Ended
January 30, 1999, January 31, 1998 and February 1, 1997.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for the
Years Ended January 30, 1999, January 31, 1998 and February
1, 1997.
CONSOLIDATED STATEMENTS OF CASH FLOWS for the Years Ended
January 30, 1999, January 31, 1998 and February 1, 1997.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(a)2. Financial Statement Schedules
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Schedule II - Valuation and Qualifying Accounts
All other statements are omitted because they are not
applicable or not required or because the required
information is included in the consolidated financial
statements.
(a)3. Exhibits. See Index to Exhibits.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
last quarter covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on April 28, 1999.
CATHERINES STORES CORPORATION
By:
--------------------------------
David C. Forell
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Bernard J. Wein 4/29/99
- ----------------- -------
Bernard J. Wein Chairman of the Board of
Directors, Chief Executive
Officer and Director (Principal
Executive Officer)
/s/ Stanley H. Grossman 4/29/99
- ----------------------- -------
Stanley H. Grossman Executive Vice President and
Director
/s/ David C. Forell 4/29/99
- -------------------- -------
David C. Forell Executive Vice President, Chief
Financial Officer, Secretary and
Director (Principal Financial and
/s/ James H. Lindy Accounting Officer) 4/29/99
- ------------------ -------
James H. Lindy Director
/s/ Allen B. Morgan, Jr. 4/29/99
- ------------------------ -------
Allen B. Morgan, Jr. Director
/s/ Wellford L. Sanders, Jr. 4/29/99
- ---------------------------- -------
Wellford L. Sanders, Jr. Director
/s/ Elliot J. Stone 4/29/99
- -------------------- -------
Elliot J. Stone Director
Catherines Stores Corporation Schedule II
Valuation and Qualifying Accounts
(dollars in thousands)
Column A Column B Column C Column D Column E
- -------- -------- --------------------------- -------- --------
Charged Charged
Balance at (credited) (credited) Balance at
beginning to costs to other end of
Description of period & expenses accounts Deductions period
- -----------
Year ended
February 1, 1997:
Allowance for
doubtful
accounts $ 55 $ 164 $--- $ (144)(1) $ 75
Reserve for
inventory
markdowns 2,180 270 -- -- 2,450
Reserve for
inventory
shrinkage 156 -- -- -- 156
Reserve for
layaway
cancellations 29 (2) -- -- 27
Reserve for
sales returns
and allowances 250 13 -- -- 263
Year ended
January 31, 1998:
Allowance for
doubtful
accounts 75 202 -- (192)(1) 85
Reserve for
inventory
markdowns 2,450 145 -- -- 2,595
Reserve for
inventory
shrinkage 156 8 -- -- 164
Reserve for
layaway
cancellations 27 9 -- -- 36
Reserve for
sales returns
and allowances 263 39 -- -- 302
Reserve for store
closing costs -- 1,115 -- -- 1,115
Year ended January 30, 1999:
Allowance for
doubtful
accounts 85 341 -- (100)(1) 326
Reserve for
inventory
markdowns 2,595 1,231 -- -- 3,826
Reserve for
inventory
shrinkage 164 (2) -- -- 162
Reserve for
layaway
cancellations 36 2 -- -- 38
Reserve for
sales returns
and allowances 302 4 -- -- 306
Reserve for store
closing costs 1,115 145(3) -- (150)(2) 1,110
(1) Accounts written off, less recoveries.
(2) Represents cash payments made from reserve.
(3) Represents approximately $595,000 of provision for new stores and
revised estimates on existing stores, offset by $450,000 of reserves no
longer required.
EXHIBIT INDEX
Number
Assigned in
Regulation S-K
Item 601 Description of Exhibits
(2) 2.1 Agreement and Plan of Merger pursuant to which the
Registrant's succession has occurred is incorporated herein
by reference to Exhibit 2.1 to the Registration of Securities
of Certain Successor Issuers on Form 8-B dated January 29,
1995, to which such Agreement and Plan of Merger is attached
as Exhibit A.
(3) 3.1 Charter is incorporated by reference to Exhibit 2.1 to the
Registration of Securities of Certain Successor Issuers on
Form 8-B dated January 29, 1995, to which such Charter is
attached as Exhibit B.
3.2 Bylaws are incorporated by reference to Exhibit 2.1 to the
Registration of Securities of Certain Successor Issuers on
Form 8-B dated January 29, 1995, to which such Charter is
attached as Exhibit C.
(4) 4.1 Specimen Common Stock Certificate is incorporated by
reference to Exhibit 4.1 to the Registration of Securities
of Certain Successor Issuers on Form 8-B dated January 29,
1995.
(10) 10.1 Form of Indemnity Agreement dated as of June 3, 1992 between
Registrant and each of Stanley H. Grossman, David C. Forell,
James H. Lindy and Allen B. Morgan, Jr. is incorporated
herein by reference to Exhibit 10.23 to the Registration
Statement of the Company dated November 30, 1992 (SEC File
No. 33-55320).
10.2 Form of Indemnity Agreement dated as of May 23, 1991 between
Catherines, Inc. And each of Bernard J. Win, Robert V. Glaser,
Wellford L. Sanders, Jr., Elliot J. Stone and Savio W. Tung is
incorporated herein by reference to Exhibit 10.23 to Amendment
No. 1 to the Registration Statement of the Company dated June
28, 1991 (SEC File No. 33-40832).
10.3 Form of Indemnity Agreement dated as of June 3, 1992 between
Catherines, Inc. and each of Stanley H. Grossman, David C.
Forell, James H. Lindy and Allen B. Morgan, Jr. is
incorporated herein by reference to Exhibit 10.20 to the
Registration Statement of the Company dated November 30, 1992
(SEC File No. 33-55320).
10.4 Master Equipment Lease Agreement dated March 15, 1991 between
Sanwa Business Credit Corporation and Catherines, Inc. and
related agreements is incorporated herein by reference to
Exhibit 10.25 to Amendment No. 1 to the Registration Statement
of the Company dated June 28, 1991 (SEC File No.
33-40832).
10.5 Supplement No. 1 to Master Equipment Lease Agreement dated
as of September 30, 1991 between Sanwa Business Credit
Corporation and Catherines, Inc. and related agreements is
incorporated herein by reference to Exhibit 10.21 to the
Registration Statement of the Company dated March 12, 1992
(SEC File No. 33-46334).
10.6 Supplement No. 2 to Master Equipment Lease Agreement dated
as of June 8, 1992 between Sanwa Business Credit Corporation
and Catherines, Inc. and related agreements is incorporated
herein by reference to Exhibit 10.23 to the Registration
Statement of the Company dated November 30, 1992 (SEC File
No. 33-55320).
10.7 Hardware Purchase and Software License Agreement between STS
Systems, Ltd. and Catherines, Inc. is incorporated herein by
reference to Exhibit 10.23 to the Registration Statement of
the Company dated March 12, 1992 (SEC File No. 33-46334).
10.8 Purchase agreement dated October 1, 1992 between Catherines,
Inc. and Hurley State Bank is incorporated herein by reference
to Exhibit 10.25 to the Registration Statement of the Company
dated November 30, 1992 (SEC File No. 33-55320).
10.9 Merchant Services Agreement dated October 1, 1992 between
Catherines, Inc. and Hurley State Bank is incorporated herein
by reference to Exhibit 10.26 to the Registration Statement of
the Company dated November 30, 1992 (SEC File No. 33- 55320).
10.10 Service Agreement dated October 1, 1992 between Catherines,
Inc. and Hurley State Bank is incorporated herein by reference
to Exhibit 10.27 to the Registration Statement of the Company
dated November 30, 1992 (SEC File No. 33-55320).
10.11 Agreement and Plan of Merger dated as of October 2, 1992 among
Catherines Stores Corporation, Virginia Acquisition
Corp., Virginia Specialty Stores, Inc. and Walter S. Segsloff
is incorporated herein by reference to Exhibit 10.1 to the
Current Report on Form *-K of the Company dated November 17,
1992.
10.12 Amendment No. 1 dated November 3, 1992 to said Agreement and
Plan of Merger is incorporated herein by reference to Exhibit
10.2 to the Current Report on Form 8-K of the Company dated
November 17, 1992.
10.13 Escrow Agreement dated as of November 3, 1992 by and among
Catherines Stores Corporation, Virginia Acquisition Corp.,
Virginia Specialty Stores, Inc., Walter S. Segaloff, Signet
Trust Company and W.S.S. Group, Inc. is incorporated herein
reference to Exhibit 10.3 tot he Current Report on Form 8-K of
the Company dated November 17, 1992.
10.14 Noncompetition Agreement dated as of November 3, 1992, among
Catherines Stores Corporation, Virginia Acquisition Corp.,
Virginia Specialty Stores, Inc. and Walter S. Segaloff is
incorporated herein by reference to Exhibit 10.6 to the
Current Report on Form 8-K of the Company dated November 17,
1992.
10.15 Indemnity Agreement dated as of November 3, 1992 among
Catherines Stores Corporation, Virginia Acquisition Corp.,
Virginia Specialty Stores, Inc. and Walter S. Segaloff is
incorporated herein by reference to Exhibit 10.7 to the
Current Report on Form 8-K of the Company dated November 17,
1992.
10.16 Stock Purchase and Registration Agreement dated as of November
3, 1992 by and among Catherines Stores Corporation, Signet
Trust Company, the Purchaser Advisors and the Purchasers is
incorporated herein by reference to Exhibit 10.9 to the
Current Report on Form 8-K of the Company dated November 17,
1992.
10.17 Supplement No. 3 to Master Lease Agreement dated as of
December 31, 1992, between Sanwa Business Credit Corporation
and Catherines, Inc. is incorporated herein by reference to
Exhibit 10.37 to the Registration Statement of he Company
dated November 30, 1992, (SEC File No. 33-55320).
10.18 Supplement No. 4 to Master Lease Agreement dated as of
December 31, 1992, between Sanwa Business Credit Corporation
and Catherines, Inc. is incorporated herein by reference to
Exhibit 10.37 to the Registration Statement of the Company
dated November 30, 1992 (SEC File No. 33-55320).
10.19 Real Estate Purchase Agreement dated as of February 24, 1993
by and between Catherines, Inc. and Holiday Inns, Inc. is
incorporated herein by reference to Exhibit 10.27 to the
Annual Report on Form 10-K of the Company for the fiscal year
ended January 29, 1994.
10.20 Supplement No. 5 to Master Lease Agreement dated as of June
30, 1993, between Sanwa Business Credit Corporation Business
Credit Corporation and Catherines, Inc. is incorporated herein
by reference to Exhibit 10.30 to the Annual Report on Form
10-K of the Company for the fiscal year ended January 29,
1994.
10.21 Master Lease Agreement No. 092893 dated September 28, 1993
between Econocom-USA, Inc. and Catherines, Inc. is
incorporated herein by reference to Exhibit 10.31 to the
Annual Report on Form 10-K of the Company for the fiscal year
ended January 29, 1994.
10.22 Real Property Lease Agreement dated as of December 10, 1993 by
and between the Industrial Development Board of the City of
Memphis and County of Shelby, Tennessee and Catherines, Inc.
is incorporated herein by reference to Exhibit 10.32 to the
Annual Report on Form 10-K of the Company for the fiscal year
ended January 29, 1994.
10.23 Equipment Lease Agreement dated December 31, 1993 by and
between First American National Bank and Catherines, Inc. is
incorporated herein by reference to Exhibit 10.33 to the
Annual Report on Form 10-K of the Company for the fiscal year
ended January 29, 1994.
10.24 Amendment to Supplement No. 1 dated as of October 1, 1994,
by and between Sanwa Business Credit Corporation and
Catherines, Inc. is incorporated herein by reference to
Exhibit 10.33 to Registration of Certain Successor Issuers
on Form 8-B dated January 29, 1995.
10.25 Amendment to Supplement No. 3 dated as of October 1, 1994,
by and between Sanwa Business Credit Corporation and
Catherines, Inc. is incorporated herein by reference to
Exhibit 10.34 to Registration of Certain Successor Issuers
on Form 8-B dated January 29, 1995.
10.26 Amendment to Supplement No. 5 dated as of October 1, 1994,
by and between Sanwa Business Credit Corporation and
Catherines, Inc. is incorporated herein by reference to
Exhibit 10.35 to Registration of Certain Successor Issuers
on Form 8-B dated January 29, 1995.
10.27 Second Amendment to Master Equipment Lease Agreement dated as
of June 8, 1992, by and between Sanwa Business Credit
Corporation and Catherines, Inc. is incorporated herein by
reference to Exhibit 10.36 to Registration of Certain
Successor Issuers on Form 8-B dated January 29, 1995.
10.28 Fifth Amendment to Master Equipment Lease Agreement dated as
of January 29, 1995, by and between Sanwa Business Credit
Corporation and Catherines, Inc. is incorporated hereby
reference to Exhibit 10.37 to Registration of Certain
Successor Issuers on Form 8-B dated January 29, 1995.
10.29 First Amended and Restated Merchant Services Agreement dated
as of October 1, 1992, by and between Hurley State Bank and
Catherines, Inc. is incorporated herein by reference to
Exhibit 10.39 to Registration of Certain Successor Issuers
on Form 8-B dated January 29, 1995.
10.30 First Amended and Restated Merchant Services Agreement dated
as of November 2, 1992, by and between Hurley State Bank and
Virginia Specialty Stores, Inc. is incorporated herein by
reference to Exhibit 10.40 to Registration of Certain
Successor Issuers on Form 8-B dated January 29, 1995.
10.31 Amendment to Network Services Agreement dated as of January
29, 1995, by and between SPS Payment Systems, Inc. and
Catherines, Inc is incorporated herein by reference to Exhibit
10.41 to Registration of Certain Successor Issuers
on Form 8-B dated January 29, 1995.
10.32 Supplement No. 6 to Master Equipment Lease Agreement dated as
of October 1, 1994, by and between Sanwa Business Credit
Corporation and Catherines, Inc. is incorporated herein by
reference to Exhibit 10.42 to Registration of Certain
Successor Issuers on Form 8-B dated January 29, 1995.
10.33 Master Agreement dated as of February 1, 1995, among
Catherines, Inc., Investcorp International, Inc. and Card
Establishment Services, Inc. is incorporated herein by
reference to Exhibit 10.35 to the Annual Report on Form 10-K
of the Company for fiscal year ended February 6, 1996.
10.34 Loan Agreement between Catherines Stores Corporation,
Catherines, Inc., and National Bank of Commerce dated February
27, 1998, is incorporated by reference to Exhibit 10.40 to the
Form 10-Q of the Company for the quarterly period ended May 2,
1998.
10.35* Standard Agreement dated as of December 1, 1998, between
Catherines Stores Corporation and United Steelworkers of
America, AFL-CIO, CLC, Local No. 1002.
10.36 Amended and Restated Credit Agreement dated as of February
27, 1998, between and among Catherines, Inc., Catherines
Stores Corporation, Catherines of California, Inc.,
Catherines of Pennsylvania, Inc., Catherines, Partners, L.P.
and First American National Bank, as Agent for itself and
Hibernia National Bank and Bank One, N.A. is incorporated
herein by reference to Exhibit 10.39 to the Annual Report on
Form 10-K of the Company for fiscal year ended January 31,
1998.
10.37* First Amendment to Amended and Restated Credit Agreement dated
as of January 12, 1999, between and among Catherines, Inc.,
Catherines Stores Corporation, Catherines of California, Inc.
Catherines of Pennsylvania, Inc., Catherines Partners, L.P.
and First American National Bank, as Agent for itself and
Hibernia National Bank and Bank One, N.A.
MANAGEMENT CONTENTS, COMPENSATORY PLANS OR ARRANGEMENTS, ETC.
10.100 Form of Executive Employment Agreements dated May 23, 1991
between Catherines, Inc. and each of Bernard J. Wein, Stanley
H. Grossman and David C. Forell is incorporated herein by
reference to Exhibit 10.2 to the Registration Statement of the
Company dated May 24, 1991 (SEC file No. 33-40832).
10.101 The Registrant's Restated 1990 Performance Units Plan, as
amended, is incorporated herein by reference to Exhibit 10.4
to the Registration Statement of the Company dated May 24,
1991 (SEC File No. 33-40832).
10.102 Executive Annuity Agreement dated April 20, 1989 between
Catherines, Inc. and Bernard J. Wein is incorporated herein by
reference to Exhibit 10.6 to the Registration Statement of the
Company dated May 24, 1991 (SEC File No. 33-40832).
10.103 Executive Annuity Agreement dated April 20, 1989 between
Catherines, Inc. and Stanley Grossman is incorporated herein
by reference to Exhibit 10.7 to the Registration Statement
of the Company dated May 24, 1991 (SEC File No. 33-40832).
10.104 Executive Insurance Agreement dated April 20, 1989 between
Catherines, Inc. and David C. Forell is incorporated herein by
reference to Exhibit 10.8 to the Registration Statement of the
Company dated May 24, 1991 (SEC File No. 33-40832).
10.105 Catherines Senior Management Bonus Plan is incorporated herein
by reference to Exhibit 10.9 to the Registration Statement of
the Company dated May 24, 1991 (SEC File No. 33- 40832).
10.106 The Registrant's 1994 Omnibus Incentive Plan is incorporated
by reference to Exhibit 10.1 to the Registration Statement of
the Registrant dated May 31, 1994 (SEC File No. 33-79598).
10.107 Form of Amendments to Executive Employment Agreements dated
October 1, 1998, between Catherines, Inc. and each of Bernard
J. Wein, Stanley H. Grossman and David C. Forell is
incorporated by reference to the Form 8-K of the Company dated
October 22, 1998.
(11)11.1* Statement re Computation of Weighted Average Number of Common
Shares Outstanding.
(13)13.1* The Company's Annual Report to Shareholders for the fiscal
year to which this Annual Report on Form 10-K relates, to the
extent incorporated herein by reference.
(21)21.1 Subsidiaries are incorporated herein by reference to
Exhibit 21.1 to Registration of Securities of Certain
Successor Issuers on Form 8-B dated January 29, 1995.
(23)23.1* Consent of Arthur Andersen LLP.
23.2* Report of Arthur Andersen LLP on Schedules.
(27)27.1* Financial Data Schedule (EDGAR Filing Only)
- ------------------------------------
*Documents attached hereto and filed herewith are noted with an
asterisk.
Exhibit 10.35
STANDARD AGREEMENT
BETWEEN
CATHERINES STORES CORPORATION
3755 Knight Arnold Road
Memphis, Tennessee 38118
-and-
UNITED STEELWORKERS OF AMERICA,
AFL-CIO, CLC
Local No. 1002
P.O. Box 13472
Memphis, Tennessee 38113
From December 1, 1998 to November 30, 2001
INDEX
ARTICLES PAGE
I. Designation of Parties 1
II. Management Rights 1
III. Check-Off 2
IV. Purpose 2
V. Mutual Cooperation and Recognition 2
VI. No Discrimination 3
VII. Seniority 4
VIII. Hours of Work 6
IX. Wages (Appendix) 7
X. Leave of Absence Without Pay 7
XI. Leave of Absence With Pay 9
XII. Stewards 9
XIII. Grievance/Arbitration Procedure 10
XIV. No Strike Clause 13
XV. Safety and Health 13
XVI. General Provisions 13
XVII. Drug/Alcohol Testing 14
XVIII. Authorized Agents 15
XIX. Right of Visitation 15
XX. Reporting Pay 16
XXI. Call In Pay 16
XXII. Bereavement Pay 16
XXIII. Holiday Pay 17
XXIV. Jury Duty 17
XXV. Supervisors 18
XXVI. Vacation 18
XXVII. Job Bidding 19
XXVIII. Pay Day 20
XXIX. Wrap-Up Clause 20
XXX. Termination 20
ARTICLE I
DESIGNATION OF PARTIES
This Agreement entered into as of the 25th day of January, 1999 by and between
Catherines Stores Corporation at its distribution center, located at 3755 Knight
Arnold Road, Memphis, Tennessee 38118, hereinafter referred to as the "Company"
and UNITED STEELWORKERS OF AMERICA, AFL-CIO, CLC, for itself and, on behalf of
its Local No. 1002, hereinafter referred to as the "Union."
ARTICLE II
MANAGEMENT RIGHTS
Except as specifically and expressly limited elsewhere in this Agreement, the
Company has and shall retain the sole and complete authority and discretion in
regard to the management of the business and the direction of the work force,
including, but not limited to, the right to establish, regulate, determine,
revise or modify at any time: policies, practices, and procedures of the conduct
of the business; procedures used in connection with manufacturing or
maintenance; levels of employment; hours of work; attendance; number of shifts;
extent of layoff; hiring, promotion, termination, demotion or transfer;
assignment of work; production schedules; quality, work and production
standards; assignment of work and duties in accordance with its determination of
the needs of the respective jobs; reasonable rules and regulations for the
conduct and safety of associates and the means of enforcement thereof, subject
to proper notification and discussion with the Union; machinery, materials,
methods, facilities, tools and equipment; the subcontracting of work when
necessary to meet production demands; selection of subcontractors; the extent,
amount, starting time, stopping time and expansion or contraction of
subcontracting; the place where work shall be done; what operations are to be
performed on an incentive basis, both individual and group or an hourly work
basis; the marketing of its products; the planning, direction, control,
increase, decrease or discontinuance of operations; any other matter related to
the conduct of its business or the manner in which the business is to be managed
or carried on. The Company shall have the right to move, close, sell or
liquidate the distribution center in whole or in part and to separate its
associates in connection with said moving, closing, selling or liquidation after
first discussing the effect and severance pay with the Union to the extent
required by law.
It is expressly understood and agreed that all of the above-listed management
rights, and all rights inherent in the Company as the owner of the business,
which are not expressly contracted away by specific provisions of the Agreement,
are retained solely by the Company.
ARTICLE III
CHECK-OFF
The Company agrees to deduct from the wages of the associates in accordance with
the express terms of a written assignment the monthly dues, initiation fees and
assessments in the lawfully designated amount by the Treasurer of the
International Union of the United Steelworkers of America, AFL-CIO-CLC. The
Company shall deduct the monthly dues from the associate's pay by deducting a
prorated portion on a weekly basis, and forward the dues to the International
Treasurer of the United Steelworkers of America, AFL-CIO-CLC, Five Gateway
Center, Pittsburgh, PA 15222 or at an address so designated by the Union.
Deductions for Union dues shall be the last deduction made from an associate's
pay.
A check-off list shall accompany the deduction setting forth the name and amount
of dues, initiation fees and assessment. A copy of said deduction list shall be
forwarded to the Financial Secretary of the local union.
ARTICLE IV
PURPOSE
(a) It is the intent and purpose of the parties hereto that this Agreement will
promote and improve industrial and economic relations between the associate and
the Company, and to set forth herein a basic Agreement covering rates of pay,
hours of work, and other conditions of employment to be observed by the parties,
and to incur the peaceful settlement of disputes.
(b) If any of the terms and conditions of this Agreement are in violation of any
state or federal law or court decisions or decrees, then, to the extent of any
violation, that portion of this Agreement shall be null and void and subject to
renegotiation. If any portion of this Agreement is declared illegal, it shall
not in any way affect the remaining provisions of the Agreement.
ARTICLE V
MUTUAL COOPERATION AND RECOGNITION
SECTION 1
The Company recognizes the Union (certified by NLRB, Case No. 26-RC-7611) as the
current, exclusive bargaining agent with respect to wages, hours of work, and
other conditions of employment for all the Company's distribution center
associates, including full-time regular associate warehouse associates,
lead-persons, shipping and receiving associates, line associates, RTW
associates, pic-pac associates, basics associates, housekeeping associates,
plant clerical associates, and maintenance men employed at its distribution
center located at 3755 Knight Arnold Road, Memphis, Tennessee 38118. There are
hereby expressly excluded from the bargaining unit other associates of the
Company, including office clerical associates, contingent associates, on-call
associates, temporary associates, professional associates, technical associates,
truck drivers, guards, watchmen, and supervisors as defined in the National
Labor Relations Act.
SECTION 2
The Union shall cooperate with the Company to promote the welfare of the Company
and the efficiency of this factory operation.
SECTION 3
The Company agrees that throughout the period of contractual relationship
between the parties, no other labor organization will be recognized in any form
or for the purpose of collective bargaining. This Agreement shall be applicable
to the above-described Union only, and no other labor organization shall at any
time be entitled to any of the benefits thereof.
SECTION 4
The Company agrees not to enter into any Agreement with associates individually
or collectively which in any manner conflicts with the terms and provisions of
this Agreement.
ARTICLE VI
NO DISCRIMINATION
SECTION 1
Neither the Union and its officers, agents and associates of Catherines, nor the
Company, shall discriminate against any associate because of his non-membership
or membership in the Union and shall not intimidate or coerce any associate into
becoming or remaining a member of the Union. The Union agrees to indemnify and
hold harmless the Company with respect to all disputes over Union dues, Union
membership, and all other intra-union matters.
SECTION 2
It is the continuing policy of the Company and Union that the provisions of this
Agreement shall be applied to all associates within the bargaining unit, as
defined in Article II, Mutual Cooperation and Recognition, of this Agreement,
without regard to age (over 40), race, color, religion, creed, sex, national
origin, handicap or veteran status. Neither the Company nor the Union and its
officers, agents and associates of Catherines shall discriminate against any
other associate based upon the associate's age (over 40), race, color, religion,
creed, sex, national origin, handicap or veteran status.
ARTICLE VII
SENIORITY
SECTION 1
An associate's seniority shall be calculated on a distribution center-wide
basis.
a) Distribution center-wide seniority shall be calculated by the years, months
and days an associate has been employed since his last date of hire. If two or
more associates possess the same hire date, then seniority for these associates
shall be determined alphabetically by the last name.
b) All new full time associates shall be considered probationary employees
during the first ninety (90) days of their employment, after which time their
seniority shall relate back to their last date of hire. There shall not be
seniority among probationary employees and they shall have no rights under this
Agreement.
SECTION 2 - Short Term Layoffs
a) In the event of short term layoff, not to exceed two (2) weeks, the layoffs
will be by the department affected. Following Company practice, temporary
employees shall be displaced first. Company associates will be offered the
opportunity to move into open positions for which they are qualified. Temporary
employees may be utilized in the event no affected qualified Company associate
accepts the opportunity to move into an open position. During the short term
layoffs no bumping by senior people affected will be permitted.
b) The Company will establish a telephone number which will contain a voice
mailbox which will inform associates who are on layoff whether they are to
report to work the following day. Each associate who is on layoff is responsible
for calling the DC Human Resources Department after 4:30 p.m. on a daily basis
to check the voice mailbox to determine whether they are to report to work the
next day. The voice mailbox will be updated by 4:30 p.m. daily, and it will be
available 24 hours per day. Failure to report to work as scheduled will be
addressed under the attendance policy.
SECTION 3 - Indefinite Layoffs
a) In the event of a layoff exceeding two (2) weeks, the Company shall give the
affected associates at least two (2) days advance notice, or two (2) days pay in
lieu of notice. During any indefinite layoff, the Company will layoff by
department in order of seniority. No employee shall receive a promotion as a
result of an indefinite layoff.
b) In the event of a layoff as described above in subsection (a), an associate
scheduled for layoff may be eligible to bump the most junior associate in any
job within his own pay classification or a lower pay classification, excluding
Maintenance. An associate must exercise his bumping privilege within three (3)
scheduled working days after he is notified that the layoff is indefinite. An
associate bumping into a job under Article VII, Section 3 shall be given a trial
period of not less than ten (10) days, after which the Company may disqualify
the associate. An associate who fails to qualify shall be returned to layoff
status with no further rights to bump. Associates who bump down into a lower pay
classification shall be paid the wage rate of the classification they bump into.
c) An associate who bumps into and qualifies for a job under Article VII,
Section 3 will be recalled to his old job if it becomes available within three
(3) months. After three (3) months, the affected associate shall not be subject
to recall to the job from which he was originally laid off in the event his old
job becomes available.
SECTION 4 - Layoff Recalls
Recalls from layoff for lack of work shall be in reverse order of layoff.
SECTION 5 - Termination of Seniority
All seniority shall cease and an associate shall be terminated from the payroll
when any of the following occurs:
a) Quits for any reason.
b) Overstays his leave of absence or vacation leave without proper
notification.
c) Is discharged for just cause.
d) Is absent without approved leave for a period of three (3) days
which he is scheduled to work, unless he calls in and notifies the
Company by 9:30 a.m. on the day he is scheduled to work.
e) Fails to report to work within five (5) calendar days after receipt
of certified or registered mail notice to report.
f) Is laid off and not recalled within six (6) months.
g) Leave of absence exceeding six (6) months, unless under a doctor's
care for illness or injury, up to a total of twelve (12) months.
h) Fails to report for work immediately upon being released by his
doctor after being absent less than six (6) months.
i) Works for another Company while on a leave of absence.
j) The accumulation of ten (10) points based on the current attendance
policy.
SECTION 6
On a quarterly basis, the Company shall post on the Union bulletin board an
updated seniority list.
ARTICLE VIII
HOURS OF WORK
This article defines the normal hours of work as forty hours per week and shall
not be construed as a guarantee of hours of work per day or per week or a
guarantee of days of work per week.
SECTION 1 - Normal Workday and Normal Workweek
The normal workweek is considered to be forty (40) hours.
SECTION 2
The regular starting time shall be 8:00 a.m. and the regular quitting time shall
be 4:45 p.m. No change in the regular starting or quitting time shall be made
except by mutual agreement.
SECTION 3
All associates scheduled to work a full shift shall be entitled to one forty
five (45) minute lunch non-paid and two fifteen (15) minute breaks paid by the
Company daily. One (1) break shall occur in the morning and one (1) break shall
occur in the afternoon. All associates are to clock out and back in during lunch
whether they leave the distribution center or not.
SECTION 4 - Overtime
a) For purposes of overtime compensation, the normal workweek is considered to
be forty (40) hours.
b) Overtime shall primarily be on a voluntary basis. However, if staffing needs
are not met through volunteers, the Company shall have the right to require a
sufficient number of associates to work overtime by department. In selecting
associates to work required overtime, the Company shall base its decision on
seniority within the affected department, starting with the least senior
associates.
SECTION 5
An associate shall receive compensation at the rate of 1 1/2 times his base
hourly wage for all hours actually worked in excess of forty hours in a work
week.
ARTICLE IX
WAGES
The wage structure in existing job classifications for the term of this
Agreement are set forth in Appendix A to this Agreement.
ARTICLE X
LEAVE OF ABSENCE WITHOUT PAY
SECTION 1
If an associate is employed by the Union in an official capacity which requires
full time work, the associate shall be given a leave of absence in writing for
the term of his office and any renewal thereof. No seniority shall be
accumulated during the leave.
SECTION 2
If the members of the Union are elected delegates to a bona fide labor function,
such members may be granted a leave of absence upon written request at least
seventy-two (72) hours in advance. At no time shall more than one associate from
each work area be allowed to leave and the leave shall not exceed five (5)
working days.
SECTION 3
Any associate who enters the armed services of the United States during a time
of national emergency or who is inducted into the armed services under the
Selective Service Act, as amended, shall be entitled to re-employment rights
provided for in the Act.
SECTION 4
Leaves of absence and extensions thereof for compelling personal reasons, may be
granted, at the discretion of the Company, for periods not exceeding thirty (30)
days, upon written application of the associate and written approval of the
Company. Leaves of absence shall not be approved for the purpose of taking other
employment or as a substitute for a vacation period. The associate must contact
the distribution center Human Resources department weekly during any leave of
absence or said leave will be considered a voluntary resignation of employment.
SECTION 5 - Maternity Leave
Unpaid maternity leave may be taken up to twelve (12) weeks.
Associates should notify their manager as soon as possible after the pregnancy
is confirmed by their doctor.
Maternity is available to those associates who have worked for 1250 hours and
who have worked at least one (1) year prior to taking the leave.
An associate taking maternity leave has a right to return to her former job
prior or a comparable position at the end of maternity leave.
An associate must give the Company three (3) weeks notice of her intent to
return to work from maternity leave.
Failure to return to work at the end of the scheduled maternity leave will be
considered voluntary resignation.
SECTION 6 - Family and Medical Leave Act (FMLA) Leave
The Company provides for FMLA Leave for eligible associates to be able to take
family leave in the event of the birth of a child, for the adoption of a child,
the placement of a foster child, to care for a sick spouse, child, or parent or
illness of the associate. To be eligible for a leave, the associate must be
employed by the Company for at least twelve (12) months prior to requesting the
leave and have worked 1250 hours during that twelve (12) month period.
Associates shall have all the rights granted to them under the FMLA, and the
Company shall have all of the rights granted to the employer under the FMLA.
Vacation time, if not yet taken, must be applied to this leave.
Associates requesting family or medical leave should provide the Company with
thirty (30) days notice. The Company may require certification from a Healthcare
Provider of the necessity for the leave.
The associate will be eligible to return to the same position held prior to the
leave or to an equivalent position.
ARTICLE XI
LEAVE OF ABSENCE WITH PAY
The Company treats physical disability resulting from pregnancy-related
conditions the same as any other sickness or illness. The Company's Short-Term
Disability policy applies to pregnancy-related disability leave. A female
associate unable to work due to disability caused by pregnancy is entitled to
disability benefits (sick leave) on the same basis as associates unable to work
for any other medical leave.
ARTICLE XII
STEWARDS
SECTION 1
As promptly as possible after the execution of this Agreement, the Union will
notify the Company in writing of the name of its stewards, who shall be regular,
full time associates of the Company. This notification shall be given in a
timely manner (48 hours or less). Only those associates so designated shall be
recognized by the Company.
SECTION 2
The Company agrees to recognize five (5) stewards, one (1) representing
shipping, pic-pac, maintenance and housekeeping, one (1) representing basics,
one (1) representing ready to wear, one (1) representing line, and one (1)
representing all other associates covered by this Agreement. The representative
for the area must be from that area. In addition, the Company will recognize the
Unit Chairperson and Unit Secretary.
SECTION 3
A department steward may leave his department for the purpose of contacting the
Unit Chairperson concerning the application of this Agreement, provided they
receive permission from their supervisor before leaving their area.
SECTION 4
The Unit Chairperson, Unit Secretary, and stewards shall be accorded top
seniority ranking in order to insure their retention in employment for the
purpose of fulfilling their duties.
ARTICLE XIII
GRIEVANCE/ARBITRATION PROCEDURE
SECTION 1
For purposes of this Agreement, a grievance is defined as a dispute between the
Company and the associates covered by this Agreement concerning the application
and interpretation of a specific provision or provisions of the Agreement as
written. A controversy which arose prior to the signing of this Agreement, shall
not be subject to the grievance or arbitration procedures. The procedures set
forth in this article shall be the exclusive means for the disposition of all
grievances under this Agreement.
All grievances shall be processed in the following manner:
Step One: Within three (3) normal working days of the occurrence of the
incident giving rise to the grievance, or within three (3) normal working days
following the date the associate first reasonably should have known of the
events giving rise to the grievance, with the objective of settling the matter
informally, the affected associate shall first discuss the matter with his
department supervisor/manager.
Step Two: If the aggrieved associate is dissatisfied with the
department manager/supervisor's response in Step One, the associate and the
steward, shall within five (5) normal working days from the date of the Step One
answer present such grievance in writing to the Human Resources Manager. The
written grievance shall contain the following:
a) A statement of the occurrence giving rise to the grievance and
containing all pertinent facts that are known at the time which
may be amended during the course of the grievance procedure and
become part of the original Step Two grievance. However, an
amendment to a grievance, if any, must be made by Step Four of
this procedure. An amendment to a grievance must be in writing
stating that it is an amendment;
b) The Article and paragraph of this Agreement alleged to have
been breached or violated, and the manner in which it was
breached or violated;
c) The date, time, and place of the alleged violation;
d) The names of the persons present, if known, having direct
personal knowledge of the facts involved;
e) A statement of what the aggrieved considers a reasonable and
appropriate adjustment of the grievance;
f) The grievance shall be signed by the associate who is affected
and by the Union steward.
Grievances missing any of the above elements shall be returned to the Unit
Chairperson for completion. The Human Resources Manager shall give the associate
and/or steward a written answer to the grievance within five (5) normal working
days of the receipt thereof.
Step 3: If the grievance is not satisfactorily resolved in Step Two, it
may be appealed by the Unit Chairperson submitting the written grievance to the
Vice President of Distribution within five (5) normal working days after receipt
of the written answer in Step Two, who shall have five (5) days to respond. If
the Vice President of Distribution does not respond to the grievance in writing
within the time specified, the grievance will be deemed to have been denied by
the Company based on the answers from Step Two, and the grievance may be taken
to the next step in this procedure.
Step 4: If the grievance is not satisfactorily resolved in Step Three,
it may be taken up in Step 4 with the President of Local 1002 or the
International Staff Representative and the Vice President of Human Resources
within five (5) normal working days after receipt of the written answer in Step
Three. The Vice President of Human Resources shall have five (5) normal working
days to respond to the grievance. If no response is given within the time
specified, the grievance will be deemed to have been denied. Failing settlement
in Step Four, then arbitration maybe requested, in writing, within ten (10)
normal working days of receipt of the Step Four answer.
SECTION 2
If a grievance affects more than one associate, only one associate shall
represent the other grieving associates at all steps of the grievance procedure.
This is a grievance arising out of the same set of circumstances.
SECTION 3
If the Union or associate fails to appeal the grievance within the time limits
set forth in the grievance steps, the grievance will be considered settled based
on the Company's last answer.
SECTION 4 - Arbitration
In the event arbitration of the grievance is requested, the parties shall
attempt to select an impartial arbitrator. If the parties are unable to agree on
any arbitrator within three (3) normal working days, either party may, within
two (2) days thereafter request the Federal Mediation and Conciliation Service
to submit a panel of seven (7) arbitrators from which an arbitrator shall be
selected by the parties. The Union and the Company shall strike names
alternately until only one individual is remaining on the list, and that
individual shall be the arbitrator. The parties shall flip a coin to determine
who shall strike the first name.
The decision of the arbitration shall be final and binding on the parties;
however, such decisions must be limited to the interpretation and application of
the provisions of the Agreement, and the arbitrator shall not have the authority
to modify or amend the provisions of this Agreement. In addition, the
arbitrator's decision shall be limited to the issues or claims specifically set
forth in the written grievance and the arbitrator shall not make any
determinations or rulings on any claim or issues not expressly contained in the
written grievance.
The expense of the arbitrator shall be borne equally by the parties, including
any expenses incurred in obtaining a location for the arbitration. All other
expenses shall be borne by the party incurring them, including the cost of
witnesses.
SECTION 5
Should the Union want associates to be witnesses at any arbitration hearing, the
Union will be responsible for any lost pay incurred by the associate. The
Company may stagger the release of the associates so as to not interfere with
production.
SECTION 6
No steward or grievant will be paid for time spent preparing for or attending
any arbitration hearing, but if, in the opinion of the Company, production needs
permit, the steward or associate will be granted reasonable time off without pay
to attend such a hearing, where such time off is requested by the steward or
grievant, for a matter in which they are personally involved, at least three (3)
normal working days in advance of the meeting or hearing.
SECTION 7
The parties may mutually agree to waive any of the time limits set forth in this
Article as long as such agreement is in writing.
SECTION 8
For purposes of computing time under any of the provisions of this Article, the
day of the occurrence, answer, or meeting shall not be included in the
calculation of time.
ARTICLE XIV
NO STRIKE CLAUSE
The Company agrees that there shall be no lockouts during the term of this
Agreement. The Union and the associates understand that there is a grievance and
arbitration system which is the sole and exclusive means of settling disputes
under this Agreement. Therefore, the Union on behalf of its officers, agents and
the associates of Catherines agrees that there will be no strikes, sympathy
strikes, cessations, suspensions or interruptions of work, sabotage, slowdowns,
sit-downs, picketing, or refusals to work, or interference of any kind with the
operations of the Company during the term of this Agreement. Any associate who
violates this Article of the Agreement shall be subject to corrective action up
to and including discharge, and any appeal to the Grievance/Arbitration
procedure regarding discipline imposed for a violation of this Article shall be
limited to the question of whether the associate did, in fact, engage in any
prohibited activity.
ARTICLE XV
SAFETY AND HEALTH
The Company agrees to establish and maintain reasonable provisions for the
safety and health of its associates during the hours of their employment, in
conformity with State and Federal Laws applicable to the distribution center
with respect to conditions of health and sanitation. In case of injury to an
associate in the line of duty, first aid attention will be given at the earliest
possible moment. If it becomes necessary to take the injured associate to
receive medical attention, the Company will furnish round-trip transportation
for that trip from the distribution center.
ARTICLE XVI
GENERAL PROVISIONS
SECTION 1 - Bulletin Boards
The Company agrees to furnish a bulletin board in the distribution center
break-room for the exclusive use of the Union. All posted notices must be of
direct concern to the Union and signed by the Unit Chairperson with a copy
provided to the distribution center Human Resources Manager. All other notices
must be approved by the Company prior to posting.
SECTION 2
Associate(s) means all workers covered by this Agreement whether male or female.
Whenever the masculine pronoun is used in this Agreement, it is understood that
it applies to the feminine as well.
SECTION 3
The Company and the Union agree to work together to take all actions necessary
to comply with the Americans with Disabilities Act.
SECTION 4
In the event an associate is given a written warning, the Company will give the
associate a copy of the Corrective Action Form. Associates must sign the
Corrective Action Form to acknowledge receipt of the written warning.
ARTICLE XVII
DRUG/ALCOHOL TESTING
Whenever the Company suspects that an associate's on-the-job behavior may have
been affected in any way by alcohol or drugs, the Company may require the
associate to submit a breath, saliva, urine and/or blood specimen for alcohol
and/or drug testing. An associate who tests positive for alcohol or drugs as a
result of such a test will be in violation of this policy.
Whenever the Company determines that an associate was involved in or may have
contributed to an accident involving a fatality, bodily injury, or damage to
property, the Company may require the associate to submit a breath, saliva,
urine and/or blood specimen for alcohol and/or drug testing. An associate who
tests positive for alcohol or drugs as a result of such a test will be in
violation of this policy.
Whenever an associate is injured on the job, the Company may require the
associate to submit a breath, saliva, urine and/or blood specimen for alcohol
and/or drug testing.
Failure to test negative under any of the foregoing circumstances shall result
in immediate termination of said associate.
ARTICLE XVIII
AUTHORIZED AGENTS
No person is authorized to act or be deemed to be the authorized agent of either
party to this Agreement unless the party appointing the authorized agent has
first notified the other in writing of the appointment and the scope of the
authority of
the agent. The following persons shall be deemed the authorized agents of the
respective parties for the purpose of administering the terms of this Agreement.
(A) Union
1. President of the Local Union, # 1002.
2. The International Staff Representative specifically
authorized by written communication from the International
Union District Director.
(B) Company
1 . Vice President of Distribution.
2. Any other person authorized by the Company, or the Vice
President of Distribution, to act as his agent whose
identity and scope of authority has been made known to the
Local Union by written communication from the Company or the
Vice President of Distribution.
ARTICLE XIX
RIGHT OF VISITATION
The authorized International Staff Representative and the President of Local No.
1002 shall have access to the distribution center during working hours upon
reasonable notification, but not less than twenty-four (24) hours, to the
Company for the purpose of participation in the adjustment of disputes and
grievances and for the investigation of matters covered by this Agreement.
ARTICLE XX
REPORTING PAY
SECTION 1
Whenever a full time associate reports for work at his regular specified time
without previous notice to the contrary by the Company and is not permitted to
commence work or works only a portion of four (4) hours, he shall be compensated
for at least four (4) hours at his hourly rate.
SECTION 2
An associate not notified, prior to his lunch period, not to work after the
lunch period shall be given one hour of work or pay at his hourly rate.
SECTION 3
This Article shall not apply if the associate refuses available work or is
disciplined or discharged for cause during the reporting period, nor shall it
apply in other cases beyond the control of the Company.
ARTICLE XXI
CALL IN PAY
SECTION 1
An associate who is notified to report for work at a time other than the regular
specified time shall receive a minimum of four (4) hours work or he shall be
compensated for at least four (4) hours at his hourly rate.
SECTION 2
This Article shall not apply if the associate refuses available work or is
disciplined or discharged for cause during the call in period, nor shall it
apply in other cases beyond the control of the Company.
ARTICLE XXII
BEREAVEMENT PAY
In the event of a death of a member of your immediate family, associates who
have completed thirty (30) days of employment are entitled to up to three (3)
paid days off, if needed. Immediate family is defined as: spouse, children,
grandchildren, parents, legal guardian, grandparents, brothers or sisters,
mother or father -in-law.
Additional time off without pay may be granted also.
ARTICLE XXIII
HOLIDAY PAY
After thirty (30) days of continuous employment with Catherines Stores
Corporation, all associates who work 20 or more hours per week are entitled to
Holiday Pay.
The seven (7) holidays recognized by Catherines Stores Corporation are:
New Year's Day
Martin Luther King Jr. Day (Beginning in 2000)
Fourth of July
Labor Day
Thanksgiving Day
Christmas Day
Your Birthday/Personal Day
ARTICLE XXIV
JURY DUTY
SECTION 1
A full time associate who is actively at work and not on layoff, vacation or
leave of absence and who is required to serve on a jury will be compensated by
the Company for any differential between his pay and his hourly rate, not
exceeding eight (8) hours per day or forty (40) hours per week.
SECTION 2
Associates must present notice of selection to the Company within seventy-two
(72) hours after receipt of notice of selection for jury duty.
SECTION 3
To be eligible for payment on the usual pay day, an associate shall furnish the
Company with a written statement signed by the appropriate public official
stating the days and time of duty, the hours of release and the amount of pay
due at the end of each week.
ARTICLE XXV
SUPERVISORS
It is mutually agreed that supervisory personnel shall not perform work
customarily performed by associates in the bargaining unit. It is understood,
however, that as a business necessity, the Company must assure continuity of
production and service, and therefore, supervisors may perform work in the
following situations:
(a) Instructing associates or demonstrating proper methods or
procedures in performing work operations.
(b) Developing and testing new methods, equipment, and/or
materials and products.
(c) In cases of emergencies, breakdowns of equipment, absenteeism,
or for any condition beyond the control of the Company that
affects the Company's business.
ARTICLE XXVI
VACATION
An associate's length of service and position determines the amount of vacation
for which he is eligible.
As of January 1 of each year, your paid vacation time earned the previous year
will be vested.
The associate must be actively at work on January 1 to receive the vacation
benefit.
Vacation Time Is Computed As Follows:
Less than twelve months of employment
One (1) day of paid vacation per month with a maximum of ten
days if hired prior to January 1st.
Years of Service Vacation Time
1-5 years 2 weeks
5-15 years 3 weeks
Over 15 years 4 weeks
All associates must be employed at least six months before taking any vacation
time. Vacation time must be requested no less than five (5) days in advance of
the day of intended vacation time. In the event of an emergency, the Company
may, at its discretion, allow an associate to utilize vacation with less than
five (5) days notice. The request must be made to and approved by Human
Resources.
Vacation days must be taken in the year in which they are given and cannot be
carried over from one year to the next unless there are unusual circumstances.
Any vacation time carried over from one year to the next must be approved by the
Vice President, Human Resources.
Vacation time not taken within the year of eligibility will be
forfeited. Vacations must be approved by your Department Manager. If there is a
conflict in vacation scheduling, seniority will be used to resolve it. Vacation
benefits, once vested, are not forfeitable, unless the associate is terminated
for gross misconduct, or; Vacation is not taken within the year for which it is
vested.
ARTICLE XXVII
JOB BIDDING
SECTION 1
Whenever a job vacancy exists, as determined by the Company, the Company shall
post a notice of said vacancy, which shall include a description of the job and
the base wage rate. The notice shall remain posted for three (3) working days,
during which time associates interested in the position shall sign the job
posting. During a posting period, the Union Chairperson shall attempt to contact
those associates on vacation. Only those associates signing the bid sheet shall
be considered for the position. At the close of the posting period, a copy of
the final bid sheet shall be given to the Unit Chairperson. In selecting an
associate for the vacancy, the Company shall take into consideration the
associate's skill, ability, overall work performance, and attendance. If these
factors are equal, the most senior associate shall be selected.
SECTION 2
If no associates sign up, or meet the qualifications for a particular job
vacancy, the Company shall have the right to transfer an associate into the
position and/or hire a new associate.
SECTION 3
Job transfers shall be held to a necessary minimum and seniority shall be
considered. The Company shall have the right to transfer associates on a
temporary basis, not to exceed sixty (60) calendar days. During such temporary
transfer, the associate shall continue to receive the same compensation he was
receiving in the job from which he was transferred.
SECTION 4
Any associate applying for a posted position who is not chosen because they are
not qualified or who is disqualified after being chosen may not apply for the
same position for a period of three (3) months from the date of notification.
ARTICLE XXVIII
PAY DAY
The regular pay day shall be on Friday of each week, and associates shall be
paid for all time worked up to quitting time on the last day worked in the
previous week except when a holiday interferes, in which case the pay day will
be on the day preceding the holiday.
ARTICLE XXIX
WRAP-UP CLAUSE
The parties expressly declare and agree that they have bargained between them on
all phases of hours, wages, rates of pay and other terms and conditions of
employment and that this Agreement, along with all economic benefits contained
in the Distribution Center Handbook, is the entire contract between the parties
and represents their full and complete agreement without reservation or
unexpressed understanding.
ARTICLE XXX
TERMINATION
SECTION 1
This Agreement shall be effective as of December 1, 1998 and shall remain in
full force until here and after provided.
This Agreement, when signed by the duly authorized officers of the Company and
the Union, shall become effective as of December 1, 1998 and continue in effect
through midnight November 30, 2001, and shall continue to remain in full force
and effect from year to year thereafter, unless written notice is given by
either party to the other on or before sixty (60) days prior to the expiration
date, requesting that the Agreement be modified or terminated. In the event of
such notification, the parties hereto shall immediately confer and negotiate
with reference to a new or modified Agreement for the ensuing period.
Negotiations for a new contract shall commence not later than thirty (30) days
from the date of the written notice herein mentioned. In the event that either
party notifies the other of its desire to modify this Agreement, this Agreement
subject to such notification shall continue to remain in effect during the
period of negotiation until a new Agreement has been reached or until either
party shall give the other party ten (10) days notice of cancellation. In any
event, nothing herein contained shall preclude either party from modifying or
changing or amending its proposals for a new agreement.
SECTION 2
Any notice to be given under this Article of the Agreement shall be given by
registered mail, and, if by the Company, be addressed to United Steelworkers of
America, AFL-CIO, CLC, P.O. Box 13472, Memphis, Tennessee 38113, and, if by the
Union to the Company, 3755 Knight Arnold Road, Memphis, Tennessee 38118. Either
party may by like notice, change the address to which registered mail notice to
it shall be given.
CATHERINES STORES CORPORATION
by:_________________________________
United Steelworkers of America,
AFL-CIO-CLC, through its agent
Local No. 1002
by:_________________________________
UNITED STEELWORKERS OF AMERICA,
AFL-CIO-CLC
by:
-----------------------------
International President
by:
-----------------------------
International Secretary
by:
----------------------------
International Treasurer
by:
----------------------------
International Vice Pres. -Administration
by:
----------------------------
International Vice Pres.-Human Affairs
by:
---------------------------
Division Director
Appendix A
WAGE RANGES
CURRENT EFFECTIVE EFFECTIVE EFFECTIVE
1998 12/1/98 12/1/99 12/1/2000
JOB CLASS I .50 .30 .30
Maintenance Technician $9.50 $10.00 $10.30 $10.60
JOB CLASS II
Shipping Clerks $7.20 $7.70 $8.00 $8.30
Ticket Office Clerks $7.20 $7.70 $8.00 $8.30
Traffic Office Clerks $7.20 $7.70 $8.00 $8.30
Machine Operator $7.20 $7.70 $8.00 $8.30
Van Driver $7.20 $7.70 $8.00 $8.30
Receiving Dock Clerk $7.20 $7.70 $8.00 $8.30
Picker/Packers $7.20 $7.70 $8.00 $8.30
JOB CLASS III
Basics Picker/Packer $6.75 $7.25 $7.55 $7.85
Basics Restocker $6.75 $7.25 $7.55 $7.85
JOB CLASS IV
Checker/
Markers $6.55 $7.05 $7.35 $7.65
Housekeepers $6.55 $7.05 $7.35 $7.65
Material Handlers $6.55 $7.05 $7.35 $7.65
Receiving Dock Handlers $6.55 $7.05 $7.35 $7.65
Return Area Clerks $6.55 $7.05 $7.35 $7.65
Supply Clerks $6.55 $7.05 $7.35 $7.65
JOB CLASS V
Lead Persons $7.20 $8.20 $8.50 $8.80
I. Effective 1/24/99 Lead People will move from job class II to job class
V, and Picker Packers will move from job class III to job class II.
II. Starting wage rate may be up to 30 cents less than the current wage
rate paid.
III. The position of Senior lead person will be maintained at $.35 per hour
above the current Lead Person rate.
IV. The bonus program will remain in place at the current levels. (5% over
plan = $50.00 and 15% over plan = $100.00)
This is an ADDENDUM to the STANDARD AGREEMENT
BETWEEN
CATHERINES STORES CORPORATION
3755 Knight Arnold Road
Memphis, Tennessee 38118
-and-
UNITED STEELWORKERS OF AMERICA,
AFL-CIO, CLC
Local No. 1002
P.O. Box 13472
Memphis, Tennessee 38113
From December 1, 1998 to November 30, 2001
ADDENDUM
A member of the negotiating committee for the United Steel Workers of America
has asked that a small group of employees be allowed to punch-in and work from
8:30 a.m. to 4:45 p.m. which is contrary to Article VIII, Section 2 of the
contract. The company has no objection and is in agreement.
Signature of Company Representative:
-----------------------------------------
Signature of Local 1002 Representative:
-----------------------------------------
Signature of Union Chairperson:
-----------------------------------------
Exhibit 10.37
FIRST AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the "First
Amendment") effective as of January 12, 1999, is made by and among CATHERINES,
INC., a Delaware corporation (the "Company"), CATHERINES STORES CORPORATION, a
Tennessee corporation (the "Parent"), CATHERINES OF PENNSYLVANIA, INC., a
Tennessee corporation ("PA Co."), CATHERINES OF CALIFORNIA, INC., a California
corporation ("RT Co."), CATHERINES PARTNERS, L.P., a Tennessee limited
partnership ("Intex"), and FIRST AMERICAN NATIONAL BANK, a national banking
association ("FANB"), individually and in its capacity as agent for the Banks,
defined below (together with any of its successors in such capacity, the
"Agent"), HIBERNIA NATIONAL BANK, a national banking association ("Hibernia")
and BANK ONE, N.A., a national banking association ("Bank One"); (together with
their successors, transferees and assigns from time to time parties hereto shall
be referred to collectively as the "Banks" and each individually shall be
referred to as a "Bank").
W I T N E S S E T H:
A. The Company, Catherines Stores Corporation, a Delaware corporation (the
"Predecessor Parent"), Virginia Specialty Stores, Inc. ("VSS"), Added
Dimensions, Inc. ("Added Dimensions"), Linda Karan-Large Size Factory Outlet,
Inc. ("Linda Karan"), The Answer-The Elegant Large Size Discounter, Inc. ("The
Answer") (Added Dimensions, Linda Karan and The Answer collectively called "VSS
Subsidiaries") and FANB entered into a Credit Agreement dated as of March 31,
1994 (the "Original Credit Agreement") pursuant to which FANB provided a term
loan and a working capital loan facility to the Company. In connection with the
execution of the Original Credit Agreement the Company, the Predecessor Parent,
VSS and the VSS Subsidiaries executed a number of ancillary documents
(collectively the "Original Loan Documents") including without limitation
various security agreements, pledge agreements and mortgages in favor of Agent
for the benefit of the Banks (collectively the "Original Security Documents").
B. Hibernia and The Hongkong and Shanghai Banking Corporation Limited
("Hongkong") became parties to the Original Credit Agreement by the execution of
certain Commitment Transfer Supplements dated as of March 31, 1994.
C. Subsequent to the execution of the Original Credit Agreement, PA Co., RT
Co., Intex and CSC Sub, Inc., a Tennessee corporation ("CSC Sub") were formed,
the VSS Subsidiaries merged with VSS and certain assets were transferred from
the Company to PA Co., RT Co., Intex and CSC Sub. The corporate restructure and
the transfer of assets were contemplated by the terms of the Original Credit
Agreement and were subject to the execution by the Company, the Predecessor
Parent, VSS, PA Co., RT Co., Intex and CSC Sub of a First Amendment to Credit
Agreement (the "First Amendment to Credit Agreement") dated as of January 29,
1995, whereby PA Co., RT Co., Intex and CSC Sub became Credit Parties and
certain ancillary documents were executed in connection therewith (collectively,
the "First Amendment Loan Documents") including but not limited to security
agreements and pledge agreements in favor of Agent for the benefit of FANB,
Hibernia and Hongkong (collectively, the "First Amendment Security Documents").
D. Subsequent to the execution of the First Amendment to Credit Agreement,
VSS merged into the Company and the Parent became a successor corporation by
virtue of a merger between CSC Sub and the Predecessor Parent. As of December 6,
1995, the Company, Parent, PA Co., RT Co., Intex, FANB, Hibernia and Hongkong
executed a Second Amendment to Credit Agreement (the "Second Amendment") whereby
(a) the working capital loan facility was increased from $20,000,000.00 to
$25,000,000.00; (b) a $3,000,000.00 swingline loan subfacility was provided; (c)
the term of the working capital loan facility was extended; (d) certain
collateral was released as security for the Loans and (e) certain other
amendments were made to the credit facilities. In connection therewith the
Credit Parties executed certain ancillary documents (collectively, the "Second
Amendment Loan Documents") including, but not limited to, amendments to security
agreements, amendments to pledge agreements and amendments to deeds of trust in
favor of Agent (collectively, the "Second Amendment Security Documents").
E. As of April 26, 1996, the Credit Parties, FANB, Hibernia and Hongkong
executed a Third Amendment to Credit Agreement (the "Third Amendment") to
reflect certain changes to the financial covenants of the Credit Agreement.
F. As of September 4, 1996, the Credit Parties, FANB, Hibernia and Hongkong
executed a Fourth Amendment to Credit Agreement (the "Fourth Amendment") (a) to
extend the term of the swingline loan subfacility, (b) to extend the term of the
working capital loan facility and (c) to reflect certain changes to the
financial covenants of the Credit Agreement. In connection therewith the Credit
Parties executed certain ancillary documents (collectively, the "Fourth
Amendment Loan Documents") including but not limited to the amendments to the
deeds of trust (collectively, the "Fourth Amendment Security Documents").
G. As of December 4, 1996, the Credit Parties, FANB, Hibernia and Hongkong
executed a Fifth Amendment to Credit Agreement (the "Fifth Amendment") to
reflect certain changes to the Credit Agreement.
H. The Original Credit Agreement as amended by the First Amendment to
Credit Agreement, Second Amendment, Third Amendment, Fourth Amendment and Fifth
Amendment is referred to herein as the "Prior Credit Agreement". The Original
Loan Documents, the First Amendment Loan Documents, the Second Amendment Loan
Documents, the Third Amendment Loan Documents, and the Fourth Amendment Loan
Documents are collectively referred to as the "Prior Loan Documents". The
Original Security Documents, the First Amendment Security Documents, the Second
Amendment Security Documents, and the Fourth Amendment Security Documents are
collectively referred to as the "Prior Security Documents".
I. Pursuant to the Prior Credit Agreement, FANB, Hibernia and Hongkong made
Loans and issued Letters of Credit pursuant to their Commitments under and as
defined in the Prior Credit Agreement. The obligations of the Company and the
other Credit Parties pursuant to the Prior Credit Agreement are embodied within
the Prior Loan Documents and are evidenced by the Term Notes, certain working
capital promissory notes, as amended and restated (the "Prior Working Capital
Notes") and a certain swingline note, as amended (the "Prior Swingline Note")
(the Term Notes, the Prior Working Capital Notes and the Prior Swingline Note
being collectively referred to herein as the "Prior Notes") and certain
guaranties of the Parent, PA Co., RT Co. and Intex, as amended (the "Prior
Guaranties").
J. As of February 27, 1998, the Company paid and satisfied the indebtedness
evidenced by the Term Notes, the Term Loan Commitment terminated, the liens of
the Deeds of Trust were released, Bank One acquired all of Hongkong's
participating interest in the Working Capital Loan and all of Hongkong's
participating interest in the Letters of Credit pursuant to the execution of a
Commitment Transfer Supplement dated as of February 27, 1998.
K. As of February 27, 1998, the Credit Parties, FANB, Hibernia and Bank One
executed an Amended and Restated Credit Agreement (the "Amended and Restated
Credit Agreement") whereby Bank One became a Bank party to the Amended and
Restated Credit Agreement. In addition and among other things, the "Working
Capital Commitments" as defined in the Prior Credit Agreement were reduced to
$22,000,000 and the Credit Parties' obligations were amended and restated.
L. The Credit Parties have requested that the Banks make certain changes to
the Amended and Restated Credit Agreement including but not limited to an
increase in the working capital loan facility from $22,000,000 to $25,000,000.
The Banks consent to and approve the foregoing request of the Credit Parties,
subject to the terms and conditions of this First Amendment.
SECTION ONE: DEFINITIONS
1.01 Amended Definitions. The following definitions contained in Section 1
of the Amended and Restated Credit Agreement are hereby deleted and the
following definitions substituted in lieu thereof:
"Applicable Margin" shall mean, as of the date of any determination
thereof, a rate per annum determined in accordance with the following pricing
grid based on the Debt Coverage Ratio measured at each Fiscal Year End ("FYE")
and at the end of the second quarter of each Fiscal Year ("2QTR"):
Tier Debt Coverage Ratio measured at each FYE and Applicable Margin
2QTR
I Greater than 1.80:1 1.25%
II Greater than 1.55:1 but less than or equal to 1.50%
1.80:1
III Greater than 1.40:1 but less than or equal to 1.75%
1.55:1
IV Less than or equal to 1.40:1 2.25%
"Borrowing Base" shall mean, as of the date of determination thereof, any
amount equal to the lesser of (a) the aggregate Commitments of all Banks at such
time or (b) the sum of (i) 50% of Eligible Inventory plus (ii) 75% of the net
face amount of Eligible Accounts Receivables at such time minus (iii) 50% of the
L/C Exposure under Trade L/Cs at such time and 100% of the L/C Exposure under
Standby L/Cs at such time. "Net face amount" shall mean the face amount of such
receivables less applicable credits, offsets, rebates and discounts. For
purposes of determining the Borrowing Base, Eligible Inventory shall be
calculated utilizing the cost value, after adjustments, as reflected on the
consolidated balance sheet of the Parent and its Subsidiaries.
"Borrowing Base Certificate" shall mean a certificate substantially in the
form of Exhibit "E" attached to this First Amendment.
"Consolidated Adjusted Operating Profit" shall mean, for any period, the
consolidated Net Income of the Parent and its Subsidiaries for such period,
plus, without duplication and to the extent reflected as a charge in the
statement of such consolidated Net Income for such period, the sum of (i) taxes
measured by income, (ii) interest expense, (iii) depreciation and amortization
expense, (iv) any non-cash FASB 121 charges or any other charges which would
cause the acceleration of depreciation expense provided that such amount does
not exceed $500,000.00 per Fiscal Year; (v) operating lease expense; and (vi)
the non-cash portion of Store closing expenses, provided that such amount does
not exceed $1,925,000 per Fiscal Year.
"Dividend Ratio" shall mean as of the end of each Fiscal Year a fraction
(a) the numerator of which is Consolidated Adjusted Operating Profit and (b) the
denominator of which is the sum of (i) interest expense, (ii) taxes measured by
income, (iii) Capital Expenditures, (iv) payments of obligations arising with
respect to Financing Leases, (v) dividends paid or proposed to be paid during
the current Fiscal Year, (vi) operating lease expense and (vii) Permitted Stock
Repurchase Expenses.
"Net Recoverable Liquidation Value" shall mean the net recoverable
liquidation value of the Eligible Inventory as determined by the Inventory
Valuation required to be performed pursuant to Section 7.12.
"Working Capital Commitment" shall mean, as to any Bank, its obligation to
make Working Capital Loans to the Company pursuant to subsection 2.1 in the
amount not to exceed the amount set forth opposite such Bank's name set forth on
Schedule 1.2 to this First Amendment and to purchase its L/C Participation
Interest in any Letters of Credit, as the same may be reduced from time to time
pursuant to subsections 2.1 and 4.7, collectively, as to all the Banks, the
"Working Capital Commitments".
"Working Capital Commitment Percentage" shall mean, as to any Bank, the
percentage set opposite such Bank's name under such heading on Schedule 1.2 to
this First Amendment.
1.02 New Definitions. The following definitions are hereby added to the
Amended and Restated Credit Agreement:
"Inventory Valuation" shall mean an audit of the Net Recoverable
Liquidation Value of Eligible Inventory required to be furnished to the Agent
pursuant to Section 7.12.
"Permitted Stock Repurchase Expenses" shall mean the purchase price and all
other expenses related to a stock repurchase permitted under Section 9.12 of the
Amended and Restated Credit Agreement.
1.03 Deleted Definitions. The following definitions are hereby deleted in
their entirety from the Amended and Restated Credit Agreement:
"Annual Inventory Valuation".
"Second Inventory Valuation".
1.04 "Other Terms". All capitalized terms used but not defined herein shall
have the meanings provided in the Amended and Restated Credit Agreement.
SECTION TWO: AMENDMENTS
2.01 Amendment to Section 2.1. Section 2.1 to the Amended and Restated
Credit Agreement is amended by deleting Section 2.1 in its entirety and by
substituting in lieu thereof the following:
2.01 Working Capital Commitments and Working Capital Loans. Subject to the
terms and conditions hereof, each Bank severally, and not jointly, agrees to
make working capital loans hereunder (individually, a "Working Capital Loan";
collectively, as to the Banks, the "Working Capital Loans") to the Company from
time to time during the Working Capital Commitment Period in an aggregate
principal amount at any one time outstanding not to exceed the Working Capital
Commitments, as such amount may be reduced as provided herein, provided that no
Working Capital Loans shall be made if, after giving effect thereto the Loan
Exposure would exceed the Borrowing Base. During the Working Capital Commitment
Period the Company may use the Working Capital Commitments by borrowing,
prepaying the Working Capital Loans in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof. The outstanding principal
balances of the Working Capital Loans on the Closing Date are set forth in the
certificate described in paragraph (v) of subsection 5.1. The Company represents
and warrants to the Banks that the aggregate of such outstanding principal
amounts do not exceed the lesser of the Working Capital Commitment as defined in
the Amended and Restated Credit Agreement or the Borrowing Base as of such date.
2.02 Amendment to Section 6. Section 6 to the Amended and Restated Credit
Agreement is amended to add a new subsection 6.16 thereto as follows:
6.16 Year 2000.
(a) The Company has developed a plan to ensure the systems of the
Company and the other Credit Parties are compliant with the
requirements to process transactions in the year 2000. The
majority of the information systems of the Company and the other
Credit Parties are serviced by outside vendors who are in the
process of completing all necessary updates to ensure they will
continue to be effective in the year 2000. The Company does not
currently believe it has other minor technological equipment
which, if not year 2000 compliant, will have a material impact on
the business operations of the Company and of the other Credit
Parties.
(b) The Company has requested from its key third-party providers
certifications of year 2000 compliance. The Company expects to
complete the third-party compliance certifications by the end of
Fiscal Year 1998. Once this assessment is complete, the Company
will begin to identify and assess the remaining risks and costs
of year 2000 scenarios. Contingency plans to address unexpected
year 2000 scenarios will be prepared as material risks and
uncertainties are identified. The Company reasonably expects the
majority of the information systems of the Company and the other
Credit Parties will be year 2000 compliant by Fiscal Year 1999.
The Company does not currently have an estimate of the cost to
remedy non- year 2000 compliant technologies; however, the
Company does not expect that the costs to achieve year 2000
compliance will be material to its consolidated financial
positions or results of operations of the Company or the other
Credit Parties.
(c) The Company will promptly notify Agent in the event the
Company determines that any computer application which is
material to the operations of the Company, its subsidiaries, the
other Credit Parties or any of its material vendors or suppliers
will not be fully Year 2000 compliant on a timely basis, except
to the extent that such failure could not reasonably be expected
to have a material adverse effect upon the financial condition of
the Company or the other Credit Parties.
2.03 Amendment to Subsection 7.12. Subsection 7.12 to the Amended and
Restated Credit Agreement is amended by deleting subsection 7.12 in its entirety
and by substituting in lieu thereof the following:
7.12 Inventory Valuation. The Agent shall have the right at any
time and from time to time, to require the Company to obtain and
deliver to the Agent, an audit of the Net Recoverable Liquidation
Value of Eligible Inventory performed by independent auditors
selected by Agent (the "Inventory Valuation"). The cost and
expense of the Inventory Valuation shall be paid by the Banks
unless one of the following events has occurred: (i) a Default or
an Event of Default has occurred under the terms of the Amended
and Restated Credit Agreement or (ii) the Debt Coverage Ratio as
determined at the Fiscal Year End or at the end of the second
fiscal quarter of the Company is equal to 1.55 to 1.0 or less. In
such event, up to $20,000 of the expense of the Inventory
Valuation Audit shall be paid by the Company and any expense in
excess of $20,000 shall be paid by the Banks.
2.04 Amendment to Subsection 9.12. Subsection 9.12 to the Amended and
Restated Credit Agreement is amended by deleting subsection 9.12 in its entirety
and by substituting in lieu thereof the following:
9.12 Limitation on Dividends/Stock Repurchase. Declare any cash
dividends on any shares of any class of stock of the Credit
Parties or make any payment on account of, or set apart assets
for a sinking or other analogous fund for the purchase,
redemption, retirement or other acquisition of any shares of any
class of stock of the Credit Parties, whether now or hereafter
outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in
obligations of the Credit Parties, except that the Company or the
Parent may declare dividends on any Class or series of stock of
the Company or the Parent, and the Parent may repurchase up to
the lesser of $5,000,000 or ten percent (10%) of its outstanding
stock provided that, in either event, no Default or Event of
Default exists and the Dividend Ratio for such Fiscal Year
exceeds 1.05 to 1.0.
SECTION THREE: CONDITIONS PRECEDENT.
3.01 Conditions to the Execution of the First Amendment. The obligation of
the Banks to enter into the First Amendment shall be subject to the following
conditions to the satisfaction of the Agent:
(a) First Amendment. Each Bank shall have received an original of the First
Amendment duly executed by a duly authorized officer of each of the Credit
Parties.
(b) Third Amended and Restated Working Capital Notes. Each Bank shall have
received an original of a Third Amended and Restated Working Capital Note
reflecting, among other things, the increased Working Capital Commitment of each
Bank duly executed by a duly authorized officer of the Company and in form and
substance satisfactory to the Banks.
(c) Third Amended and Restated Guaranty Agreement. Each Bank shall have
received an original of a Third Amended and Restated Guaranty Agreement from
each of the Parent, PA Co., RT Co. and Intex reflecting among other things, the
increased amounts being guaranteed by said parties due to the increase in the
Working Capital Commitments duly executed by a duly authorized officer of each
such Credit Party and in form and substance satisfactory to the Banks.
(d) Second Amended and Restated Assignment and Security Agreement. Each
Bank shall have received an original of a Second Amended and Restated Assignment
and Security Agreement from each of Intex, PA Co., RT Co. and the Company
reflecting, among other things, the increased amounts being secured due to the
increase in the Working Capital Commitments duly executed by a duly authorized
officer of each such Credit Party and in form and substance satisfactory to the
Banks.
(e) Second Amended and Restated Pledge and Security Agreement. Each Bank
shall have received an original of a Second Amended and Restated Pledge and
Security Agreement from each of the Parent, PA Co. and RT Co. reflecting, among
other things, the increased amounts being secured thereby due to the increase in
the Working Capital Commitments duly executed by a duly authorized officer of
each such Credit Party and in form and substance satisfactory to the Banks.
(f) No Default or Event of Default. No Default or Event of Default shall
have occurred and be continuing on the date of the First Amendment. No Event of
Default (or condition which would constitute an Event of Default with the giving
of notice, the lapse of time, or both) under material (in the reasonable opinion
of the Company and the Agent) contracts of the Credit Parties such as, but not
limited to, agreements with respect to capital stock, financing documents and
lease agreements shall have occurred and be continuing on the date of the First
Amendment.
(g) Amendment Fee. Agent shall have received an amendment fee of $30,000.00
which shall be distributed on an equal basis to the Banks by Agent.
(h) Legal Opinion of Counsel to the Credit Parties. Each Bank shall have
received a counterpart of an opinion, dated the date of the First Amendment, of
Waring Cox, PLC, counsel to the Credit Parties, in form and substance
satisfactory to Banks.
(i) Corporate Proceedings. Each Bank shall have received an execution copy
of the resolutions of the Boards of Directors of the applicable Credit Parties
authorizing the execution, delivery and performance of the First Amendment
certified by the Secretary or Assistant Secretary of the relevant Credit Parties
as of the date of the First Amendment, which certificate shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded as of the date of the First Amendment.
(j) Representations and Warranties. The representations, warranties and
disclosures made by the Credit Parties in the Amended and Restated Agreement, as
amended by the First Amendment, or in any Basic Document or made by any of the
Credit Parties in any certificate, document or financial or other statement
furnished in connection herewith or therewith, shall be true and correct in all
material respects on and as of the date of the First Amendment with the same
effect as if made on such date.
(k) UCC Searches. The Agent shall have received the results of recent UCC
financing statement searches of the Tennessee Secretary of State and the
California Secretary of State and the results of such searches shall reveal no
Liens on assets of the Credit Parties in those jurisdictions except for
Permitted Liens and other Liens approved by the Banks.
(l) Good Standing Certificates. Agent shall have received copies of
certificates dated as of a recent date as to the existence and/or good standing
of the following: (i) the Company in Delaware and Tennessee; (ii) the Parent in
Tennessee; (iii) PA Co. in Tennessee; (iv) RT Co. in California and (v) Intex in
Tennessee.
(m) UCC Filings. Agent shall have received UCC financing statement
amendments duly executed by a duly authorized officer of each Credit Party to be
filed with the Tennessee Secretary of State and the Delaware Secretary of State
and any other jurisdiction in which the chief executive officer of a Credit
Party is located and the Agent shall have received evidence that all necessary
filing fees and all taxes and other expenses related to such filings have been
paid in full.
(n) Second Amended and Restated Security Agreement. Each Bank shall have
received an original of a Second Amended and Restated Security Agreement from
each of RT Co., PA Co., Intex and the Company reflecting among other things, a
new Schedule II thereto which identifies all Trademarks (as defined therein)
which secure the Obligations (as defined therein).
SECTION FOUR: REPRESENTATIONS AND WARRANTIES.
4.01 Entity Existence; Compliance with Law.
(a) Each of the corporate Credit Parties (i) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) has the corporate power and authority and the legal right to
own or lease and operate its property, and to conduct the business in which it
is currently engaged, (iii) is duly qualified as a foreign corporation and in
good standing under the laws of each jurisdiction where failure so to qualify
and remain in good standing would materially and adversely affect its ability to
own or lease and operate its property or to conduct the business in which it is
currently engaged or intends to engage in the future and (iv) is in compliance
with all Requirements of Law, except where non-compliance would not have
material adverse effect on the business, operations, assets or financial
conditions of each such Credit Party.
(b) Intex (i) is duly organized, validly existing and in good standing
under the laws of Tennessee, (ii) has the partnership power and authority and
the legal right to own or lease and operate its property, and to conduct the
business in which it is currently engaged, (iii) is duly qualified as a foreign
limited partnership and in good standing under the laws of each jurisdiction
where failure so to qualify and remain in good standing would materially and
adversely affect its ability to own or lease and operate its property or to
conduct the business in which it is currently engaged or intends to engage in
the future and (iv) is in compliance with all Requirements of Law, except where
non-compliance would not have material adverse effect on the business,
operations, assets or financial conditions of Intex.
4.02 Entity Power; Authorization; Enforceable Obligations.
(a) Each of the corporate Credit Parties has the corporate power and
authority, and Intex has the partnership power and authority, to make, deliver
and perform all of its respective obligations in connection with the Amended and
Restated Credit Agreement as amended by the First Amendment; each corporate
Credit Party has taken all necessary corporate action, and Intex has taken all
necessary partnership action, to authorize the execution, delivery and
performance of the First Amendment. No consent or authorization of, filing with,
or other act by or in respect of, any other Person is required in connection
with the execution, delivery or performance by each of the Credit Parties or the
validity of or enforceability against each of the Credit Parties, of the First
Amendment (except such filings as are necessary in connection with perfection of
the Liens created by such documents, which filings have been duly made and/or
obtained and are in full force and effect). The First Amendment has been duly
executed and delivered on behalf of each such Credit Party. The First Amendment
constitutes a legal, valid and binding obligation of each Credit Party,
enforceable against each such Credit Party in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights generally, and
except as enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity).
4.03 No Legal Bar. The execution, delivery and performance by each of the
Credit Parties of the First Amendment do not and will not violate any
Requirement of Law or any Contractual Obligation applicable to or binding upon
the Credit Parties or any of their properties or assets, except where
noncompliance would not have a material effect on the business, operations,
property, assets or financial condition of the Credit Parties taken as a whole
and will not result in the creation or imposition of any Lien on any such
properties or assets pursuant to the provisions of any Requirement of Law or any
Contractual Obligations other than the Lien of the Security Documents.
4.04 No Default. None of the Credit Parties is in default in the payment or
performance of any of its Contractual Obligations in any respect that is
material to the Credit Parties, and no Default or Event of Default has occurred
and is continuing. None of the Credit Parties is in default in any respect that
is material to it under any order, award or decree of any Governmental Authority
or arbitrator binding upon or affecting it or by which any of its properties or
assets may be bound or affected.
SECTION FIVE: MISCELLANEOUS.
5.01 Governing Law; No Third-Party Rights. THIS FIRST AMENDMENT AND THE
RIGHTS AND DUTIES OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
TENNESSEE.
5.02 Counterparts. This First Amendment may be executed by one or more of
the parties to this First Amendment on any number of separate counterparts, and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.
5.03 No Other Amendments. All other terms and provisions of the Amended and
Restated Credit Agreement not modified or amended hereby shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Amended and Restated Credit Agreement as of the day and year first above
written.
CATHERINES, INC.
By:________________________________
David C. Forell
Executive Vice President
CATHERINES STORES CORPORATION
By:________________________________
David C. Forell
Executive Vice President
CATHERINES OF PENNSYLVANIA, INC.
By:________________________________
David C. Forell
Executive Vice-President
CATHERINES OF CALIFORNIA, INC.
By:________________________________
David C. Forell
Executive Vice-President
CATHERINES PARTNERS, L.P.
By: CATHERINES, INC., its general
partner
By: __________________________
David C. Forell
Executive Vice President
FIRST AMERICAN NATIONAL BANK, individually
and as Agent
By:________________________________
Title:_____________________________
HIBERNIA NATIONAL BANK
By:________________________________
Title:_____________________________
BANK ONE, N.A.
By:________________________________
Title:_____________________________
SCHEDULE 1.2
Commitments
Working Swingline
Working Capital Swingline Loan
Capital Commitment Loan Commitment
Bank Commitment Percentage Commitment Percentage Commitment
First American
National Bank $ 7,955,000 31.82% $3,000,000 100% $10,955,000
Hibernia
National Bank $ 8,522,500 34.09% -0- -0- $ 8,522,500
Bank One, N.A. $ 8,522,500 34.09% -0- -0- $ 8,522,500
Exhibit 11.1
The computation of weighted average number of common shares outstanding is as
follows:
Year Year Year
ended ended ended
January 30, January 31, February 1,
1999 1998 1997
------- -------- -------
Weighted average
common shares outstanding 7,258,610 7,212,655 7,479,976
Common stock equivalents -
shares issuable under the
1994 Omnibus Incentive Plan,
the 1992 Nonqualified Stock
Option Plan, and the 1990
Performance Units Plan 148,637 70,660 90,812
--------- --------- ---------
Total Weighted Average
Common Shares Outstanding 7,407,247 7,283,315 7,570,788
========= ========= =========
The Company repurchased 85,000 shares in fiscal year 1998 and 509,500 shares in
fiscal 1996 reducing the weighted average common shares outstanding.
TABLE OF CONTENTS Exhibit 13
Letter to Shareholders
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Statements
Selected Financial Data
Market Price Information
Directors and Officers
Shareholder Information
Catherines Stores Corporation is a leading specialty retailer of women's
large-size clothing and accessories, operating 432 stores in 40 states and the
District of Columbia. The Company operates four store concepts: Catherine's (214
stores), Added Dimensions (79 stores), PS Plus Sizes (111 stores) and The Answer
(28 stores), each offering a unique merchandising concept to the large-size
customer.
TO OUR SHAREHOLDERS:
Catherines Stores Corporation's fiscal 1998 net sales were a record $295.3
million, a 6.5% increase over the prior year. Comparable stores' sales increased
8.9% for the year. The momentum in comparable stores' sales began in early 1997
and as of the end of fiscal 1998, we have experienced 20 consecutive months of
comparable stores' sales increases.
The Company achieved a record net income of $7,627,000, or $1.03 per common
share, in 1998 as compared to net income of $44,000, or $0.01 per share, in
1997. Our earnings before interest, taxes, depreciation, amortization and store
charges for fiscal 1998 were approximately $22.7 million, a 50% improvement over
fiscal 1997.
The Company achieved record sales and profits in fiscal 1998 through
comparable stores' sales growth, improved merchandise margins and continued
expense control. Merchandise margins increased by 106 basis points from 1997 and
buying and occupancy costs as a percentage of sales decreased by 121 basis
points. Selling, general and administrative expenses also decreased as a
percentage of sales from 27.2% in 1997 to 26.8% in 1998.
The improved sales performance resulted from programs undertaken in
response to consumer research. In late 1996 and early 1997, we formed a consumer
advisory board, conducted focus groups in four cities and mailed an extensive
customer survey. In response to this survey, we changed our pricing strategy in
dresses by emphasizing key price points, implemented higher-priced suit programs
and changed our merchandise assortments to emphasize more casual career looks.
We also developed and introduced the Body Basics program to meet our customers'
needs, as identified through our customer surveys, to find more flattering
fashions. Through this program, all store and merchandising staff have been
trained to identify the five basic body shapes and to select fashions that
flatter each of those shapes. This program allows our sales associates to better
serve our customers and allows our merchants to improve their merchandise
selection. Our promotional strategy has also changed. Newspaper advertisements
have been virtually eliminated in favor of direct mailings to our customers.
The Company closed 14 stores in 1998. The store closing costs and write-off
of closed store assets were approximately $507,000 before taxes and reduced our
diluted net income per common share by $0.04. Charges to close 20 stores and
charges to reserve the costs to close an additional 30 stores in fiscal 1997
reduced last year's net income per share by $0.34. Before these charges, net
income per share was $1.07 in fiscal 1998 compared to $0.35 per share in the
prior year.
During fiscal 1998, the Company opened 3 new stores and remodeled,
relocated or expanded 27 stores. Total capital expenditures for the year were
$7.6 million. In addition, the Company replaced and obtained certain computer
equipment. The cost of this equipment, approximately $1.1 million, was financed
by capital leases.
Our plans for 1999 are to open 10 to 12 new stores and to relocate, remodel
or expand approximately 43 stores at an estimated cost of $6.8 million. An
additional $1.2 million is planned for fixtures and leasehold improvements in
other stores. Total capital expenditures for fiscal 1999 are expected to be $9.9
million.
In February 1998, we mortgaged our real property in Memphis, Tennessee. The
$6.9 million mortgage loan has a seven-year term with payments based on a
20-year amortization. The proceeds of the mortgage loan were used to retire our
bank term loan and to reduce the outstanding balance on our Revolving Credit
Agreement.
The Revolving Credit Agreement was amended in January 1999. The amendment
increased the total availability from $25 million to $28 million, including the
swing line of credit, and amended the interest rate to fluctuate based on the
Company's debt coverage ratio. Based on the Company's current performance, this
will reduce our interest rate by 100 basis points. The amendment also allowed
the Company to repurchase the lesser of $5 million or 10% of the Company's
outstanding common stock, which had been approved by the Company's Board of
Directors. As of March 31, 1999, 390,600 shares of common stock had been
repurchased.
In March 1999, we announced the addition of Ms. Diane Missel to our
merchandising management team. Ms. Missel will replace Mr. Stanley Grossman as
the Executive Vice President of Merchandising. Ms. Missel has an extensive
retailing background. Most recently, she was the President and Chief Operating
Officer of Maurices. In addition, Ms. Missel has held executive positions at
Cato Corporation and US Shoe Specialty Retailing. Mr. Grossman plans to retire
from the Company during fiscal 1999.
Management's data processing strategy is to rely on third-parties to
provide software that is modified by the third-party to meet the Company's data
processing and information technology requirements. These third-parties have
acknowledged their responsibility to make the software provided to the Company
year 2000 compliant.
As we look forward to 1999, we expect that the changes made in our
merchandising organization and the introduction of our innovative Body Basics
program will allow us to sustain our current momentum. We appreciate the support
of all of our vendors and shareholders as we move the Company toward the new
millennium.
Bernard J. Wein
President and Chief Executive Officer
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward-Looking Statements
This outlook contains forward-looking statements 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: Year 2000
information systems issues; general economic conditions; competitive factors and
pricing pressures; the Company's 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.
Overview
The Company's net income for the year ended January 30, 1999 ("1998") was
$7,627,000 compared to $44,000 in the year ended January 31, 1998 ("1997") and
$1,286,000 in the year ended February 1, 1997 ("1996"). Comparable stores' sales
increased 8.9% in 1998, increased 3.1% in 1997 and decreased 5.3% in 1996.
Operating income margins were 4.6%, 0.7% and 1.3% in 1998, 1997 and 1996,
respectively.
Operating income before write-down of store assets and store closing costs
was $13,943,000 in 1998, $5,589,000 in 1997 and $4,369,000 in 1996. As a
percentage of net sales, operating income before write-down of store assets and
store closing costs was 4.7%, 2.0% and 1.7% for 1998, 1997 and 1996,
respectively. Cash provided by operating activities was $19,859,000 in 1998,
$12,297,000 in 1997 and $8,363,000 in 1996.
In late 1997, the Company accrued the costs, primarily lease termination
costs, to close 30 stores upon lease termination or settlement with the
landlord. Throughout 1998, management evaluated each store's financial
performance. Based on these evaluations, management added 10 underperforming
stores to the store closing plan and removed 11 stores from the store closing
plan based on their improved profitability. The total number of stores closed in
1998 under the store closing plan was 14. Management anticipates closing the
remaining 15 stores upon lease termination or through settlement with the
landlord.
The following table reflects the pre-tax charges incurred by the Company
during the three fiscal years ended January 30, 1999 for the write-down of store
assets and store closing costs.
1998 1997 1996
---- ---- ----
Write-down of impaired assets $47,000 $565,000 $944,000
Asset write-downs and costs
incurred to close stores 315,000 1,158,000 12,000
Estimated costs of future
store closings 595,000 1,942,000 0
Reserves no longer required (450,000) 0 0
--------- - -
Total $507,000 $3,665,000 $956,000
======== ========== ========
Diluted net income per common
share, as reported $1.03 $0.01 $0.17
===== ===== =====
Diluted net income per common
share, excluding above costs $1.07 $0.35 $0.24
===== ===== =====
The Company has a contract, which expires in the year 2000 unless renewed,
to sell to a third-party, without recourse, accounts receivable created by its
private label credit card. The third-party provides all authorization, billing
and collection services for these accounts. At the end of the term, the Company
can repurchase the receivables at face value.
Results of Operations
The following table sets forth income statement data, expressed as a
percentage of net sales, for 1998, 1997 and 1996:
1998 1997 1996
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of sales, including buying
and occupancy costs 68.1 70.4 70.3
----- ----- -----
Gross margin 31.9 29.6 29.7
Selling, general and administrative
expenses 26.8 27.2 27.6
Amortization of intangible assets 0.4 0.4 0.4
----- ----- -----
Operating income before write-down of
store assets and store closing costs 4.7 2.0 1.7
Write-down of store assets and store
closing costs 0.2 1.3 0.4
----- ----- -----
Operating income 4.5 0.7 1.3
Interest, net 0.2 0.5 0.4
----- ----- -----
Income before income taxes 4.3 0.2 0.9
Provision for income taxes 1.7 0.2 0.4
----- ----- -----
Net income 2.6% 0.0% 0.5%
===== ===== =====
1998 Compared to 1997
Net sales increased 6.5% to $295,278,000 in 1998 from $277,152,000 in 1997.
Comparable stores' sales increased 8.9% due to increases in the number of
saleschecks generated, units sold and the average number of units per
salescheck, offset by a slight decrease in the average price per unit.
Gross margin, after buying and occupancy costs, increased as a percentage
of sales to 31.9% in 1998 from 29.6% in 1997. The increase is attributable to an
increase in merchandise margins and a decrease in buying and occupancy costs.
Merchandise margins as a percentage of sales increased by 106 basis points. This
increase was primarily attributable to a decrease in merchandise markdowns and
an increase in merchandise markups. The decrease in buying and occupancy costs
is due primarily to a reduction in the number of stores operated during 1998
versus 1997.
Selling, general and administrative expenses increased to $79,100,000 in
1998 from $75,432,000 in 1997. This increase was primarily attributable to
incentive compensation earned based on the increase in operating income and
consulting services incurred to re-engineer the merchandise assortment and
planning and distribution functions. As a percentage of sales, selling, general
and administrative expenses decreased from 27.2% in 1997 to 26.8% in 1998 as the
Company was successful in leveraging its fixed costs over the higher net sales.
As described in the comparison of 1997 to 1996 results, in 1997, the
Company incurred $3,665,000 to write-down impaired assets for 7 stores, close 20
stores and provide for the costs to close an additional 30 stores.
Throughout 1998, management evaluated each store's financial performance.
Based on these evaluations, management added 10 underperforming stores to the
store closing plan and revised its estimates on existing stores at a cost of
approximately $595,000 and removed 11 stores from the store closing plan based
on their improved profitability. The reserves no longer needed for these 11
stores were approximately $450,000. The Company closed 14 stores in 1998 at a
cost of approximately $315,000 and wrote-down approximately $47,000 related to
impaired assets. Management anticipates closing the remaining 15 stores upon
lease termination or through settlement with the landlord.
Interest expense decreased to $737,000 in 1998 from $1,295,000 in 1997 as a
result of lower working capital borrowings.
The effective tax rate for 1998 was 39.9% compared to 93.0% in 1997. The
rate is primarily impacted by non-tax deductible goodwill amortization, certain
non-tax deductible business expenses and state income taxes.
Diluted net income per common share rose to $1.03 in 1998 compared to $0.01
in 1997. Before the write-down of store assets and store closing costs, diluted
net income per common share would have been $1.07 compared to $0.35 in 1997.
1997 Compared to 1996
Net sales increased 3.4% to $277,152,000 in 1997 from $268,002,000 in 1996.
Comparable stores' sales increased 3.1% due to increases in the number of
saleschecks generated, units sold and average unit price, offset by a decrease
in the average number of units per salescheck.
Gross margin, after buying and occupancy costs, decreased as a percentage
of sales to 29.6% in 1997 from 29.7% in 1996. The decrease is primarily
attributable to a decrease in merchandise margins, and an increase in buying and
occupancy costs. Merchandise margins as a percentage of sales decreased by 9
basis points. This decrease was primarily attributable to an increase in
merchandise markdowns, offset by a decrease in merchandise shrinkage. Buying and
occupancy costs as a percentage of sales increased by 3 basis points.
Selling, general and administrative expenses increased to $75,432,000 in
1997 from $73,945,000 in 1996. This increase was primarily attributable to
corporate and store management bonuses earned based on the increase in operating
income before the write-down of store assets and store closing costs and the
outsourcing of computer network maintenance. These costs were partially offset
by reduced advertising costs and a reduction in new store opening costs. As a
percentage of sales, selling, general and administrative expenses decreased from
27.6% in 1996 to 27.2% in 1997. Average selling, general and administrative
costs per store remained relatively flat as compared to 1996.
The Company wrote-down, to estimated fair market value, unamortized
goodwill, leasehold improvements, and furniture and fixtures related to 7
underperforming locations in 1997 and 14 underperforming locations in 1996 whose
carrying values were impaired. These non-cash costs were approximately $565,000
in 1997 and $944,000 in 1996. In addition, during 1997 the Company incurred
costs of approximately $1,158,000 for asset write-downs and other expenses
related to the closing of 20 stores. The Company also expensed approximately
$1,942,000 for asset write-downs and other costs expected to be incurred
pursuant to a plan to close an additional 30 stores.
Amortization of intangibles decreased to $1,037,000 in 1997 from $1,168,000
in 1996 because certain intangibles were fully amortized in 1997. Interest
expense increased to $1,295,000 in 1997 from $1,127,000 in 1996 as a result of
increased borrowings under the credit facility and increased capital lease
interest expense.
The effective tax rate for 1997 was 93.0% compared to 43.7% in 1996. The
rate is primarily impacted by non-tax deductible goodwill amortization, certain
non-tax deductible business expenses and state income taxes.
Liquidity and Capital Resources
Cash from Operations
Historically, the Company's primary sources of liquidity have been cash
flow from operations and borrowings under its bank credit agreement.
For the past three fiscal years, cash flows from operations were as
follows:
1998 1997 1996
---- ---- ----
(Dollars in thousands)
Net income $ 7,627 $ 44 $ 1,286
Depreciation and amortization 8,724 9,505 8,558
Other non-cash charges,
including the write-down
of store assets and store
closing costs 797 2,120 (82)
Changes in current assets and
liabilities 2,711 628 (1,399)
------- ------- -------
Cash provided by operating activities $19,859 $12,297 $ 8,363
======= ======= =======
For fiscal 1998 compared to 1997, cash provided by operating activities
increased primarily due to the increase in operating income before the
write-down of store assets and store closing costs, and reductions in working
capital. For fiscal 1997 compared to 1996, cash provided by operating activities
increased primarily due to the increase in operating income before the
write-down of store assets and store closing costs, which increased 27.9% over
1996. Also contributing to the 1997 increase in cash provided by operations was
an increase in depreciation and amortization charges of approximately $947,000.
Banking Arrangements
On February 27, 1998, the Company entered into a new mortgage financing
agreement and extended its existing bank credit agreement. The new mortgage
financing agreement provides a $6,919,000 mortgage facility with a seven-year
term and a 20-year amortization period. The interest rate on the mortgage note
is fixed at 7.5%. The note is secured by the land and buildings at the Company's
corporate office. Proceeds from the mortgage note were used to repay the
Company's outstanding term loan and to reduce amounts outstanding under the
existing working capital facility.
The existing bank credit agreement was amended to reduce the amount
available from $25,000,000 to $22,000,000 and to increase the interest rate to
the agent bank's prime rate or LIBOR plus 2 1/4%, at the Company's option. This
facility continued to provide a swing line of credit of $3,000,000 with the
Company's agent bank. The agreement is secured by substantially all of the
Company's assets, with the exception of inventory and the assets securing the
mortgage note mentioned above. Amounts available under the new agreement are
based on the amounts of the Company's inventories and receivables. The working
capital facility can also be used to fund letters of credit. The working capital
facility requires an annual commitment fee of 1/2 of 1% of the average daily
unused commitment. The weighted average interest rate on borrowings was 7.8% for
the fiscal year ended January 30, 1999. The bank credit agreement expires June
30, 2001.
On January 12, 1999, the bank credit agreement was amended to increase the
amount available from $22,000,000 to $25,000,000 and to decrease the limitation
on repurchases of the Company's common stock. This facility continues to provide
a swing line of credit of $3,000,000 with the Company's agent bank. In addition,
the interest rate was amended to fluctuate based on the Company's debt coverage
ratio. The interest rate under the new agreement will range from LIBOR plus 1
1/4% to LIBOR plus 2 1/4%, or the agent bank's prime rate, at the Company's
option. Based on the formula in the agreement, the Company's current borrowing
cost would be LIBOR plus 1 1/4% or the agent bank's prime rate.
Prior to February 27, 1998, the Company's bank credit agreement provided a
$5,000,000 term loan and a working capital facility of $25,000,000, secured by
substantially all of the Company's assets, except domestic inventory. This
facility also provided for a swing line of credit of $3,000,000 with the
Company's agent bank. The interest rate was either the bank's prime rate or
LIBOR plus 1 1/4%, at the Company's option. The weighted average interest rate
on borrowings was 7.2% for the fiscal year ended January 31, 1998. The working
capital facility could also be used to fund letters of credit. The working
capital facility required an annual commitment fee of 1/2 of 1% of the average
daily unused commitment. Term loan repayments were $250,000 per quarter.
At January 30, 1999, the Company had approximately $24,900,000 combined
availability under its working capital and swing line facilities, after
considering outstanding letters of credit of approximately $2,800,000. The
Company's peak borrowing under the working capital and swing line facilities
during 1998, including outstanding letters of credit, was $10,773,000 in
February 1998. In 1997 and 1996, the peak borrowings were $24,936,000 in October
1997 and $23,157,000 in November 1996, respectively.
The Company had approximately $9,432,000 of invested cash at January 30,
1999. At January 31, 1998, the Company had no invested cash.
The Company believes that its internally generated cash flow, together with
borrowings under the bank credit agreement, will be adequate to finance the
Company's operating requirements, debt repayments and capital needs during the
foreseeable future. Any material shortfalls in operating cash flow could require
management to seek alternative sources of financing or to reduce the number of
stores that the Company expects to open, relocate or remodel.
Capital Expenditures
The Company's capital expenditures, other than those funded by capital
leases, were approximately $7,559,000 in 1998, $4,438,000 in 1997 and
$10,780,000 in 1996. The majority of capital expenditures were for fixtures,
equipment and leasehold improvements for new, relocated and remodeled stores.
The Company opened 3 new stores in 1998, 6 new stores in 1997 and 34 new stores
in 1996. Underperforming stores are closed upon lease termination, or earlier if
possible. The Company closed 14 stores in 1998, 20 stores in 1997 and 9 stores
in 1996.
The Company has a strategy of leasing computer equipment to provide
financial flexibility and to manage technological obsolescence. During 1998, the
Company, through its master capital lease agreements, financed the purchase of
certain computer equipment. The discounted present value of the additional
rental payments was $1,138,000. The total present value of all capital leases
entered into by the Company as of January 30, 1999 was approximately $4,549,000.
At the end of the initial term of the leases, the Company has the option to
purchase the equipment at fair market value or $1 in the case of store
point-of-sale computers, renew the leases or return the equipment.
Some of the capital lease agreements require the Company to maintain
certain financial ratios, minimum levels of net worth and working capital.
Additionally, some of the capital lease agreements restrict future liens and
indebtedness, sales of assets and dividend payments. These covenants are similar
to the bank credit agreement.
In 1999, the Company expects to open between 10 and 12 new stores and to
relocate, remodel or expand approximately 43 current locations. Fiscal 1999
capital expenditures are expected to be between $9,000,000 and $10,000,000.
Working Capital
The Company's working capital, current ratio, and ratio of sales to average
working capital at the end of the last three fiscal years were as follows:
1998 1997 1996
---- ---- ----
(Dollars in thousands)
Working capital $ 28,502 $ 22,567 $ 22,209
Current ratio 1.7 1.6 1.5
Ratio of sales to average
working capital 11.6 12.4 12.3
The Company funds inventory purchases through cash flows from operations
and borrowings under the bank credit agreement. The Company has also established
favorable payment terms with its vendors.
Common Stock Repurchases
In connection with the bank credit agreement amendment, the bank reduced
the restriction on common stock repurchases. The new agreement allows for the
repurchase of the lesser of $5,000,000 or 10% of the Company's outstanding
common stock. In 1998, the Company's Board of Directors approved the repurchase
of the Company's outstanding common stock, up to the maximum amount allowable by
the bank credit agreement. During fiscal 1998, the Company repurchased 85,000 of
its outstanding common shares through open-market purchases at approximately
$8.62 per common share, or approximately $733,000. The share purchases were paid
for with available cash on-hand.
During fiscal year 1996, the Company, with the approval of its Board of
Directors, repurchased approximately $3,736,000, or 509,500 common shares, of
its outstanding common stock through open-market purchases at approximately
$7.33 per common share. The share repurchases were financed with borrowings
under the bank credit agreement.
Year 2000 Compliance
The Company has developed a plan to ensure its systems are compliant with
the requirements to process transactions in the year 2000. The majority of the
Company's information systems are provided and serviced by outside vendors who
are in the process of completing all necessary updates to ensure they will
continue to be effective in the year 2000. Management currently believes that
any other minor technological equipment, if not year 2000 compliant, will not
have a material impact on the Company's business operations.
The Company has requested from its key third-party providers certifications
of year 2000 compliance. The Company is developing plans to test the systems
where the third-party responded as being compliant by December 31, 1999.
Contingency plans to address unexpected year 2000 scenarios will be developed to
address the material risks and uncertainties for those third-parties who either
do not respond or who responded that they will not be compliant. The Company
expects the majority of its information systems to be year 2000 compliant by
2000; however, no assurances can be given that the efforts by the Company and
its providers will be successful. The Company does not currently estimate that
the cost to remedy year 2000 noncompliant technologies will be significant.
Market Risk of Financial Instruments
The Company uses financial instruments, primarily fixed and variable rate
debt, to finance operations for capital expenditures and for general corporate
purposes. The Company's exposure to market risk for changes in interest rates
relates primarily to its short- and long-term debt obligations. The Company also
has short-term liquid investments which it places with major financial
institutions while limiting exposure to any one issuer. The Company does not use
derivative financial instruments or engage in trading activities.
The table below summarizes the principal cash flows of the Company's
financial instruments outstanding at January 30, 1999, categorized by type of
instrument and by year of maturity.
(Dollars in thousands) Fair
Fiscal Years 1999 2000 2001 2002 2003 Thereafter Value
------- ------- ------- ------- ------- ------- -------
Cash and cash
equivalents -
Commercial paper
and demand
deposit
accounts $11,561 $ 0 $ 0 $ 0 $ 0 $ 0 $11,561
Long-Term Debt -
Mortgage note,
interest at
7.5%, due
March 2005 162 174 188 202 218 5,841 6,705
Capital lease
obligations,
weighted average
interest rate
of 8.5% 1,654 1,243 1,090 550 12 0 4,549
Inflation
Inflation has had only a minor effect on the Company's results of
operations and its internal sources of liquidity and working capital.
Seasonality
Unlike many other apparel retailers, the Company historically has realized
a larger percentage of its operating income in the first half of the fiscal
year, with the fourth quarter generally creating an operating loss or being
marginally profitable. Higher margins are generated during the Easter and
Mother's Day seasons due to lower promotional and clearance markdowns. The
Company's fourth quarter results are generally caused by price competition from
other retailers, higher promotional costs and a shift to lower margin items in
the mix of merchandise sold.
Catherines Stores Corporation and Subsidiaries
Consolidated Balance Sheets January 30, January 31,
1999 1998
ASSETS
Current Assets:
Cash and cash equivalents $ 11,561,223 $ 3,089,290
Receivables 2,457,333 2,580,025
Merchandise inventory 50,355,267 48,310,215
Prepaid expenses and other 3,398,562 4,044,144
Deferred income taxes 4,203,000 3,908,000
------------- -------------
Total current assets 71,975,385 61,931,674
------------- -------------
Property and Equipment, at cost:
Land 500,000 500,000
Buildings and leasehold improvements 25,751,524 23,213,674
Fixtures and equipment 31,910,633 28,573,919
Equipment under capital leases 13,588,016 13,356,177
Improvements in process 2,644,496 830,144
---------- ----------
74,394,669 66,473,914
Less accumulated depreciation and amortization (39,410,261) (32,398,729)
------------- -------------
34,984,408 34,075,185
------------- -------------
Other Assets and Deferred Charges, net of
accumulated amortization of
$1,997,082 and $1,716,072 2,290,022 2,506,096
Goodwill, net of accumulated amortization of
$5,534,646 and $4,886,858 21,871,164 22,739,081
------------- -------------
$ 131,120,979 $ 121,252,036
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 22,310,110 $ 21,761,405
Accrued expenses 19,347,208 14,750,159
Current maturities of long-term bank
and other debt 1,816,119 2,853,585
------------- -------------
Total current liabilities 43,473,437 39,365,149
------------- -------------
Long-Term Bank and Other Debt,
less current maturities 9,517,067 10,788,920
Deferred Income Taxes 378,000 969,000
Commitments and Contingencies (Notes 2, 7, and 9)
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 7,279,949 and 7,231,070 shares
issued and outstanding 72,800 72,311
Additional paid-in capital 46,525,187 46,529,424
Retained earnings 31,154,488 23,527,232
---------- ----------
77,752,475 70,128,967
---------- ----------
$ 131,120,979 $ 121,252,036
=========== ===========
The accompanying notes are an integral part of these balance sheets.
Catherines Stores Corporation and Subsidiaries
Consolidated Statements of Income
January 30, January 31, February 1,
Years Ended 1999 1998 1997
---- ---- ----
Net sales $295,278,011 $277,152,476 $268,001,571
Cost of sales, including
buying and occupancy costs 201,188,781 195,093,555 188,520,002
------------ ------------ ------------
Gross margin 94,089,230 82,058,921 79,481,569
Selling, general and
administrative expenses 79,099,690 75,432,159 73,944,644
Amortization of intangible
assets 1,046,193 1,037,363 1,167,700
------------ ------------ ------------
Operating income before
write-down of store assets
and store closing costs 13,943,347 5,589,399 4,369,225
Write-down of store assets
and store closing costs 506,792 3,665,478 956,231
------------ ------------ ------------
Operating income 13,436,555 1,923,921 3,412,994
Interest and other, net 737,299 1,295,224 1,127,020
------------ ------------ ------------
Income before income taxes 12,699,256 628,697 2,285,974
Provision for income taxes 5,072,000 585,000 1,000,000
------------ ------------ ------------
Net income $ 7,627,256 $ 43,697 $ 1,285,974
============ ============ ============
Net income per common share $ 1.05 $ 0.01 $ 0.17
============ ============ ============
Diluted net income per
common share $ 1.03 $ 0.01 $ 0.17
============ ============ ============
The accompanying notes are an integral part of these financial statements.
Catherines Stores Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
----- ------- -------- --------
Balance at February 3,
1996 $ 76,732 $ 49,958,108 $ 22,197,561 $ 72,232,401
Net income -- -- 1,285,974 1,285,974
Repurchase of
509,500 shares of
common stock (5,095) (3,730,992) -- (3,736,087)
Net proceeds from the
sale of 27,982
shares of common
stock 280 163,575 -- 163,855
------------ ------------ ------------ ------------
Balance at February 1,
1997 71,917 46,390,691 23,483,535 69,946,143
Net income -- -- 43,697 43,697
Net proceeds from the
sale of 39,414
shares of common
stock 394 138,733 -- 139,127
------------ ------------ ------------ ------------
Balance at January 31,
1998 72,311 46,529,424 23,527,232 70,128,967
Net income -- -- 7,627,256 7,627,256
Repurchase of
85,000 shares of
common stock (850) (731,874) -- (732,724)
Net proceeds from the
sale of 133,879
shares of common
stock, including
income tax benefit
of $376,297 1,339 727,637 -- 728,976
------------ ------------ ------------ ------------
Balance at January 30,
1999 $ 72,800 $ 46,525,187 $ 31,154,488 $ 77,752,475
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
Catherines Stores Corporation and Subsidiaries
Consolidated Statements of Cash Flows
January 30, January 31, February 1,
Years Ended 1999 1998 1997
---- ---- ----
Cash Flows from
Operating Activities:
Net income $ 7,627,256 $ 43,697 $ 1,285,974
------------ ------------ ------------
Adjustments to reconcile net
income to net cash provided
by operating activities-
Depreciation and
amortization 8,724,296 9,505,111 8,557,880
Write-down of
underperforming and
closed store assets 287,415 1,841,290 920,980
Change in reserve for
store closing costs (4,866) 1,115,211 --
Change in deferred
income taxes (886,000) (1,257,000) (1,128,000)
Net change in current
assets and liabilities 2,711,417 628,303 (1,399,550)
Change in other noncash
reserves 1,538,722 271,525 302,402
Change in other assets (139,657) 149,269 (176,785)
------------ ------------ ------------
Total adjustments 12,231,327 12,253,709 7,076,927
------------ ------------ ------------
Net cash provided by
operating activities 19,858,583 12,297,406 8,362,901
------------ ------------ ------------
Cash Flows from Investing
Activities:
Capital expenditures (7,558,807) (4,437,975) (10,780,164)
------------ ------------ ------------
Net cash used by
investing activities (7,558,807) (4,437,975) (10,780,164)
------------ ------------ ------------
Cash Flows from Financing
Activities:
Sales of common stock 352,679 139,127 163,855
Repurchase of common stock (732,724) -- (3,736,087)
Proceeds from long-term
bank debt 6,919,000 -- 8,250,000
Principal payments of
long-term bank and
other debt (10,366,798) (7,901,607) (3,222,974)
------------ ------------ ------------
Net cash (used) provided by
financing activities (3,827,843) (7,762,480) 1,454,794
------------ ------------ ------------
Net Change in Cash and
Cash Equivalents 8,471,933 96,951 (962,469)
Cash and Cash Equivalents,
beginning of year 3,089,290 2,992,339 3,954,808
------------ ------------ ------------
Cash and Cash Equivalents,
end of year $ 11,561,223 $ 3,089,290 $ 2,992,339
============ ============ ============
The accompanying notes are an integral part of these financial statements.
CATHERINES STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Catherines Stores Corporation ("Catherines"), through its operating
subsidiaries, operates retail specialty stores selling women's large-size
clothing and accessories in stores located throughout the United States.
Catherines' principal assets are its investments in its subsidiaries and a
retail distribution center. Catherines provides merchandise buying and
distribution services to the operating subsidiaries.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Catherines
and its wholly-owned subsidiaries (collectively, the "Company"). Significant
intercompany balances and transactions are eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest January 31 of the
following calendar year. Fiscal years 1998, 1997 and 1996 each contained 52
weeks.
Cash and Cash Equivalents
Cash and cash equivalents include temporary investments in short-term
securities with original maturities of three months or less.
Merchandise Inventory
Merchandise inventory is stated at the lower of cost (applied on a
first-in, first-out basis using the retail inventory method) or market. Trade
and purchase discounts are recorded as a reduction of inventory cost in the
period in which the merchandise is received. Certain general and administrative
costs associated with both the buying and distribution of merchandise from the
retail distribution center to the stores are included in inventory. These costs
were approximately $2,734,000 and $2,631,000 at January 30, 1999 and January 31,
1998, respectively.
Property and Equipment
Depreciation is provided using the straight-line method based upon the
estimated useful lives of the assets, which are 40 years for buildings and three
to ten years for fixtures and equipment. Leasehold improvements are amortized
over the shorter of their economic lives or the terms of the leases.
Expenditures for maintenance and repairs are charged to operations, while
renewals and betterments are capitalized.
Long-lived assets are reviewed for impairment upon the occurrence of events
or changes in circumstances that indicate that the carrying value of these
long-lived assets may not be recoverable, as measured by comparing the assets'
net book value to the estimated future cash flows generated by their use.
Impaired assets are recorded at the lesser of their carrying value or fair
value.
Goodwill
Goodwill represents the excess of the purchase price over the underlying
fair value of net assets acquired. Goodwill is being amortized evenly over 40
years. The Company, at least annually, evaluates whether events or circumstances
have occurred that may impact the recoverability of goodwill. Upon the
occurrence of any such event or circumstance, the Company remeasures the
realizable portion of goodwill using methodology similar to that for property
and equipment.
Income Taxes
Deferred income taxes are recorded using the liability method and reflect
the future tax consequences attributable to temporary differences between the
Company's assets and liabilities for financial reporting and income tax
purposes, using income tax rates in effect during the periods presented. The
effect of a change in existing income tax rates is recognized in the income tax
provision in the period that includes the enactment date.
Computation of Net Income per Common Share
Net income per common share is computed as net income divided by the
weighted average number of common shares outstanding during the period. Diluted
net income per common share is computed as net income divided by the weighted
average number of common shares outstanding during the period and common shares
issuable under the Company's stock option plans (see Note 9).
Store Preopening Expenses
Costs associated with the opening of new stores are expensed as incurred.
Advertising
The Company expenses advertising costs when the event advertised occurs.
Advertising expense, included in selling, general and administrative expenses in
the accompanying consolidated statements of income, was approximately
$11,387,000, $11,084,000 and $11,497,000 in fiscal years 1998, 1997 and 1996,
respectively.
Stock-Based Compensation
Stock options are accounted for using the intrinsic value method prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Under this method, no compensation cost
is recognized.
Financial Instruments
The Company has certain financial instruments which include cash and cash
equivalents, accounts receivable and accounts payable. The carrying amounts of
these financial instruments approximate their fair value because of their short
maturities. At January 30, 1999 and January 31, 1998, the Company's long-term
bank and other debt also approximated market value, based on similar instruments
with similar maturities.
Recently Issued Accounting Pronouncement
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income", which became
effective in fiscal year 1998. This statement establishes standards for the
reporting and display of comprehensive income and its components. The Company
has no items of other comprehensive income; thus, its net income also represents
total comprehensive income.
Reclassifications
Certain prior year balances have been reclassified to conform to the
current year presentation.
(2) Accounts Receivable
The Company sells accounts receivable generated from its proprietary credit
card to a third-party credit provider, without recourse. The agreement expires
in January 2000, but automatically renews unless terminated by either party or
by mutual agreement. Under the agreement, the Company sells its receivables from
in-house credit sales on a daily basis. Net proceeds from the sale of customer
accounts receivable to the third-party were approximately $109,832,000,
$105,287,000 and $104,232,000 for fiscal years 1998, 1997 and 1996,
respectively.
The agreement allows the Company to repurchase the accounts receivable at
the end of the agreement and allows the purchaser to put the receivables back to
the Company at face value in the event of a change in the Company's ownership.
The net balance of accounts receivable held by the third-party was approximately
$90,838,000 at January 30, 1999, $86,386,000 at January 31, 1998 and $75,698,000
at February 1, 1997.
(3) Statements of Cash Flows
The net change in current assets and liabilities reflected in the
consolidated statements of cash flows was as follows:
Years Ended January 30, January 31, February 1,
1999 1998 1997
---- ---- ----
Increase (decrease) in
cash and cash
equivalents-
Receivables $ (118,465) $ 461,570 $ 709,342
Merchandise inventory (3,273,617) 3,471,217 (2,127,375)
Prepaid expenses and
other 645,582 (565,295) 57,768
Accounts payable 548,705 (4,211,781) (211,629)
Accrued expenses 4,909,212 1,472,592 172,344
----------- ----------- -----------
Total $ 2,711,417 $ 628,303 $(1,399,550)
=========== =========== ===========
In addition to the transactions in the accompanying consolidated statements
of cash flows, the Company acquired equipment under capital lease obligations of
approximately $1,138,000, $4,151,000 and $1,601,000 during fiscal years 1998,
1997 and 1996, respectively.
(4) Other Assets and Deferred Charges
Other assets and deferred charges, net of accumulated amortization,
together with the related amortization methods and periods were as follows:
January 30, January 31, Amortization Methods
1999 1998 and Periods
---- ---- -----------
Covenants not to compete $855,479 $1,095,041 Straight line over term
of agreement
Trademarks and tradenames 1,022,328 1,067,405 Straight line over 40
years
Deferred financing costs 145,954 -- Effective interest
method over term of
financing
Other 266,261 343,650
---------- ----------
Total $2,290,022 $2,506,096
========== ==========
(5) Accrued Expenses
Accrued expenses consisted of the following:
January 30, January 31,
1999 1998
---- ----
Payroll and related benefits $ 5,012,439 $ 3,252,177
Taxes other than income taxes 1,761,964 1,059,127
Rent and other related costs 2,427,805 2,252,587
Deferred revenues 1,836,298 1,819,288
Income taxes 1,000,333 245,161
Reserve for earned discounts 1,513,900 1,140,000
Reserve for store closing costs 1,110,345 1,115,211
Other 4,684,124 3,866,608
----------- -----------
Total $19,347,208 $14,750,159
=========== ===========
(6) Long-Term Bank and Other Debt
Long-term bank and other debt consisted of the following:
January 30, January 31,
1999 1998
---- ----
Due to banks:
Mortgage note $ 6,784,599 $ 0
Working capital notes -- 7,000,000
Term loan -- 1,250,000
Other:
Capital lease and other obligations 4,548,587 5,392,505
------------ ------------
11,333,186 13,642,505
Less current maturities (1,816,119) (2,853,585)
------------ ------------
Total $ 9,517,067 $ 10,788,920
============ ============
On February 27, 1998, the Company entered into a new mortgage financing
agreement and extended its existing bank credit agreement. The new mortgage
financing agreement provides a $6,919,000 mortgage facility with a seven-year
term and a 20-year amortization period. The interest rate on the mortgage note
is fixed at 7.5%. The note is secured by the land and buildings at the Company's
corporate office. Proceeds from the mortgage note were used to repay the
Company's outstanding term loan and to reduce amounts outstanding under the
existing working capital facility.
The existing bank credit agreement was amended to reduce the amount
available from $25,000,000 to $22,000,000 and to increase the interest rate to
the agent bank's prime rate or LIBOR plus 2 1/4%, at the Company's option. This
facility continues to provide a swing line of credit of $3,000,000 with the
Company's agent bank. The agreement is secured by substantially all of the
Company's assets, with the exception of inventory and the assets securing the
mortgage note mentioned above. Amounts available under the agreement are based
on the amounts of Company inventories and receivables. The working capital
facility can also be used to fund letters of credit. The working capital
facility requires an annual commitment fee of 1/2 of 1% of the average daily
unused commitment. The weighted average interest rate on borrowings was 7.8% for
the fiscal year ended January 30, 1999. The bank credit agreement expires June
30, 2001.
On January 12, 1999, the bank credit agreement was amended again to
increase the amount available from $22,000,000 to $25,000,000 and to decrease
the limitation on repurchases of the Company's common stock. In addition, the
interest rate was amended to fluctuate based on the Company's debt coverage
ratio. The interest rate under the new agreement will range from LIBOR plus 1
1/4% to LIBOR plus 2 1/4%, or the agent bank's prime rate, at the Company's
option. Based on the agreement formula, the Company's current borrowing cost
would be LIBOR plus 1 1/4% or the agent bank's prime rate, at the Company's
option.
Prior to February 27, 1998, the Company's bank credit agreement provided a
$5,000,000 term loan and a working capital facility of $25,000,000, secured by
substantially all of the Company's assets, except domestic inventory. This
facility also provided for a swing line of credit of $3,000,000 with the
Company's agent bank. The interest rate was either the bank's prime rate or
LIBOR plus 1 1/4%, at the Company's option. The weighted average interest rate
on borrowings was 7.2% for the fiscal year ended January 31, 1998. The working
capital facility could also be used to fund letters of credit. The working
capital facility required an annual commitment fee of 1/2 of 1% of the average
daily unused commitment. Term loan repayments were $250,000 per quarter.
At January 30, 1999, the Company had approximately $24,900,000 combined
availability under its working capital and swing line facilities, after
considering outstanding letters of credit of approximately $2,800,000. The
Company's peak borrowing under the working capital and swing line facilities
during fiscal year 1998, including outstanding letters of credit, was
$10,773,000 in February 1998. In fiscal years 1997 and 1996, the peak borrowings
were $24,936,000 in October 1997 and $23,157,000 in November 1996, respectively.
The Company can prepay amounts outstanding under the working capital and swing
line facilities without penalty.
The bank credit agreement requires that the Company maintain certain
financial covenants, financial ratios and minimum levels of net worth and
working capital. The bank credit agreement also restricts future liens and
indebtedness, sales of assets, dividend payments and limits repurchases of the
Company's common stock to the lesser of $5,000,000 or 10% of the outstanding
stock. Capital expenditures are restricted to $11,813,000 in 1999 and are
adjusted annually thereafter based on net income.
In each of the three fiscal years ended January 30, 1999, the Company
entered into capital leases for data processing and point-of-sale equipment. At
the end of the initial term of the leases, the Company has the option of
purchasing the equipment at fair market value, or $1 in the case of the
point-of-sale equipment, renewing the leases or turning in the equipment. Some
of the capital lease agreements contain requirements and restrictions similar to
those of the bank credit agreement.
Cash interest paid was approximately $598,000, $1,146,000 and $901,000
during fiscal years 1998, 1997 and 1996, respectively.
Annual principal requirements on long-term bank and other debt and capital
lease principal and interest payments are approximately as follows:
Principal Principal Interest
Bank Capital Capital
Fiscal Year Debt Leases Leases Total
- ----------- ----- ------ ------- ------
1999 $ 162,000 $ 1,654,000 $ 278,000 $ 2,094,000
2000 174,000 1,243,000 151,000 1,568,000
2001 188,000 1,090,000 71,000 1,349,000
2002 202,000 550,000 14,000 766,000
2003 218,000 12,000 -- 230,000
Thereafter 5,841,000 -- -- 5,841,000
----------- ----------- ----------- -----------
Total $6,785,000 $ 4,549,000 $ 514,000 $11,848,000
=========== =========== =========== ===========
(7) Leases
The Company leases store locations and certain equipment under operating
lease agreements which expire at varying dates through 2009. Most of the store
leases include renewal options for an additional two to five years, and require
the Company to pay taxes, insurance, certain common area maintenance costs and
merchant association dues in addition to specified minimum rents. Most of the
store leases also require the payment of contingent rent based upon a specified
percentage of sales in excess of a base amount.
Total rent expense for all operating leases was as follows:
Years Ended January 30, January 31, February 1,
1999 1998 1997
Minimum rentals $20,845,103 $21,144,808 $20,401,261
Contingent rentals 284,552 298,296 334,871
----------- ----------- -----------
Total $21,129,655 $21,443,104 $20,736,132
=========== =========== ===========
At January 30, 1999, future minimum rental payments under all noncancelable
operating leases with initial or remaining lease terms of one year or more were
approximately as follows:
Fiscal Year
1999 $19,583,000
2000 16,810,000
2001 12,827,000
2002 8,981,000
2003 6,345,000
Thereafter 6,817,000
---------
Total $71,363,000
===========
(8) Income Taxes
Components of the provision for income taxes were as follows:
Years Ended January 30, January 31, February 1,
1999 1998 1997
---- ---- ----
Current:
Federal $ 5,901,000 $ 2,021,000 $ 2,062,000
State 338,000 184,000 66,000
Deferred (1,167,000) (1,620,000) (1,128,000)
----------- ----------- -----------
Total $ 5,072,000 $ 585,000 $ 1,000,000
=========== =========== ===========
Income taxes paid were approximately $4,978,000, $1,294,000 and $1,695,000
for fiscal years 1998, 1997 and 1996, respectively.
A reconciliation of the provision for income taxes to the amount computed
by applying the federal statutory tax rate to income before income taxes is as
follows:
Years Ended January 30, January 31, February 1,
1999 1998 1997
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit 3.1 (3.2) 1.2
Goodwill amortization 2.6 54.7 11.3
Benefit of graduated federal
income tax rate on income
under $10,000,000 (0.4) (1.0) (1.0)
Meals and entertainment,
penalties and other (0.4) 7.5 (2.8)
---- ---- ----
Total 39.9% 93.0% 43.7%
===== ===== =====
Deferred income taxes result from differences in the timing of recognition
of revenues and expenses for financial reporting and income tax purposes. The
components of the Company's net deferred income tax asset are as follows:
January 30, January 31,
1999 1998
---- ----
Deferred income tax assets:
Difference in book and tax bases of
property and equipment $ 2,472,000 $ 1,972,000
Reserves established for deferred
revenues and estimated costs 3,583,000 3,120,000
State income tax net operating
loss carryforwards -- 286,000
----------- -----------
6,055,000 5,378,000
Deferred income tax liabilities:
Difference in book and tax bases of
trademarks and tradenames and other
intangible assets (2,230,000) (2,439,000)
----------- -----------
Net deferred income tax asset $ 3,825,000 $ 2,939,000
=========== ===========
The deferred income tax asset recorded in the accompanying consolidated
balance sheets represents potential future income tax benefits. These future
income tax benefits are expected to be realized through the reduction of income
taxes otherwise payable when reversals of temporary differences between the
financial reporting and income tax bases of the Company's assets and liabilities
occur.
(9) Employee Benefit Plans
The Company has established the Catherines, Inc. Retirement Savings &
Profit Sharing Plan for all eligible associates. This plan allows participants
to defer up to 15% of their income and receive matching employer contributions
on a portion of that deferral. The Company has also established a nonqualified
retirement savings plan for certain officers and key executives. Those employees
who participate in this plan may defer up to 20% of their income and receive a
matching employer contribution on a portion of that deferral. Participants in
these plans become fully vested in the Company's contribution over five years.
The Company made contributions of approximately $243,000, $218,000 and $217,000
in fiscal years 1998, 1997 and 1996, respectively.
The Profit Sharing Plan allows the Company to contribute additional amounts
at the discretion of the Board of Directors. Any such amounts contributed are to
be allocated equally among all eligible participants. The Board of Directors
authorized discretionary contributions of $149,000 and $120,000 for the fiscal
years ended January 31, 1998 and February 1, 1997, respectively. The Company has
accrued approximately $520,000 for discretionary contributions at January 30,
1999.
The Company has three stock option plans; the 1994 Omnibus Incentive Plan
(the "1994 Plan"), the 1992 Nonqualified Stock Option Plan (the "1992 Plan") and
the 1990 Performance Units Plan (the "1990 Plan"), and an employee stock
purchase plan (the "ESPP"). The Company accounts for these plans using the
intrinsic value method, under which no compensation cost has been recognized.
Had compensation cost for these plans been determined consistent with Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), the Company's net income and net income per common
share would have been reduced to the following pro forma amounts:
January 30, January 31, February 1,
Years Ended 1999 1998 1997
---- ---- ----
Net Income (Loss):
As reported $7,627,256 $43,697 $1,285,974
Pro forma 7,159,212 (383,374) 911,721
Diluted Net Income (Loss) per
Common Share:
As reported $ 1.03 $0.01 $0.17
Pro forma $ 0.97 $(0.05) $ 0.12
The effect on fiscal year 1998, 1997 and 1996 pro forma net income (loss)
and net income (loss) per common share of expensing the estimated fair value of
stock options is not necessarily representative of the effect on reported
earnings in future years due to the vesting period of stock options and the
potential for issuance of additional stock options in future years.
The weighted average fair value of options granted in fiscal years 1998,
1997 and 1996 were $5.26, $2.52 and $6.48, respectively. The fair value of each
option grant was estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions used for grants in fiscal years
1998, 1997 and 1996:
January 30, January 31, February 1,
Years Ended 1999 1998 1997
---- ---- ----
Risk-free interest rate 5.6% 6.0% 6.6%
Price volatility 64.6% 60.8% 51.9%
Expected term 4 years 4 years 4 years
Under the 1994 Plan, a committee of the Board of Directors may grant
options to key employees to purchase up to 650,000 shares of the Company's
common stock at not less than the fair market value at the date of the grant.
Nonemployee directors are automatically granted options each year to purchase
the Company's common stock at fair market value on the date of the Company's
annual meeting. All options become exercisable equally over four years beginning
one year from the date of the grant and expire in ten years. If not exercised,
these options revert back to the plan and can be reissued as new options. The
number of options available to be granted under this plan at January 30, 1999
was 22,000. All options available under the 1992 Plan and the 1990 Plan have
been granted.
A summary of the Company's stock option plans at January 30, 1999, January
31, 1998 and February 1, 1997 and changes during the years then ended is
presented in the table and narrative below:
Weighted
Average
Option Exercise
Shares Price
Outstanding,
beginning of year 1996 774,200 $ 8.55
Granted 166,500 9.06
Exercised (3,600) 1.67
Forfeited (4,000) 8.25
------- -----
Outstanding, end of year 933,100 $ 8.66
------- -----
Exercisable, end of year 530,350
-------
Outstanding,
beginning of year 1997 933,100 $ 8.66
Granted 153,750 4.84
Exercised (8,000) 1.67
Forfeited (73,000) 8.55
------- -----
Outstanding, end of year 1,005,850 $ 8.13
---------- -----
Exercisable, end of year 646,288
-------
Outstanding,
beginning of year 1998 1,005,850 $ 8.13
Granted 52,750 9.75
Exercised (114,500) 2.00
Forfeited (5,000) 7.31
---------- -----
Outstanding, end of year 939,100 $ 8.98
---------- -----
Exercisable, end of year 677,725
----------
A summary by price range is as follows:
Option price range $1.67 - $9.00 $9.75 - $16.00
------------- --------------
Options in this range 515,850 423,250
Weighted average price $ 6.52 $ 11.98
Contractual life 6 years 5 years
Options exercisable 310,725 367,000
Weighted average price $ 6.47 $ 12.31
The ESPP allows full-time employees with at least one year of service to
contribute 1% to 10% of their pay towards the purchase of the Company's common
stock up to a maximum of $25,000 annually. Purchases are made quarterly at the
lesser of 85% of the stock's closing market price on the first or last business
day of the quarter. During fiscal years 1998, 1997 and 1996, 19,379; 31,414 and
24,382 common shares were purchased under the ESPP, respectively. Net proceeds
were approximately $124,000, $125,000 and $158,000 for fiscal years 1998, 1997
and 1996, respectively. There are 104,814 shares remaining available under the
ESPP. The weighted average fair value of the purchase rights granted in 1998 and
1997 was $1.82 and $1.28, respectively.
The Company has employment agreements with each of its four most senior
officers. The agreements provide for severance payments if the executives are
terminated for other than cause, varying from one-and-one-half to three years'
salary and bonus. If all four officers were terminated, the Company's maximum
obligation would be approximately $4,202,000. In the event that an executive is
entitled to severance payments he is also entitled to the continuation of health
and insurance benefits and certain additional retirement benefits pursuant to
executive annuity and life insurance agreements for a specified period of time
following termination of employment. One agreement, scheduled to expire on
January 31, 1999, was amended to expire on January 31, 2000. Another agreement
expires on June 30, 2000 and the remaining agreements expire June 1, 2000. All
agreements except one are automatically extended for additional one-year periods
unless either party gives notice of termination at least one year prior to the
expiration date.
(10) Write-down of Store Assets and Store Closing Costs
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"), requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If the expected future cash flows are less than
the carrying amount of the asset, an impairment loss is recognized. In fiscal
years 1998, 1997 and 1996, an impairment loss was recognized for the assets in
3, 7 and 14 stores, respectively.
In fiscal years 1997 and 1996, the Company closed 20 and 9 underperforming
stores, respectively. In addition, in late 1997, the Company committed to a plan
to close 30 additional underperforming stores upon lease termination or by
settlement with the landlord. Of these 30 stores, 9 were closed during fiscal
year 1998.
Throughout fiscal year 1998, management evaluated each store's financial
performance. Based on these evaluations, management added 10 underperforming
stores to the store closing plan and removed 11 stores from the store closing
plan based on their improved profitability. Of the 10 stores added to the plan,
five were closed in fiscal year 1998, bringing the total number of stores closed
in fiscal year 1998 to 14. Management anticipates closing the remaining 15
stores upon lease termination or settlement with the landlord.
Based on the store closing plan adopted by the Company in late 1997, the
Company established a reserve for the cash costs of store closings, primarily
lease termination payments. As of January 30, 1999 and January 31, 1998, the
reserve for store closing costs was approximately $1,110,000 and $1,115,000,
respectively. These amounts are included in accrued expenses in the accompanying
financial statements. The following table reflects fiscal year 1998 activity:
Stores Amount
Balance, January 31, 1998 30 $ 1,115,000
Provision for new store closings and revised
estimates on existing stores 10 595,000
Payments on stores closed (14) (150,000)
Reserve no longer required (11) (450,000)
----------- -----------
Balance, January 30, 1999 15 $ 1,110,000
=========== ===========
The following table reflects the pre-tax charges incurred by the Company
during the three fiscal years ended January 30, 1999 for the write-down of
goodwill, leasehold improvements and furniture and fixtures of underperforming
stores under the provisions of SFAS 121, the costs of stores closed and the
anticipated costs of future store closings.
Years Ended January 30, January 31, February 1,
1999 1998 1997
Write-down of impaired assets $ 47,000 $ 565,000 $ 944,000
Asset write-downs and costs
incurred to close stores 315,000 1,158,000 12,000
Estimated costs of future
store closings 595,000 1,942,000 --
Reserves no longer required (450,000) -- --
---------- ---------- ----------
Total $ 507,000 $3,665,000 $ 956,000
========== ========== ==========
During fiscal years 1998 and 1997, approximately $212,000 and $700,000 of
cash payments were made related to the stores closed.
(11) Net Income per Common Share
The reconciliation of net income per common share and diluted net income
per common share is as follows:
Diluted
Net Income Net Income
Per Stock Per
Common Share Options Common Share
------------ ------- ------------
1998:
Net income $7,627,256 $7,627,256
Weighted average shares 7,258,610 148,637 7,407,247
--------- ---------
Per share amount $ 1.05 $ 1.03
========= =========
1997:
Net income $ 43,697 $ 43,697
Weighted average shares 7,212,655 70,660 7,283,315
--------- ---------
Per share amount $ 0.01 $ 0.01
========= =========
1996:
Net income $1,285,974 $1,285,974
Weighted average shares 7,479,976 90,812 7,570,788
--------- ---------
Per share amount $ 0.17 $ 0.17
========= =========
During fiscal year 1998, options to purchase approximately 559,000 shares
of common stock at prices ranging from $9.00 to $16.00 per share were
outstanding but were not included in the computation of diluted net income per
common share because the exercise price was greater than the average market
price of the common shares.
(12) Quarterly Financial Data (Unaudited)
(Dollars in thousands, except per share data)
Fiscal Year Ended January 30, 1999
----------------------------------
First Second Third Fourth(4) Total(5)
----- ------ ------ --------- --------
Net Sales $ 76,452 $ 74,827 $ 73,020 $ 70,979 $295,278
Operating Income 4,469 6,018 2,740 210 13,437
Net Income $ 2,472 $ 3,459 $ 1,632 $ 64 $ 7,627
Weighted Average
Number of Common
and Common
Equivalent
Shares 7,358 7,405 7,375 7,491 7,407
Diluted Earnings
per Share(1) $ 0.34 $ 0.47 $ 0.22 $ 0.01 $ 1.03
Fiscal Year Ended January 31, 1998
----------------------------------
First Second Third(2) Fourth(3) Total
----- ------ -------- -------- -----
Net Sales $ 70,968 $ 70,664 $ 67,670 $ 67,850 $277,152
Operating Income
(Loss) 2,369 3,138 484 (4,067) 1,924
Net Income (Loss) $ 1,213 $ 1,654 $ 72 $ (2,895) $ 44
Weighted Average
Number of Common
and Common
Equivalent
Shares 7,260 7,260 7,294 7,318 7,283
Diluted Earnings
(Loss) per
Share(1) $ 0.17 $ 0.23 $ 0.01 $(0.40) $0.01
(1) The sum of the quarterly earnings per share amounts may not equal the
annual amount reported, as per share amounts are computed independently for
each quarter while the full year is based on the annual weighted average
common and common equivalent shares outstanding.
(2) Includes closed store costs of approximately $639,000 before taxes, or
$0.06 per common share after taxes.
(3) Includes asset impairment and store closing costs of approximately
$2,851,000 before taxes, or $0.26 per common share after taxes.
(4) In the fourth quarter of 1998, the Company repurchased 85,000 shares of
its outstanding common stock.
(5) Includes store closing costs of approximately $507,000 before taxes, or
$0.04 per common share after taxes.
(13) Subsequent Event
Subsequent to year end and through March 31, 1999, the Company repurchased
305,600 shares of common stock, through open-market purchases, for approximately
$2,446,000.
SELECTED FINANCIAL DATA
Fiscal Year
-----------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands, except per share and per square foot data)
Income Statement Data:
Net sales $ 295,278 $ 277,152 $ 268,002 $ 274,130 $ 256,427
Write-down of
store assets and
store closing
costs 507 3,665 944 2,736 --
Operating income 13,437 1,924 3,413 6,494 10,550
Net income 7,627 44 1,286 3,111 5,600
========== ========== ========== ========== ==========
Net income per
common share $ 1.05 $ 0.01 $ 0.17 $ 0.41 $ 0.72
========== ========== ========== ========== ==========
Diluted net income
per common share $ 1.03 $ 0.01 $ 0.17 $ 0.40 $ 0.71
========== ========== ========== ========== ==========
Reduction of net
income per common
share due to
write-down of
store assets and
store closing
costs $ 0.04 $ 0.34 $ 0.07 $ 0.23 $ 0.00
========== ========== ========== ========== ==========
Weighted average
number of common
shares
outstanding 7,258,610 7,212,655 7,479,976 7,656,753 7,724,135
========== ========== ========== ========== ==========
Weighted average
number of common
and common
equivalent shares
outstanding 7,407,427 7,283,315 7,570,788 7,853,590 7,894,722
========== ========== ========== ========== ==========
Common shares
repurchased 85,000 -- 509,500 -- 300,000
========== ========== ========== ========== ==========
Balance Sheet Data:
Working capital $ 28,502 $ 22,567 $ 22,209 $ 21,212 $ 18,749
Total assets 131,121 121,252 125,365 121,459 113,335
Long-term debt 9,517 10,789 14,878 7,719 6,387
Selected Operating Data:
Comparable store
net sales
increase
(decrease) 8.9% 3.1% -5.3% 0.4% -0.4%
Number of stores
Beginning of year 443 457 432 404 375
Opened 3 6 34 40 35
Closed 14 20 9 12 6
End of year 432 443 457 432 404
Total square feet
at end of year
(in 000's) 1,672 1,689 1,664 1,516 1,404
Average net sales
per store $ 675 $ 616 $ 603 $ 656 $ 658
Average net sales
per square foot $ 177 $ 164 $ 169 $ 188 $ 194
MARKET PRICE INFORMATION
The Company's Common Stock is traded on the National Market System of the
National Association of Security Dealers, Inc. Automated Quotation System (the
"NASDAQ National Market System") under the symbol "CATH". The following table
sets forth, for each quarterly period in the two most recent fiscal years, the
high and low sales price per share of the Company's Common Stock as reported on
the NASDAQ National Market System.
High Low
1997:
1st Quarter 5.875 4.75
2nd Quarter 4.75 3.375
3rd Quarter 6.625 4.375
4th Quarter 7.125 5.625
1998:
1st Quarter 10.375 6.25
2nd Quarter 10.5 7.25
3rd Quarter 9.03125 6.5
4th Quarter 11.5 7.75
1999:
1st Quarter (through March 31) 8.625 7
The last reported sale price per share of the Common Stock as reported on
the NASDAQ National Market System on March 31, 1999 was $7.00. As of March 31,
1999, there were 215 holders of record of the Common Stock.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Catherines Stores Corporation:
We have audited the accompanying consolidated balance sheets of CATHERINES
STORES CORPORATION (a Tennessee corporation) and subsidiaries as of January 30,
1999 and January 31, 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three fiscal years ended
January 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Catherines
Stores Corporation and subsidiaries as of January 30, 1999 and January 31, 1998,
and the consolidated results of their operations and their cash flows for each
of the three fiscal years ended January 30, 1999, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 8, 1999.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Catherines Stores Corporation's management is responsible for the fair
presentation of the consolidated financial statements and the related financial
data presented in this annual report. The statements were prepared in accordance
with generally accepted accounting principles and include amounts determined by
management's estimates and judgments, based on currently available information,
which it believes are reasonable under the circumstances. Actual results could
differ from those estimates.
The Company maintains a system of internal controls which management
believes provide reasonable assurance that the financial statements are reliably
prepared, assets are properly accounted for and safeguarded, and transactions
are properly recorded and authorized. The concept of reasonable assurance
implies that the cost of controls should not exceed their benefits, recognizing
that limitations exist within any system.
The Board of Directors oversees management's administration of the
Company's financial and accounting policies and the practices and preparation of
the financial statements. The Audit Committee, which consists of four
non-management directors, meets regularly with management and the independent
public accountants to review their activities. The independent public
accountants have direct access to the Audit Committee and meet regularly with
the Audit Committee, with and without management representatives present.
David C. Forell
Executive Vice President and
Chief Financial Officer
DIRECTORS
Bernard J. Wein
Chairman of the Board, President and Chief Executive Officer
David C. Forell
Executive Vice President, Chief Financial Officer and Secretary
Stanley H. Grossman
Executive Vice President
James H. Lindy
Principal, Lindy and Associates
Allen B. Morgan, Jr.
Chairman and Chief Executive Officer, Morgan Keegan and Co., Inc.
Wellford L. Sanders, Jr.
Managing Director - Bowles Hollowell Conner, a division of First Union Capital
Markets Corp.
Elliot J. Stone
Management Consultant, Former Chairman of Jordan Marsh Department Stores
OTHER CORPORATE OFFICERS
E. Glenn Irelan
Executive Vice President/Stores, Marketing and Real Estate
Diane V. Missel
Executive Vice President/General Merchandise Manager
Dorothy M. Dawson
Senior Vice President/Treasurer
Robin C. Joseph
Senior Vice President/General Merchandise Manager -
Added Dimension and The Answer divisions
James A. Spector
Senior Vice President/Human Resources
Julia C. Boland
Vice President/Information Systems
A. Marie Burris
Vice President/Credit and Customer Service
Wayne Carpenter
Vice President/Loss Prevention
Linda K. Daly
Vice President/Visual Merchandising
Rick Estep
Vice President/Store Planning
GiGi DeJesus Frerichs
Vice President/Product Development
Walter R. Grahl
Vice President/Merchandise Planning and Distribution
Morrison B. Kimball
Vice President/Distribution Center
Moggy Mann
Vice President/Divisional Merchandise Manager
Kent C. McClanahan
Vice President/Regional Director of Stores
John D. Morgen
Vice President/Regional Director of Stores
Joan E. Munsee
Vice President/Divisional Merchandise Manager
Laura E. Murchison
Vice President/Regional Director of Stores
Arthur S. Rabinowitz
Vice President/Regional Director of Stores
Donna J. Schmitt
Vice President/Training
William D. Serex
Vice President/Real Estate
David S. Silberman
Vice President/Divisional Merchandise Manager
Donna L. Thomas
Vice President/Divisional Merchandise Manager
D. Jill Evans
Controller
Joseph M. Gohn
Assistant Secretary
SHAREHOLDER INFORMATION
Annual Meeting
The Annual Meeting of Shareholders will be held at 10:00 a.m. at the
executive offices of the Company, 3742 Lamar Avenue, Memphis, Tennessee
on Wednesday, June 2, 1999.
Executive Offices
3742 Lamar Avenue
Memphis, TN 38118
Internet Address
www.catherines.com
Common Stock Listing
NASDAQ National Market System
Symbol: CATH
Independent Public Accountants
Arthur Andersen LLP
Memphis, TN 38103
Legal Counsel
Waring Cox, PLC
Memphis, TN 38103
Transfer Agent and Registrar
ChaseMellon Shareholder Services, LLC
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
www. chasemellon.com
Form 10-K
A copy of the Form 10-K filed by the Company with the Securities and
Exchange Commission for the fiscal year ended January 30, 1999 may be
obtained by shareholders without charge upon written request to David
C. Forell, Executive Vice President and Chief Financial Officer, at the
Executive Offices of the Company, or by email to
dforell@catherines.com.
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included (or incorporated by reference) in this Form
10-K, into the Company's previously filed registration statements of the
Catherines Stores Corporation 1994 Omnibus Incentive Plan on Form S-8 (File No.
33-79598), the Catherines Stores Corporation 1992 Nonqualified Stock Option Plan
on Form S-8 (File No. 33-48964), the Catherines Stores Corporation 1992 Employee
Stock Purchase Plan on Form S-8 (File No. 33-48968) and the Catherines Stores
Corporation 1990 Performance Units Plan on Form S-8 (File No. 33-47070)
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
April 28, 1999.
Exhibit 23.2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO CATHERINES STORES CORPORATION:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in Catherines Stores
Corporation's 1998 Annual Report to Shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated March 8, 1999. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in Item 14(a)2 is the responsibility of the
Company's management and is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN, LLP
Memphis, Tennessee
March 8, 1999