What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-27 compared with 2020-06-04 · 224 added, 104 removed, 384 unchanged (46% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

(Dollars in thousands, except per share data)

6 unchanged sentences

Interest and other income

Costs and expenses, net

Cost and expenses, net

Income (loss) before income taxes

5 unchanged sentences

Net income (loss)

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

of deferred income taxes of ($ 90 ) and $ 126 for May 2, 2020

and May 4, 2019, respectively

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

deferred income taxes of $ 146 and $ 56 for the three and

six months ended August 1, 2020 and $ 262 and $ 388 for

the three and six months ended August 3, 2019, respectively

Comprehensive income (loss)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

August 1, 2020

February 1, 2020

6 unchanged sentences

Accounts receivable, net of allowance for doubtful accounts of

$ 614 and $ 726 at May 2, 2020 and February 1, 2020, respectively

$ 590 and $ 726 at August 1, 2020 and February 1, 2020, respectively

Merchandise inventories

19 unchanged sentences

shares authorized;

22,252,038 and 22,535,779 shares issued

at May 2, 2020 and February 1, 2020, respectively

22,194,233 shares and 22,535,779 shares

issued at August 1, 2020 and February 1, 2020, respectively

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 2, 2020 and February 1, 2020, respectively

1,763,652 shares and 1,763,652 shares

issued at August 1, 2020 and February 1, 2020, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income

Accumulated other comprehensive income/(loss)

Total Stockholders' Equity

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

August 1, 2020

August 3, 2019

(Dollars in thousands)

1 unchanged sentence

Net income (loss)

Adjustments to reconcile net income to net cash provided

Adjustments to reconcile net income (loss) to net cash provided (used)

by operating activities:

19 unchanged sentences

Sales of other assets

Net cash provided (used) by investing activities

Net cash provided (used) in investing activities

Financing Activities:

4 unchanged sentences

Proceeds from employee stock purchase plan

Net cash provided (used) by financing activities

Net cash provided (used) in financing activities

Net increase (decrease) in cash, cash equivalents, and restricted cash

22 unchanged sentences

Balance — May 2, 2020

Comprehensive income:

Net income (loss)

Unrealized gains on available-for-sale securities, net of deferred

income tax liability of $ 146

Dividends paid ($ - per share)

Class A common stock sold through employee stock purchase

plan — - shares

Class B common stock sold through stock option plans —

Class A common stock issued through restricted stock grant plans —

( 57,805 ) shares

Repurchase and retirement of treasury shares – - shares

Balance — August 1, 2020

Comprehensive

14 unchanged sentences

Balance — May 4, 2019

Comprehensive income:

Net income (loss)

Unrealized gains on available-for-sale securities, net of deferred

income tax liability of $ 262

Dividends paid ($ 0.33 per share)

Class A common stock sold through employee stock purchase

plan — 5,402 shares

Class B common stock sold through stock option plans —

Class A common stock issued through restricted stock grant plans —

( 9,170 ) shares

Repurchase and retirement of treasury shares – - shares

Balance — August 3, 2019

See notes to condensed consolidated financial statements (unaudited).

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

NOTE 1 - GENERAL :

The condensed consolidated financial statements as of May 2, 2020 and for the thirteen-week periods ended May 2, 2020 and May 4, 2019 have been prepared from the accounting records of The Cato Corporation and its wholly-owned subsidiaries (the “Company”), and all amounts shown are unaudited.

The condensed consolidated financial statements have been prepared from the accounting records of The Cato Corporation and its wholly-owned subsidiaries (the “Company”), and all amounts shown as of and for the periods ended August 1, 2020 and August 3, 2019 are unaudited.

In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements have been included.

3 unchanged sentences

Amounts as of February 1, 2020 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.

Subsequent to August 1, 2020, the Company repurchased 72,400 shares for $ 509,141 .

On August 27, 2020, the Board of Directors authorized an increase in the Company’s share repurchase program of 1 million shares.

Prior to this authorization, the Company had approximately 656,000 shares remaining in open authorizations inclusive of the activity subsequent to August 1, 2020.

COVID-19 Update

The spread of COVID-19 has resulted in state and local orders mandating store closures to mitigate the spread of the virus.

Responses by customers, government and the private sector have and will likely continue to adversely impact our business operations for the remainder of 2020 and possibly beyond.

The spread of COVID-19 has resulted in state and local orders mandating store closures and other measures to mitigate the spread of the virus.

Responses by customers, government and the private sector have and will likely continue to adversely impact our business operations for the remainder of fiscal 2020 and possibly beyond.

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, 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.

Beginning March 19, 2020, the Company temporarily closed all Cato, Its Fashion, Its Fashion Metro and Versona stores.

In addition, the Company suspended its quarterly dividend, significantly reduced capital expenditures and reduced its SG&A expense through the reduction of non-payroll expenses, as well as, furloughing associates and in certain instances eliminating positions primarily at the corporate office.

In addition, the Company suspended its quarterly dividend, significantly reduced capital expenditures and reduced its SG&A expense through the reduction of non-payroll expenses, as well as furloughed associates and in certain instances eliminated positions primarily at its corporate office.

Beginning on May 1, 2020, the Company began to re-open stores based on the pertinent state and local orders.

As of June 15, 2020, all stores have re-opened.

There is significant uncertainty around the duration, breadth and severity of continued business disruptions related to COVID-19, as well as its impact on the U.S.

economy, consumer willingness to visit malls and shopping centers, and associate staffing for our stores.

At this time, it is uncertain as to the effect of national, state or local action or legislation that attempts to address the economic effects of COVID-19 on our customers, suppliers or the Company.

While the Company currently anticipates that our results for the remainder of 2020 will be adversely impacted, the extent to which COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain, including new information that may emerge concerning the severity of COVID-19, potential economic impacts to customers and suppliers, and the actions taken to contain it or mitigate its impact.

Accounting Policies - Impairment of Long-Lived Assets:

The Company invests in leaseholds, right-of use assets and equipment primarily in connection with the opening and remodeling of stores and in computer software and hardware.

The Company periodically reviews its store locations and estimates the recoverability of its long-lived assets, which primarily relate

At this time, the possible effects of national, state or local action, legislation, guidelines or programs that attempt to mitigate the spread of COVID-19 or address its economic effects on our customers, suppliers or the Company are also uncertain.

While the Company currently anticipates that our results for the remainder of fiscal 2020 will be adversely impacted, the extent to which COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain, including possible new information and understanding about the

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

to Fixtures and equipment, Leasehold improvements, Right-of-use assets net of Lease liabilities and Information technology equipment and software.

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

severity of COVID-19, related potential economic impacts to customers and suppliers, and the effect of actions taken to contain it or mitigate its impact.

Accounting Policies - Impairment of Long-Lived Assets:

The Company invests in leaseholds, right-of use assets and equipment primarily in connection with the opening and remodeling of stores and in computer software and hardware.

The Company periodically reviews its store locations and estimates the recoverability of its long-lived assets, which primarily relate to Fixtures and equipment, Leasehold improvements, Right-of-use assets net of Lease liabilities and Information technology equipment and software.

An impairment charge is recorded for the amount by which the carrying value exceeds the estimated fair value when the Company determines that projected cash flows associated with those long-lived assets will not be sufficient to recover the carrying value.

2 unchanged sentences

Further, in determining when to close a store, the Company considers real estate development in the area and perceived local market conditions, which can be difficult to predict and may be subject to change.

As a result of store closures, the Company determined a triggering event occurred resulting in an impairment analysis being performed.

As a result of store closures during the first quarter of 2020, the Company determined a triggering event occurred, which resulted in an impairment analysis being performed.

An asset impairment charge of $ 5.3 million was recorded in the first quarter of 2020.

No additional impairment was required in the second quarter of 2020.

Recently Adopted Accounting Policies

1 unchanged sentence

Measurement of Credit Losses on Financial Instruments , which requires companies to measure and recognize expected credit losses for financial assets held at amortized costs based on expected losses rather than incurred losses.

The new accounting rules were effective for the Company in the first quarter of 2020 and will have a minimal impact on the financial statements.

The new accounting rules were effective for the Company in the first quarter of 2020 and had a minimal impact on the financial statements.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

NOTE 2 - EARNINGS PER SHARE:

6 unchanged sentences

Three Months Ended

Six Months Ended

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

(Dollars in thousands)

9 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

The following tables set forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the three months ended May 2, 2020:

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the three months ended August 1, 2020:

Changes in Accumulated Other

3 unchanged sentences

Available-for-Sale

Beginning Balance at February 1, 2020

Beginning Balance at May 2, 2020

Other comprehensive income before

3 unchanged sentences

Net current-period other comprehensive income

Ending Balance at May 2, 2020

Ending Balance at August 1, 2020

(a) All amounts are net-of-tax.

Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").

Amounts in parentheses indicate a debit/reduction to other comprehensive income.

(b) Includes $ 83 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 $ 19 .

The following tables set forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the three months ended May 4, 2019:

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the six months ended August 1, 2020:

Changes in Accumulated Other

9 unchanged sentences

Net current-period other comprehensive income

Ending Balance at May 4, 2019

Ending Balance at August 1, 2020

(a) All amounts are net-of-tax.

Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").

Amounts in parentheses indicate a debit/reduction to other comprehensive income.

(b) Includes $ 738 impact of accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities.

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME (CONTINUED):

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the three months ended August 3, 2019:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Beginning Balance at May 4, 2019

Other comprehensive income before

reclassifications

Amounts reclassified from accumulated

other comprehensive income (b)

Net current-period other comprehensive income

Ending Balance at August 3, 2019

(a) All amounts are net-of-tax.

Amounts in parentheses indicate a debit/reduction to other comprehensive income.

(b) Includes $ 39 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 $ 9 .

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the six months ended August 3, 2019:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Beginning Balance at February 2, 2019

Other comprehensive income before

reclassifications

Amounts reclassified from accumulated

other comprehensive income (b)

Net current-period other comprehensive income

Ending Balance at August 3, 2019

(a) All amounts are net-of-tax.

Amounts in parentheses indicate a debit/reduction to other comprehensive income.

(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 CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

NOTE 4 – FINANCING ARRANGEMENTS:

As of May 2, 2020, 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.

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 2, 2020.

There were $ 30.0 million in outstanding borrowings under this credit facility at May 2, 2020 and no outstanding borrowings at February 1, 2020.

As of May 2, 2020, the $ 30.0 million of outstanding borrowings is recorded in Accounts payable in the Condensed Consolidated Balance Sheets.

The weighted average interest rate under the credit facility was 1.76 % at May 2, 2020.

As of August 1, 2020, the Company had an unsecured revolving credit agreement to borrow $ 35.0 million less the balance of any revocable letters of credit as discussed below.

On June 2, 2020, the Company signed an amendment extending the revolving credit agreement through May 2023.

This new amendment, among other items, temporarily lowers the liquidity amount the Company is required to maintain.

In addition, a fixed charge ratio covenant is applicable beginning in the fourth quarter of 2021.

As of June 4, 2020, the Company had paid down $ 7.0 million of its outstanding line of credit, reducing the outstanding borrowings to $ 23.0 million.

At May 2, 2020 and February 1, 2020, the Company had no outstanding letters of credit relating to purchase commitments.

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 August 1, 2020.

There were no borrowings outstanding under this credit facility as of August 1, 2020 or February 1, 2020.

The weighted average interest rate under the credit facility was zero at August 1, 2020 due to no borrowings outstanding.

At August 1, 2020 and February 1, 2020, the Company had no outstanding revocable letters of credit relating to purchase commitments.

NOTE 5 – REPORTABLE SEGMENT INFORMATION:

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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 31 states as of May 2, 2020, principally in the southeastern United States .

The Company operates its women’s fashion specialty retail stores in 31 states as of August 1, 2020, 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.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

NOTE 5 – REPORTABLE SEGMENT INFORMATION (CONTINUED):

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Three Months Ended

Six Months Ended

August 1, 2020

Interest and other income

Income before taxes

Interest and other income

Income/(Loss) before

Capital expenditures

Three Months Ended

Six Months Ended

August 3, 2019

Interest and other income

Income before taxes

Interest and other income

Income/(Loss) before

Capital expenditures

Total assets as of May 2, 2020

Capital expenditures

Total assets as of August 1, 2020

Total assets as of February 1, 2020

3 unchanged sentences

Three Months Ended

Six Months Ended

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

Other expenses

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

NOTE 6 – STOCK-BASED COMPENSATION:

As of May 2, 2020, the Company had two long-term compensation plans pursuant to which stock-based compensation was outstanding or could be granted.

As of August 1, 2020, 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 2, 2020:

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 August 1, 2020:

Options and/or restricted stock initially authorized

Options and/or restricted stock available for grant:

August 1, 2020

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 2, 2020 and February 1, 2020, there was $ 14,216,000 and $ 11,900,000 , respectively, of total unrecognized compensation expense related to nonvested restricted stock awards, which had a remaining weighted-average vesting period of 2.9 years and 2.2 years, respectively.

The total compensation expense during the three months ended May 2, 2020 was $ 606,000 compared to $ 645,000 for the three months ended May 4, 2019.

These expenses are classified as a component of Selling, general and administrative expenses in the Condensed Consolidated Statements of Income.

The following summary shows the changes in the shares of unvested restricted stock outstanding during the three months ended May 2, 2020:

As of August 1, 2020 and February 1, 2020, there was $ 13,007,000 and $ 11,900,000 , respectively, of total unrecognized compensation expense related to nonvested restricted stock awards, which had a remaining weighted-average vesting period of 2.6 years and 2.2 years, respectively.

The total compensation expense during the three and six months ended August 1, 2020 was $ 1,253,000 and $ 1,859,000 , respectively, compared to $ 1,495,000 and $ 2,140,000 , respectively, for the three and six months ended August 3, 2019.

These expenses are classified as a component of Selling, general and administrative expenses in the Condensed Consolidated Statements of Income and Comprehensive Income.

The following summary shows the changes in the shares of unvested restricted stock outstanding during the six months ended August 1, 2020:

Weighted Average

3 unchanged sentences

Forfeited or expired

Restricted stock awards at May 2, 2020

Restricted stock awards at August 1, 2020

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

NOTE 6 – STOCK BASED-COMPENSATION (CONTINUED):

The Company’s Employee Stock Purchase Plan allows eligible full-time employees to purchase a limited number of shares of the Company’s Class A Common Stock during each semi-annual offering period at a 15% discount through payroll deductions.

During the three months ended May 2, 2020 and May 4, 2019, the Company sold 26,957 and 20,676 shares to employees at an average discount of $ 1.64 and $ 2.23 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 $ 44,000 and $ 46,000 for the three months ended May 2, 2020 and May 4, 2019, respectively.

These expenses are classified as a component of Selling, general and administrative expenses in the Condensed Consolidated Statements of Income.

During the six months ended August 1, 2020 and August 3, 2019, the Company sold 26,957 and 26,078 shares to employees at an average discount of $ 1.64 and $ 2.16 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 $ 44,000 and $ 56,000 for the six months ended August 1, 2020 and August 3, 2019, respectively.

These expenses are classified as a component of Selling, general and administrative expenses.

NOTE 7 – FAIR VALUE MEASUREMENTS:

The following tables set forth information regarding the Company’s financial assets and liabilities that are measured at fair value (in thousands) as of May 2, 2020 and February 1, 2020:

The following tables set forth information regarding the Company’s financial assets and liabilities that are measured at fair value (in thousands) as of August 1, 2020 and February 1, 2020:

August 1, 2020

State/Municipal Bonds

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

February 1, 2020

8 unchanged sentences

Total Liabilities

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 2, 2020 and February 1, 2020.

The state, municipal and corporate bonds have contractual maturities which range from two days to seven years .

Treasury Notes and Certificates of Deposit have contractual maturities which range from one month to two 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.

The state, municipal and corporate bonds have contractual maturities which range from six days to 7 years .

Treasury Notes and Certificates of Deposit have contractual maturities which range from one month to 2 years .

These securities are classified as available-for-sale and are recorded as Short-term investments, Restricted cash and Restricted short-term investments 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.

2 unchanged sentences

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 2, 2020, the Company had $ 0.6 million of corporate equities and deferred compensation plan assets of $ 9.7 million.

Additionally, at August 1, 2020, the Company had $ 0.6 million of corporate equities and deferred compensation plan assets of $ 10.5 million.

At February 1, 2020, the Company had $ 0.7 million of corporate equities and deferred compensation plan assets of $ 10.5 million.

1 unchanged sentence

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.

Level 2 investment securities include corporate bonds, municipal bonds and asset-backed securities 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.

1 unchanged sentence

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

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

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

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.

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

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 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 CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

The following tables summarize the change in fair value of the Company’s financial assets measured using Level 3 inputs as of May 2, 2020 and February 1, 2020 (dollars in thousands):

The following tables summarize the change in fair value of the Company’s financial assets and liabilities measured using Level 3 inputs as of August 1, 2020 and February 1, 2020 (in thousands):

Measurements Using

6 unchanged sentences

Included in other comprehensive income

Ending Balance at May 2, 2020

Ending Balance at August 1, 2020

Measurements Using

6 unchanged sentences

Included in other comprehensive income

Ending Balance at May 2, 2020

Ending Balance at August 1, 2020

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

Measurements Using

12 unchanged sentences

Beginning Balance at February 2, 2019

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

Total (gains) or losses

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

6 unchanged sentences

NOTE 9 – INCOME TAXES:

The Company had an effective tax rate for the first quarter of 2020 of 24.3 % (Benefit) compared to an effective tax rate of 16.9 % (Expense) for the first quarter of 2019.

The increase in the 2020 first quarter tax rate was primarily due to the federal net operating loss carryback provisions of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), offset by valuation allowances against state income net operating losses, and an upward adjustment in the reserves for uncertain tax positions specific to state income taxes in the first quarter of 2020.

The Company assessed the ability to realize these state net operating losses in light of the adverse impact on the Company’s financial statements and operations due to COVID-19.

Based on this assessment, the Company concluded that it is more likely than not that the Company will not be able to realize the state net operating losses and, accordingly, has recorded a valuation allowance for these items including the value of its state net operating loss deferred tax assets as of February 1, 2020.

The estimated annual effective tax rate for the current fiscal year is impacted by the ability to carryback federal net operating losses due to the CARES Act, partially offset by changes in management’s judgement regarding the ability to realize deferred tax assets, primarily state income net operating losses generated in the current fiscal year.

The Company had an effective tax rate for the first six months of 2020 of 26.7 % (Benefit) compared to 16.3 % (Expense) for the first six months of 2019.

The increase in the effective tax rate for the first six months was primarily due to the federal net operating loss carryback provisions of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), offset by valuation allowances against state income net operating losses, and an upward adjustment in the reserves for uncertain tax positions specific to state income taxes in the first quarter of 2020.

The Company assessed the likelihood that deferred tax assets related to state net operating loss carryforwards will be realized in light of the adverse impact on the Company's financial statements and operations due to COVID-19.

The estimated annual effective tax rate for the current fiscal year is impacted by the ability to carryback federal net operating losses due to the CARES Act, partially offset by changes in management’s judgment regarding the ability to realize deferred tax assets, primarily state income net operating losses generated in the current fiscal year.

The Company has factored the realizability of these deferred tax assets generated as a result of projected current year losses into its estimated annual effective rate for the current year.

2 unchanged sentences

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

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

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 operations and cash flows in any particular reporting period.

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

litigation could result in large monetary awards.

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 operations and cash flows in any particular reporting period.

The Company accrues for these matters when the liability is deemed probable and reasonably estimable.

13 unchanged sentences

None of the credit card receivables are secured.

The Company estimated uncollectible amounts of $ 69,000 and $, 226000 for the periods ended May 2, 2020 and May 4, 2019, respectively, on sales purchased by the Company’s proprietary credit card of $ 2.6 million and $ 6.9 million for the periods ended May 2, 2020 and May 4, 2019, respectively.

The Company estimated uncollectible amounts of $, 185000 and $, 455000 for the six months ended August 1, 2020 and August 3, 2019, respectively, on sales purchased on the Company’s proprietary credit card of $ 6.9 million and $ 13.8 million for the six months ended August 1, 2020 and August 3, 2019, respectively.

The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):

Balance as of

August 1, 2020

February 1, 2020

5 unchanged sentences

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 Company considers these options in determining the

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

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, the Company 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

August 1, 2020

August 3, 2019

Operating lease cost (a)

1 unchanged sentence

ASC 840 prepaid rent expense (c)

(a) Includes right-of-use asset amortization of ($1.7) million and ($2.0) million for the three months ended May 2, 2020 and May 4, 2019, respectively.

(a) Includes right-of-use asset amortization of ($1) million for the three months ended August 1, 2020 and August 3, 2019.

(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.

Six Months Ended

August 1, 2020

August 3, 2019

Operating lease cost (a)

Variable lease cost (b)

ASC 840 prepaid rent expense (c)

(a) Includes right-of-use asset amortization of ($2.7) million and ($3) million for the six months ended August 1, 2020 and August 3, 2019, respectively.

(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.

Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows (in thousands):

1 unchanged sentence

Three Months Ended

August 1, 2020

August 3, 2019

Cash paid for amounts included in the measurement of lease liabilities

1 unchanged sentence

Right-of-use assets obtained in exchange for lease obligations

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

Six Months Ended

August 1, 2020

August 3, 2019

Cash paid for amounts included in the measurement of lease liabilities

Non-cash activity:

Right-of-use assets obtained in exchange for lease obligations

Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows:

August 1, 2020

August 3, 2019

Weighted-average remaining lease term

Weighted-average discount rate

As of May 2, 2020, the maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows (in thousands):

Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows (in thousands):

Total lease payments

1 unchanged sentence

Present value of lease liabilities

(a) Excluding the 3 months ended May 2, 2020.

(a) Excluding the 6 months ended August 1, 2020.

THE CATO CORPORATION

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements