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UNITED STATES
 
SECURITIES
 
AND EXCHANGE
 
COMMISSION
Washington, D.C.
 
20549
 
FORM
10-Q
 
☑
QUARTERLY REPORT PURSUANT
 
TO SECTION
 
13 OR 15(d)
 
OF THE SECURITIES
 
EXCHANGE
 
ACT OF
1934
For the quarterly
 
period ended
May 1, 2021
OR
☐
TRANSITION
 
REPORT PURSUANT
 
TO SECTION
 
13 OR 15(d)
 
OF THE SECURITIES
 
EXCHANGE
 
ACT OF
1934
For the transition
 
period from
 
________________to__________________
Commission
 
file number
 
1-31340
 
 
THE CATO CORPORATION
(Exact name
 
of registrant
 
as specified
 
in its charter)
Delaware
56-0484485
(State or
 
other jurisdiction
 
of incorporation
 
or organization)
(I.R.S.
 
Employer
 
Identification
 
No.)
8100 Denmark Road
,
Charlotte
,
North Carolina
28273-5975
(Address
 
of principal
 
executive
 
offices)
(Zip Code)
(704)
554-8510
(Registrant's
 
telephone
 
number, including
 
area code)
Not Applicable
(Former
 
name, former
 
address
 
and former
 
fiscal year,
 
if changed
 
since last
 
report)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A - Common Stock, par value $.033 per share
CATO
New York Stock Exchange
 
Indicate by
 
check mark
 
whether the
 
registrant (1)
 
has filed
 
all reports
 
required to
 
be filed
 
by Section 13
 
or 15(d)
 
of the
 
Securities
Exchange Act of 1934 during
 
the preceding 12 months (or
 
for such shorter period
 
that the registrant was required
 
to file such reports),
and (2) has been subject to such filing requirements for the past
 
90 days.
Yes
X
No
Indicate by check
 
mark whether
 
the registrant
 
has submitted
 
electronically every
 
Interactive Data
 
File required
 
to be
 
submitted and
posted pursuant
 
to Rule
 
405 of
 
Regulation S
 
-T during
 
the preceding
 
12 months
 
(or for
 
such shorter
 
period that
 
the registrant
 
was
required to submit and post such files).
Yes
X
No
Indicate by check mark whether
 
the registrant is a
 
large accelerated filer, an accelerated filer, a
 
non-accelerated
 
filer, smaller reporting
company,
 
or an
 
emerging
 
growth company.
 
See the
 
definitions
 
of “large
 
accelerated
 
filer,” “accelerated filer
 
,”
 
“smaller
 
reporting
company,”
 
and “emerging
 
growth company”
 
in Rule 12b-2
 
of the Exchange
 
Act.
 
Large accelerated
 
filer
☐
 
Accelerated filer
 
☑
 
Non-accelerated
 
filer
☐
 
Smaller reporting
 
company
☐
 
Emerging
 
growth company
☐
 
 
 
If an
 
emerging growth
 
company, indicate
 
by check
 
mark if
 
the registrant
 
has elected
 
not to
 
use the
 
extended transition
 
period for
complying with any new or revised financial accounting standards
 
provided pursuant to Section 13(a) of the Exchange Act.
 
 
☐
 
Indicate by check mark whether the registrant is a shell company (as
 
defined in Rule 12b-2 of the Exchange Act).
☐
 
 
As of May 1, 2021, there were
20,829,940
 
shares of Class A
 
common stock and
1,763,652
 
shares of Class B
 
common
 
stock outstanding.
 
1
 
THE CATO CORPORATION
 
FORM 10-Q
 
Quarter Ended May 1, 2021
Table
 
of Contents
Page No.
PART
 
I – FINANCIAL INFORMATION
 
(UNAUDITED)
Item 1.
Financial Statements (Unaudited):
Condensed
 
Consolidated
 
Statements
 
of Income
 
(Loss) and
 
Comprehensive
 
Income (Loss)
2
For the Three
 
Months Ended
 
May 1, 2021
 
and May
 
2, 2020
Condensed
 
Consolidated
 
Balance Sheets
3
At May 1,
 
2021 and
 
January 30,
 
2021
 
Condensed
 
Consolidated
 
Statements
 
of Cash Flows
4
For the Three
 
Months Ended
 
May 1, 2021
 
and May
 
2, 2020
Condensed
 
Consolidated
 
Statements
 
of Stockholders’
 
Equity
5
For the Three
 
Months Ended
 
May 1, 2021
 
and May
 
2, 2020
Notes to Condensed
 
Consolidated
 
Financial
 
Statements
6 - 19
For the Three
 
Months Ended
 
May 1, 2021
 
and May
 
2, 2020
Item 2.
Management’s Discussion and
 
Analysis of Financial Condition and Results
of Operations
20 - 26
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
27
Item 4.
Controls and Procedures
27
PART
 
II – OTHER INFORMATION
Item 1.
Legal Proceedings
28
Item 1A.
Risk Factors
28
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
28
Item 3.
Defaults Upon Senior Securities
28
Item 4.
Mine Safety Disclosures
29
Item 5.
Other Information
29
Item 6.
Exhibits
29
Signatures
30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
 
PART
 
I FINANCIAL INFORMATION
 
ITEM 1.
 
FINANCIAL STATEMENTS
 
 
THE CATO CORPORATION
 
 
CONDENSED CONSOLIDATED STATEMENTS
 
OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 
Three Months Ended
May 1, 2021
May 2, 2020
(Dollars in thousands, except per share data)
REVENUES
 
Retail sales
$
211,234
$
98,813
 
Other revenue (principally finance charges, late fees and
 
layaway charges)
1,851
1,919
 
Total revenues
213,085
100,732
COSTS AND EXPENSES, NET
 
Cost of goods sold (exclusive of depreciation shown below)
123,675
83,597
 
Selling, general and administrative (exclusive of depreciation
 
shown below)
63,237
52,511
 
Depreciation
3,042
4,006
 
Interest and other income
(663)
(1,851)
 
Costs and expenses, net
189,291
138,263
Income (loss) before income taxes
23,794
(37,531)
Income tax expense (benefit)
3,081
(9,114)
Net income (loss)
$
20,713
$
(28,417)
Basic earnings (loss) per share
$
0.92
$
(1.19)
Diluted earnings (loss) per share
$
0.92
$
(1.19)
Comprehensive income:
Net income (loss)
$
20,713
$
(28,417)
Unrealized gain (loss) on available-for-sale securities, net
 
 
of deferred income taxes of ($
40
) and ($
90
) for May 1, 2021
(134)
(298)
 
and May 2, 2020, respectively
Comprehensive income (loss)
$
20,579
$
(28,715)
 
See notes to condensed consolidated financial statements (unaudited).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
 
THE CATO CORPORATION
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
May 1, 2021
January 30, 2021
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents
 
$
22,276
$
17,510
Short-term investments
 
160,897
126,416
Restricted cash
3,513
3,512
Restricted short-term investments
405
406
Accounts receivable, net of allowance for customer credit losses of
 
$
658
 
and $
605
 
at May 1, 2021 and January 30, 2021, respectively
55,140
52,743
Merchandise inventories
 
84,849
84,123
Prepaid expenses and other current assets
5,978
5,840
 
Total Current Assets
 
333,058
290,550
Property and equipment – net
 
69,925
72,550
Noncurrent deferred income taxes
5,726
5,685
Other assets
 
23,350
22,850
Right-of-Use assets – net
 
185,861
199,817
 
Total Assets
 
$
617,920
$
591,452
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
 
$
82,262
$
73,769
Accrued expenses
 
44,682
40,790
Accrued bonus and benefits
 
14,834
1,916
Accrued income taxes
 
2,394
2,038
Current lease liability
58,385
63,421
 
Total Current Liabilities
 
202,557
181,934
Other noncurrent liabilities
20,327
19,705
Lease liability
133,153
143,315
Stockholders' Equity:
Preferred stock, $
100
 
par value per share,
100,000
 
shares
 
authorized, none issued
 
-
-
Class A common stock, $
0.033
 
par value per share,
50,000,000
 
shares authorized;
20,829,940
 
and
20,839,795
 
shares issued
 
at May 1, 2021 and January 30, 2021, respectively
703
703
Convertible Class B common stock, $
0.033
 
par value per share,
 
15,000,000
 
shares authorized;
1,763,652
 
and
 
1,763,652
 
shares issued at May 1, 2021 and January 30, 2021, respectively
59
59
Additional paid-in capital
 
115,699
115,278
Retained earnings
 
144,401
129,303
Accumulated other comprehensive income
 
1,021
1,155
 
Total Stockholders' Equity
 
261,883
246,498
 
Total Liabilities and Stockholders’ Equity
 
$
617,920
$
591,452
See notes to condensed consolidated financial statements (unaudited).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
 
THE CATO CORPORATION
 
 
CONDENSED CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
(UNAUDITED)
Three Months Ended
May 1, 2021
May 2, 2020
(Dollars in thousands)
Operating Activities:
Net income (loss)
$
20,713
$
(28,417)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation
3,042
4,006
Provision for customer credit losses
113
28
Purchase premium and premium amortization of investments
(1,121)
(18)
Share-based compensation
306
650
Deferred income taxes
(1)
313
Loss on disposal of property and equipment
58
66
Impairment of store assets
-
5,270
Changes in operating assets and liabilities which provided (used) cash:
 
Accounts receivable
(2,510)
(4,402)
 
Merchandise inventories
(726)
(7,402)
 
Prepaid and other assets
(493)
(255)
 
Operating lease right-of-use assets and liabilities
(1,242)
(1,027)
 
Accrued income taxes
356
(13)
 
Accounts payable, accrued expenses and other liabilities
26,005
(40,134)
Net cash provided (used) by operating activities
44,500
(71,335)
Investing Activities:
Expenditures for property and equipment
 
(554)
(5,311)
Purchase of short-term investments
(62,075)
(8,275)
Sales of short-term investments
28,397
90,435
Sales of other assets
-
94
Net cash provided (used) by investing activities
(34,232)
76,943
Financing Activities:
Dividends paid
-
(7,990)
Repurchase of common stock
(5,629)
(9,875)
Proceeds from line of credit
-
34,000
Payments on line of credit
-
(4,000)
Proceeds from employee stock purchase plan
128
250
Net cash provided (used) by financing activities
(5,501)
12,385
Net increase (decrease) in cash, cash equivalents, and restricted cash
4,767
17,993
Cash, cash equivalents, and restricted cash at beginning of period
21,022
14,401
Cash, cash equivalents, and restricted cash at end of period
 
$
25,789
$
32,394
Non-cash activity:
Accrued other assets and property and equipment
$
263
$
1,936
 
See notes to condensed consolidated financial statements (unaudited).
 
 
 
 
 
5
 
THE CATO CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS
 
OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
 
 
 
Convertible
Accumulated
Class A
Class B
Additional
Other
Total
Common
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — January 30, 2021
$
703
$
59
$
115,278
$
129,303
$
1,155
$
246,498
Comprehensive income:
 
Net income (loss)
-
-
-
20,713
-
20,713
 
Unrealized gains on available-for-sale securities, net of deferred
 
 
income tax benefit of ($
40
)
-
-
-
-
(134)
(134)
Dividends paid ($0.00 per share)
-
-
-
-
-
-
Class A common stock sold through employee stock purchase
 
 
plan —
19,248
 
shares
1
-
150
-
-
151
Class B common stock sold through stock option plans —
 
 
0 shares
-
-
-
-
-
-
Class A common stock issued through restricted stock grant plans —
 
 
396,558
 
shares
13
-
271
-
-
284
Repurchase and retirement of treasury shares –
425,661
 
shares
 
(14)
-
-
(5,615)
-
(5,629)
Balance — May 1, 2021
$
703
$
59
$
115,699
$
144,401
$
1,021
$
261,883
 
Convertible
Accumulated
Class A
Class B
Additional
Other
Total
Common
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — February 1, 2020
$
761
$
59
$
110,813
$
203,458
$
1,423
$
316,514
Comprehensive income:
 
Net income (loss)
-
-
-
(28,417)
-
(28,417)
 
Unrealized gains on available-for-sale securities, net of deferred
 
 
income tax benefit of ($
90
)
-
-
-
-
(298)
(298)
Dividends paid ($
0.33
 
per share)
-
-
-
(7,990)
-
(7,990)
Class A common stock sold through employee stock purchase
 
 
plan —
26,957
 
shares
1
-
293
-
-
294
Class B common stock sold through stock option plans —
 
 
0 shares
-
-
-
-
-
-
Class A common stock issued through restricted stock grant plans —
 
 
307,354
 
shares
10
-
587
8
-
605
Repurchase and retirement of treasury shares –
618,056
 
shares
 
(22)
-
-
(9,034)
-
(9,056)
Balance — May 2, 2020
$
750
$
59
$
111,693
$
158,025
$
1,125
$
271,652
 
See notes to condensed consolidated financial statements (unaudited).
 
 
 
 
THE CATO CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY
 
2, 2020
 
 
 
 
6
 
NOTE 1 -
 
GENERAL
:
 
 
The condensed
 
consolidated financial
 
statements as
 
of May
 
1, 2021
 
and for
 
the thirteen-
 
week periods
ended May
 
1, 2021
 
and May
 
2, 2020
 
have been
 
prepared from
 
the accounting
 
records of
 
The Cato
Corporation and its
 
wholly-owned subsidiaries (the
 
“Company”), and all
 
amounts shown are
 
unaudited.
 
In the opinion of management, all adjustments considered necessary for a fair presentation of the financial
statements have been
 
included.
 
All such adjustments
 
are of a
 
normal, recurring nature
 
unless otherwise
noted.
 
The results of the interim period may not be indicative of the results expected for
 
the entire year.
 
The interim financial statements should
 
be read in conjunction with
 
the consolidated financial statements
and notes
 
thereto, included
 
in the
 
Company’s Annual
 
Report on
 
Form 10-
 
K
 
for the
 
fiscal year
 
ended
January 30, 2021.
 
Amounts as of January 30, 2021 have been derived from the audited balance sheet, but
do not include all disclosures required by accounting principles generally
 
accepted in the United States of
America.
 
On May 20, 2021, the Board of Directors declared the quarterly dividend at $0.11 per share.
 
COVID-19
 
Update
 
 
The COVID-19 pandemic adversely
 
impacted the Company's business,
 
financial condition and operating
results through fiscal 2020.
 
The first quarter of
 
2021 saw significant improvements in
 
sales compared to
2020.
 
This improvement was
 
primarily attributable to
 
government stimulus, increased
 
customer traffic,
states continuing
 
to lift
 
capacity limits
 
as more
 
people are
 
vaccinated, consumers’
 
increasing comfort
level with
 
venturing out
 
to social
 
events
 
and
 
customers’ preparing
 
to return
 
to work.
 
However, the
Company’s sales
 
were well below 2019
 
sales for the
 
comparable period, and there
 
is still a
 
high level of
uncertainty regarding the
 
lingering effects of
 
the COVID-19 pandemic
 
and the
 
continued impact on
 
the
Company’s customers’
 
buying habits.
 
The Company
 
faces
 
additional uncertainty
 
from the
 
continued
effects of disruption in the global supply chain and available workers as it attempts
 
to hire associates as its
operating hours
 
continue to
 
expand. The
 
Company expects
 
that these
 
uncertainties and
 
perhaps others
related to the
 
pandemic will continue
 
to impact the
 
Company in fiscal
 
2021 and possibly
 
beyond.
 
The
adverse financial impacts associated with the continued
 
effects of, and uncertainties related to, the
COVID-19 pandemic include, but
 
are not limited
 
to, (i) lower net
 
sales in markets affected
 
by the actual
or potential
 
outbreak, whether
 
due to
 
state and
 
local orders,
 
reductions in
 
store traffic
 
and customer
demand, labor
 
shortages, or
 
all of
 
these factors,
 
(ii) lower
 
net sales
 
caused by
 
the delay
 
of inventory
production and fulfillment,
 
(iii) and
 
incremental costs associated
 
with efforts
 
to mitigate the
 
effects of
 
the outbreak, including increased freight and logistics costs and other
 
expenses.
 
 
The extent
 
to which
 
the COVID
 
-19 pandemic
 
ultimately impacts
 
the Company’s
 
business, financial
condition, results of operations, cash flows, and liquidity may
 
differ from management’s current estimates
due to inherent
 
uncertainties regarding the
 
duration and further
 
spread of the
 
outbreak or its
 
variants, its
severity, actions taken
 
to contain the virus or
 
treat its impact, and how
 
quickly and to what extent normal
economic and operating conditions can resume.
 
 
 
While the Company currently anticipates a continuation of the adverse impacts
 
of COVID-19 during 2021
and possibly
 
beyond, the
 
duration and
 
severity of
 
these effects
 
will depend
 
on the
 
course of
 
future
developments, which are
 
highly uncertain, including
 
the relative speed
 
and success of,
 
as well as
 
public
confidence in, mitigation measures
 
such as the current
 
effort to vaccinate substantial
 
portions of the U.S.
and global
 
population, emerging
 
information regarding
 
variants of
 
the virus
 
or new
 
viruses and
 
their
 
 
 
THE CATO CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY
 
2, 2020
 
 
 
 
7
 
potential impact on
 
current mitigation efforts,
 
public attitudes toward
 
continued compliance with
containment and
 
mitigation measures, and
 
possible new information
 
and understanding that
 
could alter
the course and duration of current measures to combat the spread of the virus.
 
 
 
Recently
 
Adopted
 
Accounting
 
Policies
 
 
In December 2019,
 
the FASB
 
issued ASU 2019-
 
12,
Income Taxes
 
(Topic 740):
 
Simplifying the
Accounting for Income Taxes
. The new accounting
 
rules reduce complexity by
 
removing specific
exceptions to
 
general principles
 
related to
 
intraperiod tax
 
allocations, ownership
 
changes in
 
foreign
investments, and
 
interim period
 
income tax
 
accounting for
 
year-to-date losses
 
that exceed
 
anticipated
losses. The new
 
accounting
 
rules also simplify
 
accounting for franchise
 
taxes that are
 
partially based on
income, transactions
 
with a
 
government that
 
result in
 
a step
 
up in
 
the tax
 
basis of
 
goodwill, separate
financial statements of legal entities that are not subject
 
to tax, and enacted changes in tax laws
 
in interim
periods. The
 
Company adopted this
 
accounting standards update
 
on the
 
first day
 
of the
 
first quarter
 
of
2021 with no material impact on its Condensed Consolidated Financial
 
Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY
 
2, 2020
 
 
 
 
8
 
NOTE 2 -
 
EARNINGS
 
PER SHARE:
 
Accounting
 
Standard
 
Codification
 
(“ASC”)
 
260 –
Earnings
 
Per Share
 
requires
 
dual presentation
 
of basic
 
and
diluted
 
Earnings
 
Per Share
 
(“EPS”)
 
on the face of all
 
income statements
 
for all entities
 
with complex
 
capital
structures.
 
The Company
 
has presented
 
one basic
 
EPS and
 
one diluted
 
EPS amount
 
for all common
 
shares in
the accompanying
 
Condensed
 
Consolidated
 
Statements
 
of Income
 
(Loss) and
 
Comprehensive
 
Income
 
(Loss).
 
While the Company’s certificate of
 
incorporation
 
provides
 
the right for
 
the Board of
 
Directors
 
to declare
dividends
 
on Class
 
A shares
 
without
 
declaration
 
of commensurate
 
dividends
 
on Class
 
B shares,
 
the Company
has historically
 
paid the
 
same dividends
 
to both Class
 
A and Class
 
B shareholders
 
and the Board
 
of Directors
has resolved
 
to continue
 
this practice.
 
Accordingly,
 
the Company’s
 
allocation
 
of income
 
for purposes
 
of the
EPS computation is the
 
same for Class
 
A and Class
 
B shares and
 
the EPS amounts
 
reported
 
herein
 
are
applicable
 
to both
 
Class A
 
and Class
 
B shares.
 
Basic EPS is
 
computed
 
as net income less
 
earnings
 
allocated
 
to non-vested equity awards divided by
 
the
weighted
 
average
 
number of common shares outstanding
 
for the period.
 
Diluted
 
EPS reflects the potential
dilution
 
that could occur
 
from common shares
 
issuable
 
through
 
stock options and
 
the Employee Stock
Purchase
 
Plan.
 
 
Three Months Ended
May 1, 2021
May 2, 2020
(Dollars in thousands)
Numerator
Net earnings (loss)
$
20,713
$
(28,417)
Earnings (loss) allocated to non-vested equity awards
(942)
1,135
Net earnings (loss) available to common stockholders
$
19,771
$
(27,282)
Denominator
Basic weighted average common shares outstanding
21,489,162
22,959,887
Diluted weighted average common shares outstanding
21,489,162
22,959,887
Net income (loss) per common share
Basic earnings (loss) per share
$
0.92
$
(1.19)
Diluted earnings (loss) per share
$
0.92
$
(1.19)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY
 
2, 2020
 
 
 
 
9
 
NOTE 3 –
 
ACCUMULATED
 
OTHER COMPREHENSIVE
 
INCOME:
 
 
The following table sets
 
forth information
 
regarding
 
the reclassification
 
out of A
 
ccumulated
 
other
comprehensive
 
income
 
(in thousands)
 
for the
 
three months
 
ended May
 
1, 2021:
 
 
Changes in Accumulated Other
 
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 30, 2021
$
1,155
 
Other comprehensive income (loss) before
 
 
reclassification
(173)
 
Amounts reclassified from accumulated
 
other comprehensive income (b)
39
Net current-period other comprehensive income (loss)
(134)
Ending Balance at May 1, 2021
$
1,021
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").
(b) Includes $
51
 
impact of accumulated other comprehensive income reclassifications into Interest and other
 
income for
net gains on available-for-sale securities. The tax impact of this reclassification was $
12
.
 
The following table sets
 
forth information
 
regarding
 
the reclassification
 
out of A
 
ccumulated
 
other
comprehensive
 
income
 
(in thousands)
 
for the
 
three months
 
ended May
 
2, 2020:
 
 
Changes in Accumulated Other
 
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at February 1, 2020
$
1,423
 
Other comprehensive income (loss) before
 
 
reclassification
(802)
 
Amounts reclassified from accumulated
 
other comprehensive income (b)
504
Net current-period other comprehensive income (loss)
(298)
Ending Balance at May 2, 2020
$
1,125
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").
(b) Includes $
655
 
impact of accumulated other comprehensive income reclassifications into Interest and other
 
income for net gains on available-for-
sale securities. The tax impact of this reclassification was $
151
.
 
 
 
 
 
THE CATO CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY
 
2, 2020
 
 
 
 
10
 
NOTE 4 – FINANCING ARRANGEMENTS:
 
 
As of May
 
1, 2021, the Company had
 
an unsecured revolving credit agreement
 
allowing
 
the Company to
borrow $
35.0
 
million
 
less the balance
 
of any letters
 
of credit as
 
discussed
 
below. On
 
June 2, 2020,
 
the
Company
 
signed an amendment extending the revolving credit agreement through May 2023.
 
The credit
agreement
 
contains
 
various
 
financial
 
covenants
 
and limitations,
 
including
 
the maintenance
 
of specific
financial
 
ratios
 
with which
 
the Company
 
was in compliance
 
as of May 1, 2021.
 
There were no borrowings
outstanding
 
under this credit
 
facility
 
as of May 1, 2021 or January 30, 2021.
 
The weighted
 
average
 
interest
rate under
 
the credit
 
facility
 
was zero
 
at May 1,
 
2021 due
 
to no borrowings
 
outstanding.
 
At May 1, 2021
 
and January
 
30, 2021,
 
the Company
 
had no outstanding
 
letters
 
of credit
 
relating
 
to purchase
commitments.
 
NOTE 5 – REPORTABLE SEGMENT INFORMATION:
 
 
The Company has determined
 
that it has four operating segments,
 
as defined under ASC 280-10,
 
including
Cato, It’s
 
Fashion,
 
Versona and
 
Credit.
 
As outlined in
 
ASC 280-10, the
 
Company
 
has two
 
reportable
segments:
 
Retail and Credit.
 
The Company has aggregated
 
its three retail operating
 
segments,
 
including
 
e-
commerce,
 
based on
 
the aggregation
 
criteria
 
outlined
 
in ASC 280-10,
 
which states
 
that two
 
or more
 
operating
segments
 
may be aggregated
 
into a single reportable
 
segment
 
if aggregation
 
is consistent
 
with the objective
and basic principles of ASC 280
 
-10, which require the segments to have
 
similar
 
economic
 
characteristics,
products,
 
production
 
processes,
 
clients
 
and methods
 
of distribution.
 
 
 
The Company’s
 
retail operating
 
segments
 
have similar
 
economic
 
characteristics
 
and similar
 
operating,
financial
 
and competitive
 
risks.
 
They are similar in
 
nature of product, as they
 
all offer women’s apparel,
shoes and accessories.
 
Merchandise
 
inventory
 
for the Company’s retail
 
operating
 
segments
 
is sourced from
the same countries
 
and some of the same vendors,
 
using
 
similar
 
production
 
processes.
 
Merchandise
 
for the
Company’s operating segments is distributed to
 
retail stores in a
 
similar
 
manner
 
through
 
the Company’s
single distribution
 
center and
 
is subsequently
 
distributed
 
to clients
 
in a similar
 
manner.
 
 
 
The Company
 
operates its
 
women’s fashion
 
specialty retail
 
stores in
 
32 states
 
as of
 
May 1,
 
2021,
principally in the
 
southeastern United States. The Company offers its own credit card to its customers
 
and
all credit
 
authorizations,
 
payment
 
processing
 
and collection
 
efforts are
 
performed
 
by a separate
 
subsidiary
 
of
the Company.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY
 
2, 2020
 
 
 
 
11
 
NOTE 5 – REPORTABLE
 
SEGMENT INFORMATION (CONTINUED):
 
 
The following
 
schedule
 
summarizes
 
certain
 
segment information
 
(in thousands):
 
 
Three Months Ended
May 1, 2021
Retail
Credit
Total
Revenues
$212,547
$538
$213,085
Depreciation
3,042
-
3,042
Interest and other income
(663)
-
(663)
Income (loss) before taxes
23,540
254
23,794
Capital expenditures
554
-
554
Three Months Ended
May 2, 2020
Retail
Credit
Total
Revenues
$99,890
$842
$100,732
Depreciation
4,006
-
4,006
Interest and other income
(1,851)
-
(1,851)
Income (loss) before taxes
(37,923)
392
(37,531)
Capital expenditures
5,311
-
5,311
Retail
Credit
Total
Total assets as of May 1, 2021
$575,335
$42,585
$617,920
Total assets as of January 30, 2021
549,349
42,103
591,452
 
The Company evaluates
 
segment
 
performance
 
based on
 
income
 
before taxes.
 
The Company does
 
not
allocate
 
certain
 
corporate
 
expenses
 
or income
 
taxes to
 
the credit
 
segment.
 
The following
 
schedule
 
summarizes
 
the direct
 
expenses
 
of the credit segment
 
which are reflected
 
in Selling,
general
 
and administrative
 
expenses
 
(in thousands):
 
Three Months Ended
May 1, 2021
May 2, 2020
Payroll
$
117
$
152
Postage
78
111
Other expenses
89
187
Total expenses
$
284
$
450
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY
 
2, 2020
 
 
 
 
12
 
NOTE 6 – STOCK BASED COMPENSATION:
 
 
As of May
 
1, 2021,
 
the Company had two
 
long-term
 
compensation
 
plans pursuant to which
 
stock-based
compensation
 
was outstanding or
 
could be
 
granted.
 
The 2018
 
Incentive
 
Compensation
 
Plan and
 
2013
Incentive
 
Compensation
 
Plan are
 
for the granting
 
of various
 
forms
 
of equity-based
 
awards,
 
including
restricted
 
stock and
 
stock options
 
for grant,
 
to officers,
 
directors
 
and key
 
employees.
 
Effective
 
May 24,
 
2018,
shares for
 
grant were
 
no longer
 
available
 
under the
 
2013 Incentive
 
Compensation
 
Plan.
 
The following table presents the
 
number
 
of options and shares
 
of restricted stock initially authorized and
available
 
for grant
 
under each
 
of the plans
 
as of May
 
1, 2021:
 
 
2013
2018
Plan
Plan
Total
Options and/or restricted stock initially authorized
1,500,000
4,725,000
6,225,000
Options and/or restricted stock available for grant:
 
 
 
May 1, 2021
-
3,564,915
3,564,915
 
In accordance with ASC
 
718, the fair value
 
of current restricted stock
 
awards is estimated on
 
the date of
grant based on
 
the market price
 
of the Company’s
 
stock and is
 
amortized to compensation
 
expense on a
straight-line basis over
 
the related
 
vesting periods. As
 
of May 1,
 
2021 and January
 
30, 2021, there
 
was
$
14,763,000
 
and $
10,550,000
, respectively,
 
of total unrecognized compensation
 
expense related to
nonvested restricted stock
 
awards, which had
 
a remaining weighted-average
 
vesting period of
3.0
 
years
and
2.1
 
years, respectively. The
 
total compensation expense during
 
the three months
 
ended May 1, 2021
was $
283,000
 
compared to
 
$
606,000
 
for the
 
three months
 
ended May
 
2, 2020.
 
These expenses
 
are
classified as a component of
 
Selling, general and administrative expenses in
 
the Condensed Consolidated
Statements of Income (Loss).
 
 
The following
 
summary
 
shows the changes
 
in the shares of unvested
 
restricted
 
stock outstanding
 
during
 
the
three months ended May 1,
 
2021:
 
 
 
Weighted
Average
Number of
Grant Date Fair
Shares
Value
 
Per Share
Restricted stock awards at January 30, 2021
1,023,956
$
15.33
 
Granted
406,994
13.48
Vested
(175,673)
22.21
 
Forfeited or expired
(10,436)
13.67
 
Restricted stock awards at May 1, 2021
1,244,841
$
13.77
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY
 
2, 2020
 
 
 
 
13
 
The Company’s Employee Stock Purchase Plan
 
allows
 
eligible
 
full-time
 
employees
 
to purchase a limited
number of shares of the Company’s Class
 
A Common Stock during each semi-annual offering period at a
15% discount
 
through
 
payroll
 
deductions.
 
During
 
the three
 
months
 
ended May
 
1, 2021 and
 
May 2, 2020,
 
the
Company
 
sold
19,248
 
and
26,957
 
shares to employees
 
at an average discount
 
of $
1.17
 
and $
1.64
 
per share,
respectively,
 
under the Employee Stock Purchase
 
Plan. The compensation
 
expense recognized
 
for the 15%
discount
 
given under the Employee Stock Purchase
 
Plan was approximately $
23,000
 
and $
44,000
 
for the
three months ended
 
May 1,
 
2021 and
 
May 2,
 
2020, respectively.
 
These expenses ar
 
e
 
classified
 
as a
component
 
of S
 
elling,
 
general
 
and administrative
 
expenses
 
in the Condensed Consolidated Statements o
 
f
Income
 
(Loss).
 
 
NOTE 7 –
 
FAIR VALUE MEASUREMENTS:
 
 
The following tables
 
set forth information regarding
 
the Company’s financial assets and liabilities that are
measured
 
at fair
 
value (in
 
thousands)
 
as of May
 
1, 2021
 
and January
 
30, 2021:
 
 
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
May 1, 2021
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
 
State/Municipal Bonds
$
24,490
$
-
$
24,490
$
-
 
Corporate Bonds
90,093
-
90,093
-
 
U.S. Treasury/Agencies Notes and Bonds
29,120
-
29,120
-
 
Cash Surrender Value of Life Insurance
11,585
-
-
11,585
 
Asset-backed Securities (ABS)
15,778
-
15,778
-
 
Corporate Equities
846
846
-
-
 
Commercial Paper
1,821
-
1,821
-
Total Assets
$
173,733
$
846
$
161,302
$
11,585
Liabilities:
 
Deferred Compensation
(10,271)
-
-
(10,271)
Total Liabilities
$
(10,271)
$
-
$
-
$
(10,271)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY
 
2, 2020
 
 
 
 
14
 
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
January 30,
2021
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
 
State/Municipal Bonds
$
23,254
$
-
$
23,254
$
-
 
Corporate Bonds
67,566
-
67,566
-
 
U.S. Treasury/Agencies Notes and Bonds
17,869
-
17,869
-
 
Cash Surrender Value of Life Insurance
11,263
-
-
11,263
 
Asset-backed Securities (ABS)
16,064
-
16,064
-
 
Corporate Equities
703
703
-
-
 
Commercial Paper
2,069
-
2,069
-
Total Assets
$
138,788
$
703
$
126,822
$
11,263
Liabilities:
 
Deferred Compensation
(10,316)
-
-
(10,316)
Total Liabilities
$
(10,316)
$
-
$
-
$
(10,316)
 
The Company’s investment
 
portfolio
 
was primarily
 
invested
 
in corporate
 
bonds and tax-exempt
 
and taxable
governmental
 
debt securities
 
held in managed
 
accounts
 
with underlying
 
ratings
 
of A or better
 
at May 1, 2021
and January 30, 2021.
 
The state, municipal and corporate bonds have con
 
tractual
 
maturities
 
which range
from
four days
 
to
4.5
 
years.
 
The U.S. Treasury
 
Notes have
 
contractual
 
maturities
 
which range
 
from
14
 
days
to
2.5
 
years. These
 
securities
 
are classified
 
as available-for-sale
 
and are recorded
 
as Short-term
 
investments,
Restricted
 
cash, Restricted
 
short-term
 
investments
 
and Other assets
 
on the accompanying
 
Condensed
Consolidated
 
Balance
 
Sheets.
 
These assets
 
are carried
 
at fair value with
 
unrealized
 
gains and
 
losses reported
net of taxes in Accumulated
 
other comprehensive
 
income.
 
The asset-backed
 
securities
 
are bonds comprised
of auto loans
 
and bank credit
 
cards that
 
carry AAA
 
ratings.
 
The auto loan
 
asset-backed
 
securities
 
are backed
by static
 
pools of auto
 
loans that
 
were originated
 
and serviced
 
by captive
 
auto finance
 
units, banks
 
or finance
companies.
 
The bank
 
credit card asset
 
-backed
 
securities
 
are backed by
 
revolving
 
pools of
 
credit
 
card
receivables
 
generated
 
by account holders
 
of cards
 
from American Express,
 
Citibank,
 
JPMorgan Chase,
Capital
 
One, and
 
Discover.
 
Additionally,
 
at May 1,
 
2021, the
 
Company
 
had $
0.8
 
million
 
of corporate
 
equities
 
and deferred
 
compensation
plan assets of $
11.6
 
million.
 
At January 30, 2021, the Company
 
had $
0.7
 
million
 
of corporate
 
equities
 
and
deferred
 
compensation
 
plan assets
 
of $
11.3
 
million.
 
All of these
 
assets are
 
recorded
 
within Other
 
assets in
 
the
Condensed
 
Consolidated
 
Balance
 
Sheets.
 
 
Level 1 category
 
securities
 
are measured
 
at fair value
 
using quoted
 
active market
 
prices.
 
Level 2 investment
securities
 
include
 
corporate
 
and municipal bonds for
 
which quoted prices may
 
not be available on
 
active
exchanges
 
for identical instruments.
 
Their fair value is principally based on market
 
values
 
determined
 
by
management
 
with assistance of
 
a third
 
-party
 
pricing
 
service.
 
Since quoted prices
 
in active markets
 
for
identical
 
assets
 
are not available,
 
these prices
 
are determined
 
by the pricing
 
service
 
using observable
 
market
information
 
such as quotes from less active markets
 
and/or quoted
 
prices
 
of securities
 
with similar
characteristics,
 
among other
 
factors.
 
Deferred
 
compensation
 
plan assets
 
consist
 
of life insurance
 
policies.
 
These life
 
insurance
 
policies
 
are valued
based on the
 
cash surrender
 
value of the
 
insurance
 
contract,
 
which is
 
determined
 
based on
 
such factors
 
as the
fair value
 
of the underlying
 
assets and
 
discounted
 
cash flow
 
and are therefore
 
classified
 
within Level
 
3 of the
valuation
 
hierarchy.
 
The Level 3
 
liability
 
associated
 
with the life
 
insurance
 
policies
 
represents
 
a deferred
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY
 
2, 2020
 
 
 
 
15
 
compensation
 
obligation,
 
the value of which is tracked via underlying insurance funds’
 
net asset values, as
recorded
 
in Other
 
noncurrent
 
liabilities
 
in the
 
Condensed
 
Consolidated
 
Balance
 
Sheet.
 
These funds are
designed
 
to mirror
 
mutual
 
funds and
 
money
 
market
 
funds that
 
are observable
 
and actively
 
traded.
 
 
The following tables summarize the change in
 
fair value of the
 
Company’s financial
 
assets and liabilities
measured
 
using Level
 
3 inputs
 
as of May
 
1, 2021
 
and January
 
30, 2021
 
(dollars
 
in thousands):
 
 
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 30, 2021
$
11,263
Redemptions
-
Additions
-
Total gains or (losses)
 
Included in interest and other income (or changes in net assets)
322
 
Included in other comprehensive income
-
Ending Balance at May 1, 2021
$
11,585
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 30, 2021
$
(10,316)
 
Redemptions
547
 
Additions
(145)
 
Total (gains) or losses
 
Included in interest and other income (or changes in net assets)
(357)
 
Included in other comprehensive income
-
Ending Balance at May 1, 2021
$
(10,271)
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at February 1, 2020
$
10,517
Redemptions
-
Additions
-
 
Total gains or (losses)
 
Included in interest and other income (or changes in net assets)
746
 
Included in other comprehensive income
-
Ending Balance at January 30, 2021
$
11,263
Fair Value
Measurements Using
Significant Unobservable
 
 
 
 
 
 
 
 
THE CATO CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY
 
2, 2020
 
 
 
 
16
 
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at February 1, 2020
$
(10,391)
 
Redemptions
1,714
 
Additions
(652)
 
Total (gains) or losses
 
Included in interest and other income (or changes in net assets)
(987)
 
Included in other comprehensive income
-
Ending Balance at January 30, 2021
$
(10,316)
The presentation in the table above has been revised to reflect current year presentation.
 
 
 
 
 
 
 
THE CATO CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY
 
2, 2020
 
 
 
 
17
 
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:
 
In March 2020
 
,
 
the FASB
 
issued ASU 2020-
 
04,
Reference Rate
 
Reform (Topic
 
848): Facilitation of
 
the
Effects of Referenc
 
e
 
Rate Reform on Financial Reporting
. In January 2021,
 
the FASB clarified
 
the scope
of that guidance
 
with the issuance of
 
ASU 2021-01, “Reference Rate
 
Reform: Scope.” The new
accounting rules provide
 
optional expedients and
 
exceptions for
 
applying GAAP to
 
contracts and
 
other
transactions affected by reference
 
rate reform. The amendments
 
in this standard can
 
be adopted any time
before the
 
fourth quarter of
 
2022. The Company
 
is currently in
 
the process of
 
evaluating the
 
impact of
adoption of
 
the new
 
rules on
 
the Company’s
 
financial condition,
 
results of
 
operations, cash
 
flows and
disclosures.
 
 
NOTE 9 – INCOME TAXES:
 
The Company had
 
an effective tax
 
rate for the
 
first quarter of
 
2021 of
12.9
% (Expense) compared
 
to an
effective tax
 
rate of
24.3
% (Benefit) for
 
the first quarter
 
of 2020. The
 
decrease in the
 
2021 first quarter
tax rate
 
was primarily due
 
to higher
 
pre-tax earnings and
 
ability to realize
 
foreign tax credits,
 
offset by
increases in
 
state income
 
taxes and
 
an upward
 
adjustment in
 
the reserves
 
for uncertain
 
tax positions
specific to
 
state income
 
taxes in
 
the first
 
quarter of
 
2020. Further,
 
the Coronavirus
 
Aid, Relief
 
and
Economic Security
 
Act (“
 
CARES”) allows
 
the Company
 
to carryback
 
losses five
 
years; therefore,
 
the
Company has recorded $33.0
 
million of estimated refunds
 
calculated through the first
 
quarter of 2021 in
Accounts receivable in the Condensed Consolidated Balance Sheets.
NOTE 10 – COMMITMENTS AND CONTINGENCIES:
 
 
The Company is, from time to time, involved in routine litigation incidental to the conduct of its business,
including litigation
 
regarding the
 
merchandise that
 
it sells,
 
litigation regarding
 
intellectual property,
litigation instituted by
 
persons injured upon
 
premises under its
 
control, litigation with
 
respect to various
employment matters, including
 
alleged discrimination and
 
wage and
 
hour litigation, and
 
litigation with
present or former employees.
 
 
Although such litigation
 
is routine and
 
incidental to the conduct
 
of the Company’s
 
business, as with
 
any
business of
 
its size
 
with a
 
significant number
 
of employees
 
and significant
 
merchandise sales,
 
such
litigation could result
 
in large
 
monetary awards. Based
 
on information currently
 
available, management
does not
 
believe that
 
any reasonably possible
 
losses arising
 
from current
 
pending litigation
 
will have a
material adverse effect
 
on its condensed
 
consolidated financial statements.
 
However, given
 
the inherent
uncertainties involved in such
 
matters, an adverse outcome
 
in one or
 
more such matters could
 
materially
and adversely
 
affect the
 
Company’s financial
 
condition, results
 
of opera
 
tions and
 
cash flows
 
in any
particular reporting period. The Company accrues for
 
these matters when the liability is deemed probable
and reasonably estimable.
 
NOTE 11 – REVENUE RECOGNITION:
 
 
The Company
 
recognizes sales
 
at the
 
point of
 
purchase when
 
the customer
 
takes possession
 
of the
merchandise and
 
pays for
 
the purchase,
 
generally with cash
 
or credit.
 
Sales from purchases
 
made with
Cato credit, gift cards
 
and layaway sales from stores
 
are also recorded when
 
the customer takes
possession of the merchandise.
 
E-commerce sales are recorded
 
when the risk of
 
loss is transferred to
 
the
customer. Gift cards are recorded
 
as deferred revenue until they are redeemed or
 
forfeited. Layaway sales
are recorded
 
as deferred
 
revenue until
 
the customer
 
takes possession
 
or forfeits
 
the merchandise.
 
Gift
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY
 
2, 2020
 
 
 
 
18
 
cards do not have expiration
 
dates. A provision is made
 
for estimated merchandise returns based on
 
sales
volumes and the
 
Company’s experience;
 
actual returns have
 
not varied materially from
 
historical
amounts. A
 
provision is
 
made for
 
estimated write-offs
 
associated with
 
sales made with
 
the Company’s
proprietary credit card.
 
Amounts related to
 
shipping and handling
 
billed to customers
 
in a sales
transaction are classified
 
as Other revenue
 
and the costs
 
related to shipping
 
product to customers
 
(billed
and accrued) are classified as Cost of goods sold.
 
The Company offers
 
its own proprietary credit
 
card to customers.
 
All credit activity is
 
performed by the
Company’s wholly-
 
owned subsidiaries.
 
None of the
 
credit card receivables
 
are secured.
 
The Company
estimated customer credit losses of $
131,000
 
and $
69,000
 
for the periods ended May 1,
 
2021 and May 2,
2020, respectively, on
 
sales purchased by the Company’s
 
proprietary credit card of $
4.4
 
million and $
2.6
million for the periods ended May 1, 2021 and May 2, 2020, respectively.
 
 
The following
 
table provides
 
information about
 
receivables and
 
contract liabilities
 
from contracts
 
with
customers (in thousands):
 
 
 
Balance as of
May 1, 2021
January 30, 2021
Proprietary Credit Card Receivables, net
$
9,094
$
9,606
Gift Card Liability
$
6,832
$
8,155
 
NOTE 12 – LEASES:
 
 
The Company
 
determines whether
 
an arrangement
 
is a
 
lease at
 
inception. The
 
Company has
 
operating
leases for
 
stores, offices
 
and equipment. Its
 
leases have remaining
 
lease terms of
 
one year
 
to 10
 
years,
some of which
 
include options to
 
extend the lease
 
term for up
 
to five years,
 
and some of
 
which
 
include
options to terminate
 
the lease within
 
one year.
 
The Company considers
 
these options in
 
determining the
lease term used
 
to establish its
 
right-of-use assets and
 
lease liabilities. The
 
Company’s lease
 
agreements
do not contain any material residual value guarantees or material restrictive
 
covenants.
 
 
As most
 
of the
 
Company’s leases
 
do not
 
provide an
 
implicit rate,
 
it uses
 
its estimated
 
incremental
borrowing rate based on
 
the information available at
 
commencement date of the
 
lease in determining the
present value of lease payments.
 
 
The components of lease cost are shown below (in thousands):
 
 
 
Three Months Ended
May 1, 2021
May 2, 2020
Operating lease cost (a)
$
16,726
$
16,993
Variable
 
lease cost (b)
$
793
$
80
(a) Includes right-of-use asset amortization of ($1.2) million and
 
($1.7) million for the three months ended
May 1, 2021 and May 2, 2020, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY
 
2, 2020
 
 
 
 
19
 
Supplemental cash flow information
 
and non-cash activity related
 
to the Company’s
 
operating leases are
as follows (in thousands):
 
 
Operating cash flow information:
Three Months Ended
May 1, 2021
May 2, 2020
Cash paid for amounts included in the measurement of lease liabilities
$
15,947
$
15,499
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
$
734
$
28,197
 
Weighted-average remaining
 
lease term
 
and discount
 
rate for
 
the Company’s
 
operating leases
 
are as
follows:
 
 
As of
May 1, 2021
May 2, 2020
Weighted-average remaining lease term
2.7 years
3.2 years
Weighted-average discount rate
3.73%
4.36%
 
As of May 1, 2021,
the maturities of lease liabilities by fiscal year for the Company’s operating leases
 
are
as follows (in thousands):
 
 
Fiscal Year
2021 (a)
$
51,803
2022
48,971
2023
36,102
2024
22,731
2025
13,915
Thereafter
36,870
Total lease payments
210,392
Less: Imputed interest
18,854
Present value of lease liabilities
$
191,538
(a) Excluding the 3 months ended May 1, 2021.
 
 
 
 
20
 
THE CATO CORPORATION
ITEM 2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION:
 
 
The following
 
information should
 
be read
 
along with
 
the unaudited
 
Condensed Consolidated
 
Financial
Statements, including the accompanying Notes
 
appearing in this report. Any
 
of the following are
“forward-looking” statements within the
 
meaning of Section 27A of the Securities Act of 1933,
 
as
amended, and
 
Section 21E of
 
the Securities
 
Exchange Act
 
of 1934,
 
as amended:
 
(1) statements in
 
this
Form 10-Q
 
that reflect
 
projections or
 
expectations of
 
our future
 
financial or
 
economic performance;
(2) statements that
 
are not
 
historical information;
 
(3) statements of
 
our be
 
liefs, intentions,
 
plans and
objectives for future operations, including those
 
contained in “Management’s Discussion
 
and Analysis of
Financial Condition and Results
 
of Operations”; (4) statements relating
 
to our operations or
 
activities for
our fiscal
 
year ending January
 
29, 2022 (“fiscal 2021”) and beyond, including,
 
but not limited
 
to,
statements regarding expected
 
amounts of capital
 
expenditures and store
 
openings, relocations, remodels
and closures
 
and statements
 
regarding the
 
potential impact
 
of the
 
COVID-19 pandemic
 
and related
responses and mitigation efforts
 
on our business, results of operations and financial
 
condition; and
(5) statements relating to our future contingencies. When possible, we have attempted to identify forward-
looking statements by
 
using words such
 
as “will,” “expects,”
 
“anticipates,” “approximates,” “believes,”
“estimates,” “hopes,” “intends,” “may,”
 
“plans,” “could,” “would,” “should” and
 
any variations or
negative formations of
 
such words and
 
similar expressions. We
 
can give no
 
assurance that actual
 
results
or events will not
 
differ materially from those
 
expressed or implied in any
 
such forward-looking
statements. Forward-looking statements included in this report are based on information available to us as
of the filing
 
date of this
 
report, but subject
 
to known and
 
unknown risks, uncertainties
 
and other factors
that could
 
cause actual
 
results to
 
differ materially
 
from those
 
contemplated by
 
the forward
 
-looking
statements.
 
Such factors include,
 
but are not
 
limited to, the
 
following:
 
any actual or
 
perceived
deterioration in the conditions that drive consumer confidence and spending, including, but not limited to,
prevailing social,
 
economic, political
 
and public
 
health conditions
 
and uncertainties,
 
levels of
unemployment, fuel, energy
 
and food costs,
 
wage rates, tax
 
rates, interest rates,
 
home values, consumer
net worth and
 
the availability of
 
credit; changes in
 
laws or regulations
 
affecting our
 
business, including
but not
 
limited to
 
tariffs;
 
uncertainties regarding
 
the impact
 
of any
 
governmental action
 
regarding, or
responses to,
 
the foregoing
 
conditions; competitive
 
factors and
 
pricing pressures;
 
our ability
 
to predict
and respond to rapidly changing fashion trends and consumer demands; our ability to successfully
implement our new store development strategy to increase new store openings and our ability of
 
any such
new stores to
 
grow and perform
 
as expected; adverse weather, public health threats (including
 
the
COVID-19 pandemic) or similar conditions that may affect
 
our sales or operations; inventory risks due to
shifts in
 
market demand, including
 
the ability
 
to liquidate
 
excess inventory at
 
anticipated margins;
 
and
other factors discussed under “Risk Factors” in Part I, Item
 
1A of our annual report on Form 10-
 
K
 
for the
fiscal year ended January 30,
 
2021 (“fiscal 2020”), as amended
 
or supplemented, and in other
 
reports we
file with or
 
furnish to the
 
Securities and Exchange
 
Commission (“SEC”) from
 
time to time.
 
We do
 
not
undertake, and expressly
 
decline, any obligation
 
to update
 
any such forward-
 
looking information
contained in this report, whether as a result of new information, future events,
 
or otherwise.
 
 
 
THE CATO CORPORATION
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
 
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
 
 
 
 
21
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
 
 
The Company’s accounting
 
policies
 
are more fully
 
described
 
in “Management’s
 
Discussion
 
and Analysis
 
of
Financial
 
Condition
 
and Results
 
of Operations”
 
in the Company’s
 
Annual
 
Report
 
on Form
 
10-K
 
for the
 
fiscal
year ended January
 
30, 2021.
 
As disclosed
 
in “Management’s
 
Discussion
 
and Analysis
 
of Financial
Condition
 
and Results of Operations,”
 
the preparation
 
of the Company’s financial statements
 
in conformity
with generally
 
accepted
 
accounting
 
principles
 
in the United States
 
(“GAAP”)
 
requires
 
management
 
to make
estimates
 
and assumptions
 
about future
 
events that
 
affect the
 
amounts
 
reported
 
in the financial
 
statements
 
and
accompanying
 
notes. Future
 
events and
 
their effects
 
cannot be
 
determined
 
with absolute
 
certainty. Therefore,
the determination
 
of estimates requires the exercise of judgment. Actual results inevitably will differ from
those estimates, and
 
such differences may
 
be material to
 
the financial statements. The
 
most significant
accounting
 
estimates
 
inherent
 
in the preparation
 
of the Company’s
 
financial
 
statements
 
include
 
the allowance
for customer credit
 
losses,
 
inventory
 
shrinkage,
 
the ca
 
lculation
 
of potential asset
 
impairment,
 
workers’
compensation,
 
general
 
and auto insurance liabilities, reserves
 
relating
 
to self-insured
 
health
 
insurance,
 
and
uncertain
 
tax positions.
 
The Company’s
 
critical
 
accounting
 
policies
 
and estimates
 
are discussed
 
with the
 
Audit Committee.
 
 
 
 
 
THE CATO CORPORATION
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
 
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
 
 
 
 
22
 
RESULTS OF OPERATIONS:
 
The following
 
table sets
 
forth, for
 
the periods
 
indicated,
 
certain items
 
in the Company's
 
unaudited
 
Condensed
Consolidated
 
Statements
 
of Income
 
as a percentage
 
of total
 
retail sales:
 
Three Months Ended
May 1, 2021
May 2, 2020
Total retail sales
100.0
%
100.0
%
Other revenue
0.9
1.9
Total revenues
100.9
101.9
Cost of goods sold (exclusive of depreciation)
58.5
84.6
Selling, general and administrative (exclusive of depreciation)
29.9
53.1
Depreciation
1.4
4.1
Interest and other income
(0.3)
(1.9)
Income (loss) before income taxes
11.3
(38.0)
Net income (loss)
9.8
(28.8)
 
 
 
THE CATO CORPORATION
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
 
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
 
 
 
 
23
 
RESULTS OF OPERATIONS
 
(CONTINUED):
 
COVID-19
 
Update
 
The COVID-19 pandemic adversely
 
impacted the Company's business,
 
financial condition and operating
results through fiscal 2020.
 
The first quarter of
 
2021 saw significant improvements in
 
sales compared to
2020.
 
This improvement was
 
primarily attributable to
 
government stimulus, increased
 
customer traffic,
states continuing
 
to lift
 
capacity limits
 
as more
 
people are
 
vaccinated, consumers’
 
increasing comfort
level with
 
venturing out
 
to social
 
events
 
and
 
customers’ preparing
 
to return
 
to work.
 
However, the
Company’s sales
 
were well below 2019
 
sales for the
 
comparable period, and there
 
is still a
 
high level of
uncertainty regarding the
 
lingering effects of
 
the COVID-19 pandemic
 
and the
 
continued impact on
 
the
Company’s customers’
 
buying habits.
 
The Company
 
faces additional
 
uncertainty from
 
the continued
effects of disruption in the global supply chain and available workers as it attempts
 
to hire associates as its
operating hours
 
continue to
 
expand. The
 
Company expects
 
that these
 
uncertainties and
 
perhaps others
related to the
 
pandemic will continue
 
to impact the
 
Company in fiscal
 
2021 and possibly
 
beyond.
 
The
adverse financial impacts associated with the continued
 
effects of, and uncertainties related to, the
COVID-19 pandemic include, but
 
are not limited
 
to, (i) lower net
 
sales in markets affected
 
by the actual
or potential
 
outbreak, whether
 
due to
 
state and
 
local orders,
 
reductions in
 
store traffic
 
and customer
demand, labor
 
shortages, or
 
all of
 
these factors,
 
(ii) lower
 
net sales
 
caused by
 
the delay
 
of inventory
production and fulfillment,
 
(iii) and
 
incremental costs associated
 
with efforts
 
to mitigate the
 
effects of
 
the outbreak, including increased freight and logistics costs and other
 
expenses.
 
 
The extent
 
to which
 
the COVID
 
-19 pandemic
 
ultimately impacts
 
the Company’s
 
business, financial
condition, results of operations, cash flows, and liquidity may differ from management’s current
 
estimates
due to inherent
 
uncertainties regarding the
 
duration and further
 
spread of the
 
outbreak or its
 
variants, its
severity, actions taken
 
to contain the virus or
 
treat its impact, and how
 
quickly and to what extent normal
economic and operating conditions can resume.
 
 
While the Company currently anticipates a continuation of the adverse impacts
 
of COVID-19 during 2021
and possibly
 
beyond, the
 
duration and
 
severity of
 
these effects
 
will depend
 
on the
 
course of
 
future
developments, which are
 
highly uncertain, including
 
the relative speed
 
and success of,
 
as well as
 
public
confidence in, mitigation measures
 
such as the current
 
effort to vaccinate substantial
 
portions of the U.S.
and global
 
population, emerging
 
information regarding
 
variants of
 
the virus
 
or new
 
viruses and
 
their
potential impact on
 
current mitigation efforts,
 
public attitudes toward
 
continued compliance with
containment and
 
mitigation measures, and
 
possible new information
 
and understanding that
 
could alter
the course and duration of current measures to combat the spread of the virus.
 
Comparison
 
of First Quarter
 
of 2021
 
with 2020
 
 
Total retail sales for the first
 
quarter
 
were $211.2 million
 
compared
 
to last year’s first
 
quarter
 
sales of $98.8
million.
 
Sales increased
 
primarily
 
due to an increase
 
in same-store
 
sales and
 
sales from
 
new stores,
 
partially
offset by permanently closed stores in
 
2020. The 111.0%
 
increase
 
in same-store sales is primarily due
 
to
stores being closed from
 
March 19, 2020
 
through
 
the end of
 
the first quarter of
 
2020. Same store
 
sales
include
 
stores
 
that have been open more than 15 months.
 
Stores
 
that have been relocated or expanded are
also included
 
in the same
 
store sales
 
calculation
 
after they
 
have been
 
open
 
more than
 
15 months.
 
The method
of calculating
 
same store sales
 
varies
 
across the retail
 
industry.
 
As a result, our same
 
store sales
 
calculation
may not
 
be comparable
 
to similarly
 
titled measures
 
reported
 
by other
 
companies.
 
E-commerce
 
sales were
 
less
than 5.0% of sales for
 
the first quarter of fiscal 2021
 
and are included in the
 
same-store
 
sales calculation.
 
Total revenues, comprised of
 
retail sales and
 
other revenue (principally finance charges and
 
late fees on
 
 
THE CATO CORPORATION
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
 
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
 
 
 
 
24
 
customer
 
accounts
 
receivable,
 
shipping
 
charged to customers
 
for e-commerce
 
purchases
 
and layaway fees),
were $213.1
 
million
 
for the first
 
quarter
 
ended May
 
1, 2021, compared
 
to $100.7
 
million
 
for the first
 
quarter
ended May
 
2, 2020. The
 
Company
 
operated
 
1,325 stores
 
at May 1, 2021
 
compared
 
to 1,300 stores
 
at the end
of last fiscal
 
year’s first
 
quarter.
 
For the first
 
three months
 
of fiscal 2021,
 
the Company
 
permanently
 
closed
five stores.
 
The Company
 
currently
 
expects
 
to close
 
approximately
 
25 stores
 
in fiscal
 
2021.
 
 
Credit revenue
 
of $0.5
 
million
 
represented
 
0.3% of
 
total revenues
 
in the first
 
quarter
 
of fiscal
 
2021, compared
to 2020 credit revenue of
 
$0.8 million or 0.8% of
 
total revenues.
 
Credit revenue is comprised of interest
earned on
 
the Company’s
 
private
 
label credit
 
card portfolio
 
and related
 
fee income.
 
Credit revenue
 
decreased
slightly
 
for the most
 
recent comparable
 
period due
 
to lower
 
finance
 
charge income
 
and lower
 
late fee
 
income
from sales
 
using the
 
Company’s proprietary
 
credit
 
card. Related
 
expenses
 
include
 
principally
 
payroll,
 
postage
and other administrative expenses, and totaled $0.3
 
million
 
in the first
 
quarter
 
of 2021, compared to
 
last
year’s first
 
quarter
 
expenses
 
of $0.5
 
million.
 
 
Other revenue,
 
a component
 
of total revenues,
 
was $1.9 million
 
for the first
 
quarter
 
of fiscal
 
2021, compared
to $1.9
 
million
 
for the
 
prior year’s
 
comparable
 
first quarter.
 
 
Cost of goods
 
sold was $123.7
 
million,
 
or 58.5% of retail
 
sales for the
 
first quarter
 
of fiscal 2021,
 
compared
to $83.6 million,
 
or 84.6% of retail sales in the first quarter of fiscal 2020.
 
The overall
 
decrease
 
in cost of
goods sold as
 
a percent of
 
retail sales for first
 
quarter
 
of 2021 resulted primarily from
 
the leveraging of
occupancy, buying and distribution
 
costs due to normalized sales and higher sales of regular priced goods.
Cost of goods sold includes merchandise
 
costs (net of discounts
 
and allowances),
 
buying costs,
 
distribution
costs, occupancy costs, freight and
 
inventory
 
shrinkage.
 
Net merchandise costs and in
 
-bound
 
freight
 
are
capitalized
 
as inventory costs.
 
Buying
 
and distribution costs
 
include
 
payroll,
 
payroll-related
 
costs and
operating
 
expenses
 
for the buying departments and distribution center.
 
Occupancy
 
costs include rent, real
estate taxes, insurance,
 
common
 
area maintenance, utilities and
 
maintenance
 
for stores
 
and distribution
facilities.
 
Total gross margin
 
dollars
 
(retail
 
sales less
 
cost of goods
 
sold exclusive
 
of depreciation)
 
increased
by 475.4%
 
to $87.6
 
million
 
for the
 
first quarter
 
of fiscal
 
2021 compared
 
to $15.2
 
million
 
in the first
 
quarter
 
of
fiscal 2020.
 
Gross margin
 
as presented
 
may not
 
be comparable
 
to those
 
of other
 
entities.
 
Selling,
 
general
 
and administrative
 
expenses
 
(“SG&A”)
 
primarily
 
include
 
corporate
 
and store
 
payroll,
 
related
payroll
 
taxes and benefits, insurance, supplies, advertising, bank and
 
credit
 
card processing fees.
 
SG&A
expenses
 
were 29.9% of retail sales
 
for the first quarter
 
of fiscal 2021, compared
 
to 53.1% of retail sales in
the first quarter of
 
fiscal 2020. SG&A as
 
a p
 
ercent of retail sales
 
decreased
 
primarily
 
due to
 
leveraging
expenses as a
 
result of normalized
 
sales and a
 
decrease in impairment
 
charges, partially offset
 
by higher
incentive compensation.
 
Depreciation
 
expense
 
was $3.0
 
million,
 
or 1.4%
 
of retail
 
sales for
 
the first
 
quarter
 
of fiscal
 
2021, compared
 
to
$4.0 million,
 
or 4.1%
 
of retail
 
sales for
 
the first
 
quarter
 
of fiscal
 
2020. The
 
decrease
 
in depreciation
 
expense
 
is
attributable
 
to lower
 
net fixed
 
assets
 
primarily
 
due to $13.7
 
million
 
of impairment
 
charges in
 
2020.
 
Interest
 
and other income
 
was $0.7
 
million,
 
or 0.3%
 
of retail sales
 
for the
 
first quarter of
 
fiscal 2
 
021,
compared
 
to $1.9 million,
 
or 1.9% of
 
retail sales
 
for the first
 
quarter
 
of fiscal
 
2020.
 
The decrease
 
is primarily
attributable
 
to lower interest
 
rates and smaller
 
gains from the
 
sale of investments,
 
partially
 
offset by an
increase
 
in short-term
 
investing.
Income tax expense was $3.1
 
million or 1.5% of retail
 
sales for the first
 
quarter of fiscal 2021, compared
to an income tax benefit of $9.1 million, or 9.2% of
 
retail sales for the first quarter of fiscal 2020. Income
 
 
 
THE CATO CORPORATION
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
 
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
 
 
 
 
25
 
tax expense for
 
the first quarter
 
of fiscal 2021
 
increased primarily as
 
a result of
 
higher pre-tax earnings.
The effective income tax rate for the first quarter of fiscal
 
2021 was 12.9%
 
(Expense) compared to 24.3%
(Benefit) for the first quarter
 
of 2020. The decrease in the
 
2021 first quarter tax rate was
 
primarily due to
higher pre-tax earnings
 
and the ability
 
to realize foreign
 
tax credits, partial
 
ly offset by
 
increases in state
income taxes in the first quarter of 2020.
 
LIQUIDITY, CAPITAL
 
RESOURCES
 
AND MARKET
 
RISK:
 
 
The Company believes
 
that its cash, cash equivalents
 
and short-term
 
investments,
 
together
 
with cash flows
from operations
 
and borrowings
 
available
 
under its revolving
 
credit
 
agreement,
 
will be adequate
 
to fund the
Company’s regular
 
operating
 
requirements
 
and expected
 
capital
 
expenditures
 
for fiscal
 
2021 and the
 
next 12
months.
 
Cash provided by operating activities for the first
 
three months of fiscal 2021 was
 
primarily
 
generated
 
by
earnings
 
adjusted
 
for depreciation
 
and changes in working
 
capital.
 
The increase
 
in cash provided of $115.8
million
 
for the first three
 
months of fiscal 2021
 
as compared to the
 
first three months of
 
fiscal 2020 was
primarily
 
due to net income versus a net loss
 
,
 
a decrease in inventory, and an
 
increase
 
in accounts payable
and accrued
 
liabilities,
 
partially
 
offset by
 
a decrease
 
in store
 
impairment
 
charges.
 
At May 1, 2021,
 
the Company
 
had working
 
capital
 
of $130.5
 
million
 
compared
 
to $108.6
 
million
 
at January
30, 2021.
 
This increase
 
is primarily attributable
 
to higher short-term
 
investments,
 
partially
 
offset
 
by higher
accrued
 
incentive
 
compensation.
 
At May 1, 2021 and January 30,
 
2021, the Company had an unsecured
 
revolving credit agreement, which
provides for borrow
 
ings of up
 
to $35.0 million
 
less the balance
 
of letters of
 
credit discussed below.
 
The
revolving credit
 
agreement is
 
committed through
 
May 2023.
 
The credit
 
agreement contains
 
various
financial covenants and limitations,
 
including the maintenance of
 
specific financial ratios with
 
which the
Company was in compliance as
 
of May 1, 2021.
 
There were no borrowings outstanding
 
under the credit
facility as of May 1, 2021 or January 30, 2021.
 
 
At May 1, 2021
 
and January
 
30, 2021,
 
the Company
 
had no outstanding
 
letters
 
of credit
 
relating
 
to purchase
commitments.
 
Expenditures
 
for pro
 
perty and
 
equipment
 
totaled
 
$0.6 million in
 
the first
 
three months of
 
fiscal 2021,
compared
 
to $5.3 million
 
in last year’s
 
first three
 
months.
 
For the full
 
fiscal 2021
 
year, the Company
 
expects
to invest
 
approximately
 
$3.1 million
 
in capital
 
expenditures.
 
Net cash
 
used by
 
investing
 
activities
 
totaled
 
$34.2 million
 
in the first
 
three months
 
of fiscal
 
2021 compared
 
to
$76.9 million provided
 
in the comparable period of fiscal 2020,
 
primarily
 
due to a
 
decrease
 
in the sale of
short-term
 
investments
 
and an
 
increase
 
in the
 
purchase
 
of short
 
-term investments,
 
partially
 
offset by
 
a
decrease
 
in capital
 
expenditures.
 
Net cash used
 
by financing
 
activities
 
totaled
 
$5.5 million
 
in the first
 
three months
 
of fiscal
 
2021 compared
 
to
$12.4 million
 
provided
 
in the comparable
 
period
 
of fiscal
 
2020, primarily
 
due to a decrease
 
in proceeds
 
from
the line of
 
credit,
 
partially
 
offset by no
 
dividends
 
paid in the
 
first quarter of fiscal 2021
 
and fewer stock
repurchases.
 
On May 20,
 
2021, the
 
Board of
 
Directors
 
declared
 
the quarterly
 
dividend
 
at $0.11 per
 
share.
 
 
 
 
THE CATO CORPORATION
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
 
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
 
 
 
 
26
 
As of May
 
1, 2021, the
 
Company
 
had 1,445,488 shares remaining in open
 
authorizations
 
under its share
repurchase
 
program.
 
The Company
 
does not
 
use derivative
 
financial
 
instruments.
 
The Company’s investment
 
portfolio
 
was primarily
 
invested
 
in corporate
 
bonds and tax-exempt
 
and taxable
governmental
 
debt securities
 
held in managed
 
accounts
 
with underlying
 
ratings
 
of A or better
 
at May 1, 2021
and January 30, 2021.
 
The state, municipal and corporate bonds have contractual maturities which range
from four days
 
to 4.5 years.
 
The U.S. Treasury
 
Notes have
 
contractual
 
maturities
 
which range
 
from 14 days
to 2.5 years.
 
These securities
 
are classified
 
as available-for-sale
 
and are recorded
 
as Short-term
 
investments,
Restricted
 
cash, Restricted
 
short-term
 
investments
 
and Other assets
 
on the accompanying
 
Condensed
Consolidated
 
Balance
 
Sheets.
 
These assets
 
are carried
 
at fair value with
 
unrealized
 
gains and
 
losses reported
net of taxes in Accumulated
 
other comprehensive
 
income.
 
The asset-backed
 
securities
 
are bonds comprised
of auto loans
 
and bank credit
 
cards that
 
carry AAA
 
ratings.
 
The auto loan
 
asset-backed
 
securities
 
are backed
by static
 
pools of auto
 
loans that
 
were originated
 
and serviced
 
by captive
 
auto finance
 
units, banks
 
or finance
companies.
 
The bank
 
credit card asset
 
-backed
 
securities
 
are backed by
 
revolving
 
pools of
 
credit
 
card
receivables
 
generated
 
by account holders
 
of cards
 
from American Express,
 
Citibank,
 
JPMorgan Chase,
Capital
 
One, and
 
Discover.
 
Additionally,
 
at May 1,
 
2021,
 
the Company
 
had $0.8
 
million
 
of corporate
 
equities
 
and deferred
 
compensation
plan assets of $11.6 million.
 
At January 30, 2021, the Company
 
had $0.7 million
 
of corporate
 
equities
 
and
deferred
 
compensation
 
plan assets
 
of $11.3 million.
 
All
 
of these
 
assets are
 
recorded
 
within Other
 
assets in
 
the
Condensed
 
Consolidated
 
Balance
 
Sheets.
 
See Note
 
7, Fair
 
Value Measurements.
 
RECENT
 
ACCOUNTING
 
PRONOUNCEMENTS:
 
 
See Note 8, Recent Accounting Pronouncements.
 
 
 
 
 
 
 
THE CATO CORPORATION
 
QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK
 
 
 
 
27
 
ITEM 3. QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK:
 
The Company
 
is subject
 
to market
 
rate risk
 
from exposure
 
to changes
 
in interest
 
rates based
 
on its
financing, investing and cash
 
management activities, but the
 
Company does not believe
 
such exposure is
material.
 
ITEM 4. CONTROLS AND PROCEDURES:
 
We carried out
 
an evaluation,
 
with the
 
participation
 
of our Principal
 
Executive
 
Officer
 
and Principal
 
Financial
Officer, of the
 
effectiveness
 
of our disclosure controls and proc
 
edures as of
 
May 1, 2021
 
.
 
Based on this
evaluation,
 
our Principal
 
Executive
 
Officer and
 
Principal
 
Financial
 
Officer concluded
 
that, as
 
of May 1,
 
2021,
our disclosure
 
controls
 
and procedures,
 
as defined in Rule 13a-15(e),
 
under the Securities
 
Exchange
 
Act of
1934 (the “Exchange Act”),
 
were effective to
 
ensure
 
that information we are
 
required
 
to disclose in
 
the
reports
 
that we file
 
or submit under
 
the Exchange Act
 
is recorded, processed, summarized and
 
reported
within the
 
time periods
 
specified
 
in the SEC’s rules and
 
forms and that
 
such information
 
is accumulated
 
and
communicated
 
to our management,
 
including
 
our Principal
 
Executive
 
Officer
 
and Principal
 
Financial
 
Officer,
as appropriate
 
to allow
 
timely
 
decisions
 
regarding
 
required
 
disclosure.
 
 
CHANGES
 
IN INTERNAL
 
CONTROL
 
OVER FINANCIAL
 
REPORTING:
 
No change
 
in the Company’s
 
internal
 
control
 
over financial
 
reporting
 
(as defined
 
in Exchange
 
Act Rule
 
13a-
15(f)) has
 
occurred
 
during
 
the Company’s
 
fiscal quarter
 
ended May
 
1, 2021 that
 
has materially
 
affected,
 
or is
reasonably
 
likely to materially
 
affect, the Company’s
 
internal
 
control
 
over financial
 
reporting.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
 
 
PART
 
II OTHER
 
INFORMATION
 
 
 
28
 
ITEM 1.
 
LEGAL PROCEEDINGS:
 
Not Applicable
 
ITEM 1A.
 
RISK FACTORS:
 
In addition
 
to the other
 
information
 
in this
 
report,
 
you should
 
carefully
 
consider
 
the factors
 
discussed
 
in Part
 
I,
“Item 1A. Risk Factors” in our
 
Annual
 
Report
 
on Form 10-K
 
for our fiscal year ended January 30,
 
2021.
 
These risks could materially
 
affect our business,
 
financial
 
condition
 
or future results;
 
however, they are not
the only
 
risks we
 
face.
 
Additional
 
risks and
 
uncertainties
 
not currently
 
known to
 
us or that
 
we currently
 
deem
to be immaterial
 
may also materially
 
adversely
 
affect our business,
 
financial
 
condition
 
or results of
operations.
 
ITEM 2.
 
UNREGISTERED SALES OF EQUITY SECURITIES
 
AND USE OF PROCEEDS:
 
The following table summarizes the Company’s purchases of its common stock for the three months
ended May 1, 2021:
 
ISSUER
 
PURCHASES
 
OF EQUITY
 
SECURITIES
 
Total Number of
Maximum Number
Shares Purchased as
(or Approximate Dollar
Total Number
Average
Part of Publicly
Value)
 
of Shares that may
of Shares
Price Paid
Announced Plans or
Yet be Purchased
 
Under
Period
Purchased
per Share (1)
Programs (2)
The Plans or Programs (2)
February 2021
-
$
-
-
March 2021
122,119
11.77
122,119
April 2021
303,542
13.81
303,542
Total
425,661
$
13.22
425,661
1,445,488
 
(1)
 
Prices include trading costs.
 
 
(2)
 
As of January
 
30, 2021, the
 
Company’s share
 
repurchase program had
 
1,871,149 shares
remaining in
 
open authorizations.
 
During the
 
first quarter
 
ended May
 
1, 2021,
 
the Company
repurchased and
 
retired 425,661 shares
 
under this
 
program for approximately
 
$5,629,130 or
 
an
average market price of $13.22 per share.
 
As of May 1, 2021, the Company had 1,445,488 shares
remaining in
 
open authorizations.
 
There is
 
no specified
 
expiration date
 
for the
 
Company’s
repurchase program.
 
 
ITEM 3.
 
DEFAULTS
 
UPON SENIOR SECURITIES:
 
Not Applicable
 
 
 
 
 
 
 
THE CATO CORPORATION
 
 
PART
 
II OTHER
 
INFORMATION
 
 
 
29
 
ITEM 4.
 
MINE SAFETY DISCLOSURES:
 
Not Applicable
 
ITEM 5.
 
OTHER INFORMATION:
 
Not Applicable
 
 
ITEM 6.
 
EXHIBITS:
 
 
Exhibit
 
No.
Item
 
3.1
 
3.2
 
31.1*
 
31.2*
 
32.1*
 
32.2*
101.1*
The following materials from Registrant’s Quarterly Report on Form
10-Q
 
for the
 
fiscal quarter ended
 
May 1,
 
2021, formatted in
 
Inline
XBRL:
 
(i) Condensed
 
Consolidated
 
Statements
 
of Income
 
(Loss) and
Comprehensive
 
Income
 
(Loss)
 
for the Three
 
Months
 
ended May 1,
2021 and
 
May 2, 2020;
 
(ii) Condensed
 
Consolidated
 
Balance
 
Sheets at
May 1,
 
2021 and
 
January
 
30,
 
2021;
 
(iii) Condensed Consolidated
Statements
 
of Cash Flows for the
 
Three Months Ended May 1, 2021
and May 2,
 
2020;
 
(iv) Condensed Consolidated
 
Statements
 
of
Stockholders’
 
Equity for the
 
Three Months Ended May
 
1, 2021 and
May 2, 2020; and
 
(v) Notes
 
to Condensed
 
Consolidated
 
Financial
Statements.
104.1
Cover Page
 
Interactive Data
 
File (Formatted
 
in Inline
 
XBRL and
contained in the Interactive Data Files submitted as Exhibit 101.1*)
 
 
* Submitted electronically herewith.
 
 
 
 
 
 
 
THE CATO CORPORATION
 
 
PART
 
II OTHER
 
INFORMATION
 
 
 
30
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant
 
has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
 
authorized.
 
 
THE CATO
 
CORPORATION
 
 
May 27, 2021
/s/ John P.
 
D. Cato
Date
John P.
 
D. Cato
Chairman, President and
Chief Executive Officer
May 27, 2021
/s/ John R. Howe
Date
John R. Howe
Executive Vice President
Chief Financial Officer
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