What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-24 compared with 2020-08-27 · 164 added, 137 removed, 471 unchanged (39% 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

Nine Months Ended

October 31, 2020

November 2, 2019

October 31, 2020

November 2, 2019

(Dollars in thousands, except per share data)

16 unchanged sentences

deferred income taxes of ($ 85 ) and ($ 29 ) 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

nine months ended October 31, 2020 and ($ 8 ) and $ 380 for

the three and nine months ended November 2, 2019, respectively

Comprehensive income (loss)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

August 1, 2020

October 31, 2020

February 1, 2020

6 unchanged sentences

Accounts receivable, net of allowance for doubtful accounts of

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

$ 574 and $ 726 at October 31, 2020 and February 1, 2020, respectively

Merchandise inventories

20 unchanged sentences

21,170,417 shares and 22,535,779 shares

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

issued at October 31, 2020 and February 1, 2020, respectively

Convertible Class B common stock, $ 0.033 par value per share,

1 unchanged sentence

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

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

issued at October 31, 2020 and February 1, 2020, respectively

Additional paid-in capital

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

August 1, 2020

August 3, 2019

Nine Months Ended

October 31, 2020

November 2, 2019

(Dollars in thousands)

36 unchanged sentences

Accrued other assets and property and equipment

Accrued treasury stock

See notes to condensed consolidated financial statements (unaudited).

6 unchanged sentences

Comprehensive income:

Net income (loss)

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

income tax benefit of ($ 90 )

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

deferred income tax benefit of ($ 90 )

Dividends paid ($ 0.33 per share)

7 unchanged sentences

Comprehensive income:

Net income (loss)

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

income tax liability of $ 146

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

deferred income tax liability of $ 146

Dividends paid ($0 per share)

6 unchanged sentences

Balance — August 1, 2020

Comprehensive income:

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

deferred income tax benefit of ($ 85 )

Dividends paid ($0 per share)

Class A common stock sold through employee stock purchase

plan — 21,234 shares

Class B common stock sold through stock option plans —

Class A common stock issued through restricted stock grant plans —

( 8,440 ) shares

Repurchase and retirement of treasury shares – 1,036,610 shares

Balance — October 31, 2020

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Comprehensive

3 unchanged sentences

Comprehensive income:

Net income (loss)

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

income tax liability of $ 126

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

deferred income tax liability of $ 126

Dividends paid ($ 0.33 per share)

7 unchanged sentences

Comprehensive income:

Net income (loss)

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

income tax liability of $ 262

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

deferred income tax liability of $ 262

Dividends paid ($ 0.33 per share)

3 unchanged sentences

Class A common stock issued through restricted stock grant plans —

( 9,170 ) shares

System.Object[] shares

Repurchase and retirement of treasury shares – 0 shares

Balance — August 3, 2019

Comprehensive income:

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

deferred income tax benifit of ($ 8 )

Dividends paid ($ 0.33 per share)

Class A common stock sold through employee stock purchase

plan — 18,252 shares

Class B common stock sold through stock option plans —

Class A common stock issued through restricted stock grant plans —

System.Object[] shares

Repurchase and retirement of treasury shares – 129,339 shares

Balance — November 2, 2019

See notes to condensed consolidated financial statements (unaudited).

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

NOTE 1 - GENERAL :

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

Subsequent to October 31, 2020, the Company repurchased 320,707 shares for $2,274,610.

Additionally, on November 19, 2020, the Board of Directors authorized an increase in the Company’s share repurchase program of 1.5 million shares.

COVID-19 Update

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.

The COVID-19 pandemic has created, and may continue to create, challenges and uncertainties for our business.

In the first quarter of fiscal 2020, the pandemic resulted in state and local orders mandating store closures and other measures to mitigate the spread of the virus.

Recently reported increases in infection rates in many areas and the onset of cooler weather raise the possibility of increased or renewed governmental measures or public health guidance to reduce public activity and gatherings in order to mitigate the spread of the virus, as well as continued adverse effect on consumer confidence.

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.

Beginning March 19, 2020, the Company temporarily closed all Cato, It’s Fashion, It’s 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 furloughed associates and in certain instances eliminated positions primarily at its corporate office.

1 unchanged sentence

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, 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.

Although all stores have re-opened, stores are operating at reduced hours and stores may be temporarily closed or subject to further operating restrictions in compliance with local regulations or in response to public health guidance due to COIVD-19.

There is significant uncertainty around the duration, breadth and severity of continued business disruptions related to

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

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.

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

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.

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 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:

2 unchanged sentences

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.

This determination is based on a number of factors, including the store’s projected cash flows, which include future sales growth projections.

This determination is based on a number of factors, including the store’s historical operating results and projected cash flows, which include future sales growth rates, margin rates and expense projections.

The Company assesses the fair value of each lease by considering market rents and any lease terms that may adjust market rents under certain conditions, such as the loss of an anchor tenant or a leased space in a shopping center not meeting certain criteria.

1 unchanged sentence

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.

An asset impairment charge of $ 5.3 million was recorded in the first quarter of 2020, and no additional impairment was required in the second and third quarters of 2020.

During the third quarter of 2020, the Company determined no new stores would be opened during the remainder of 2020, as well as 2021.

As a result, during the third quarter of 2020, the Company impaired $ 2.3 million worth of fixtures planned for new stores.

Recently Adopted Accounting Policies

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 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

Nine Months Ended

October 31, 2020

November 2, 2019

October 31, 2020

November 2, 2019

(Dollars in thousands)

9 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

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

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the three months ended October 31, 2020:

Changes in Accumulated Other

3 unchanged sentences

Available-for-Sale

Beginning Balance at May 2, 2020

Beginning Balance at August 1, 2020

Other comprehensive income before

3 unchanged sentences

Net current-period other comprehensive income

Ending Balance at August 1, 2020

Ending Balance at October 31, 2020

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

2 unchanged sentences

The tax impact of this reclassification was $ 21 .

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:

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the nine months ended October 31, 2020:

Changes in Accumulated Other

9 unchanged sentences

Net current-period other comprehensive income

Ending Balance at August 1, 2020

Ending Balance at October 31, 2020

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

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 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:

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the three months ended November 2, 2019:

Changes in Accumulated Other

3 unchanged sentences

Available-for-Sale

Beginning Balance at May 4, 2019

Beginning Balance at August 3, 2019

Other comprehensive income before

3 unchanged sentences

Net current-period other comprehensive income

Ending Balance at August 3, 2019

Ending Balance at November 2, 2019

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

2 unchanged sentences

The tax impact of this reclassification was $ 43 .

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:

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the nine months ended November 2, 2019:

Changes in Accumulated Other

9 unchanged sentences

Net current-period other comprehensive income

Ending Balance at August 3, 2019

Ending Balance at November 2, 2019

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

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

NOTE 4 – FINANCING ARRANGEMENTS:

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.

As of October 31, 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.

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.

The credit agreement contains various financial covenants and limitations, including the maintenance of specific financial ratios with which the Company was in compliance as of October 31, 2020.

There were no borrowings outstanding under this credit facility as of October 31, 2020 or February 1, 2020.

The weighted average interest rate under the credit facility was zero at October 31, 2020 due to no borrowings outstanding.

At October 31, 2020 and February 1, 2020, the Company had no outstanding revocable letters of credit relating to purchase commitments.

NOTE 5 – REPORTABLE SEGMENT INFORMATION:

7 unchanged sentences

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 August 1, 2020, principally in the southeastern United States .

The Company operates its women’s fashion specialty retail stores in 33 states as of October 31, 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 AND SIX MONTHS ENDED AUGUST 1, 2020 AND AUGUST 3, 2019

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

NOTE 5 – REPORTABLE SEGMENT INFORMATION (CONTINUED):

1 unchanged sentence

Three Months Ended

Six Months Ended

August 1, 2020

Nine Months Ended

October 31, 2020

Interest and other income

5 unchanged sentences

Three Months Ended

Six Months Ended

August 3, 2019

Nine Months Ended

November 2, 2019

Interest and other income

4 unchanged sentences

Capital expenditures

Total assets as of August 1, 2020

Total assets as of October 31, 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

Nine Months Ended

October 31, 2020

November 2, 2019

October 31, 2020

November 2, 2019

Other expenses

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

NOTE 6 – STOCK-BASED COMPENSATION:

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.

As of October 31, 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 August 1, 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 October 31, 2020:

Options and/or restricted stock initially authorized

Options and/or restricted stock available for grant:

August 1, 2020

October 31, 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 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.

As of October 31, 2020 and February 1, 2020, there was $ 11,778,000 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 2.4 years and 2.2 years, respectively.

The total compensation expense during the three and nine months ended October 31, 2020 was $ 1,082,000 and $ 2,941,000 , respectively, compared to $ 1,211,000 and $ 3,351,000 , respectively, for the three and nine months ended November 2, 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:

The following summary shows the changes in the shares of unvested restricted stock outstanding during the nine months ended October 31, 2020:

Weighted Average

3 unchanged sentences

Forfeited or expired

Restricted stock awards at August 1, 2020

Restricted stock awards at October 31, 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

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 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 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.

During the nine months ended October 31, 2020 and November 2, 2019, the Company sold 48,191 and 44,330 shares to employees at an average discount of $ 1.43 and $ 2.24 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 $ 69,000 and $ 99,000 for the nine months ended October 31, 2020 and November 2, 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 August 1, 2020 and February 1, 2020:

August 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 October 31, 2020 and February 1, 2020:

October 31, 2020

State/Municipal Bonds

9 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 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 August 1, 2020 and February 1, 2020.

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 .

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

Treasury Notes and Certificates of Deposit have contractual maturities which range from two weeks to three 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.

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

Additionally, at October 31, 2020, the Company had $ 1.5 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.

8 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

fair value of the underlying assets and discounted cash flow and are therefore classified within Level 3 of the valuation hierarchy.

1 unchanged sentence

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 August 1, 2020 and February 1, 2020 (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 October 31, 2020 and February 1, 2020 (in thousands):

Measurements Using

6 unchanged sentences

Included in other comprehensive income

Ending Balance at August 1, 2020

Ending Balance at October 31, 2020

Measurements Using

6 unchanged sentences

Included in other comprehensive income

Ending Balance at August 1, 2020

Ending Balance at October 31, 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

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

Measurements Using

18 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

6 unchanged sentences

NOTE 9 – INCOME TAXES:

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 had an effective tax rate for the first nine months of 2020 of 36.7 % (Benefit) compared to 14.3 % (Expense) for the first nine months of 2019.

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

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 against the existing deferred tax assets.

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 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.

To the extent that actual results and/or events differ from the predicted results, the Company may continue to see effects on the estimated annual effective tax rate.

To the extent that actual results and/or events differ from the predicted results, the Company may continue to see effects on the annual effective tax rate.

Further, the CARES Act allows the Company to carryback losses to 2015;

therefore, the Company has recorded $27.0 million of estimated refunds calculated through the third quarter of 2020 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

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

litigation could result in large monetary awards.

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

employment matters, including alleged discrimination and wage and hour litigation, and litigation with present or former employees.

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 the Company’s condensed consolidated financial statements.

15 unchanged sentences

None of the credit card receivables are secured.

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 Company estimated uncollectible amounts of $, 311000 and $, 670000 for the nine months ended October 31, 2020 and November 2, 2019, respectively, on sales purchased on the Company’s proprietary credit card of $ 11.1 million and $ 20.3 million for the nine months ended October 31, 2020 and November 2, 2019, respectively.

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

Balance as of

August 1, 2020

October 31, 2020

February 1, 2020

1 unchanged sentence

Gift Card Liability

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

NOTE 12 – LEASES:

2 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

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

lease term used to establish its right-of-use assets and lease liabilities.

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.

2 unchanged sentences

Three Months Ended

August 1, 2020

August 3, 2019

October 31, 2020

November 2, 2019

Operating lease cost (a)

1 unchanged sentence

ASC 840 prepaid rent expense (c)

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

(a) Includes right-of-use asset amortization of ($0.8) million and ($1.0) million for the three months ended October 31, 2020 and November 2, 2019, respectively.

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

Six Months Ended

August 1, 2020

August 3, 2019

Nine Months Ended

October 31, 2020

November 2, 2019

Operating lease cost (a)

1 unchanged sentence

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.

(a) Includes right-of-use asset amortization of ($3.5) million and ($3.9) million for the nine months ended October 31, 2020 and November 2, 2019, 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 AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

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

October 31, 2020

November 2, 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

Nine Months Ended

October 31, 2020

November 2, 2019

Cash paid for amounts included in the measurement of lease liabilities

2 unchanged sentences

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

August 1, 2020

August 3, 2019

October 31, 2020

November 2, 2019

Weighted-average remaining lease term

4 unchanged sentences

Present value of lease liabilities

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

(a) Excluding the 9 months ended October 31, 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