What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-29 compared with 2020-03-27 · 1725 added, 459 removed, 394 unchanged (85% of the section changed)

2 unchanged sentences

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Income and Comprehensive Income for the fiscal years ended

February 1, 2020, February 2, 2019 and February 3, 2018

Consolidated Balance Sheets at February 1, 2020 and February 2, 2019

Consolidated Statements of Cash Flows for the fiscal years ended February 1, 2020, February 2, 2019 and February 3, 2018

Consolidated Statements of Stockholders’ Equity for the fiscal years ended February 1, 2020,

................................................................

Consolidated Statements of Income (Loss) and Comprehensive

Income (Loss) for the fiscal

years ended January 30, 2021, February 1, 2020 and February 2,

2019 ...........................................

Consolidated Balance Sheets at January 30, 2021 and

February 1, 2020

.............................................

Consolidated Statements of Cash Flows for the fiscal years ended

January 30, 2021, February 1, 2020

and February 2, 2019................................

................................................................

.........................

Consolidated Statements of Stockholders’ Equity for the fiscal years

ended January 30, 2021,

February 1, 2020 and February 2, 2019 ................................

............................................................

Notes to Consolidated Financial Statements ................................................................

Schedule II — Valuation and Qualifying Accounts for the fiscal years ended February 1, 2020,

..........................

Schedule II — Valuation

and Qualifying Accounts for the fiscal years ended January 30,

February 1, 2020 and February 2, 2019 ................................

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of The Cato Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of The Cato Corporation and its subsidiaries (the “Company”) as of February 1, 2020 and February 2, 2019, and the related consolidated statements of income and comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended February 1, 2020, including the related notes and financial statement schedule in the accompanying index (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of February 1, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 1, 2020 and February 2, 2019, and the results of its operations and its cash flows for each of the three years in the period ended February 1, 2020 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 1, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

............................................................

Report of Independent Registered Public Accounting

of Directors and Stockholders of The Cato Corporation

Opinions on the Financial Statements and Internal Control over

Financial Reporting

We have audited

the accompanying consolidated balance sheets of

The Cato Corporation and its subsidiaries (the

“Company”) as

of January 30,

February 1, 2020

and the related

consolidated statements of

income (loss) and

comprehensive income

stockholders’ equity and

the three years

January 30, 2021,

including the related

notes and financial

statement schedule listed

in the accompanying index

(collectively referred to

as the “consolidated

financial statements”).

also have audited

the Company’s internal

over financial reporting

as of January

30, 2021, based

on criteria established

in Internal Control

– Integrated Framework

(2013) issued by the Committee of Sponsoring Organizations of the Treadway

Commission (COSO).

In our opinion, the

consolidated financial statements

referred to above present

fairly, in all

material respects, the financial

position of the

Company as of January

February 1, 2020,

and the results of

its operations and its

conformity with

accounting principles

accepted in the United

States of America.

our opinion, the Company maintained,

in all material respects,

internal control

over financial

criteria established

Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of February 3, 2019.

the consolidated

financial statements,

accounts for leases as of February 3, 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,

accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company's management

is responsible for

these consolidated financial

statements, for maintaining

effective internal

financial reporting,

its assessment

effectiveness of

internal control

over financial

Management’s Report

on Internal Control

Over Financial Reporting

appearing under

responsibility is to

express opinions

Company’s consolidated

financial statements

Company's internal

control over financial reporting

based on our audits.

a public accounting

firm registered with the

Public Company

Accounting Oversight Board (United States)

(PCAOB) and are required to be

independent with respect to the Company

accordance with the

federal securities

applicable rules and

regulations of

the Securities and

Commission and the PCAOB.

in accordance

Those standards

perform the audits

to obtain reasonable

assurance about whether the

consolidated financial statements

are free of material

misstatement, whether due to error or fraud,

and whether effective internal control over financial

reporting was maintained

in all material respects.

Our audits of the consolidated financial

statements included performing procedures to assess

the risks of material

misstatement of

the consolidated

financial statements,

and performing

procedures that

respond to those risks.

Such procedures

included examining, on a test basis,

evidence regarding the amounts and

disclosures in the consolidated financial statements.

Our audits also included

evaluating the accounting principles used and

significant estimates

management, as

evaluating the

overall presentation

consolidated financial

of internal control

over financial reporting

included obtaining an

understanding of internal

over financial

reporting, assessing

material weakness

evaluating the

operating effectiveness

control based

assessed risk.

also included

performing such

procedures as we considered

necessary in the circumstances.

believe that our audits

provide a reasonable basis

Definition and Limitations of Internal Control over Financial

A company’s internal

control over financial reporting

is a process designed

to provide reasonable assurance

regarding the

reliability of

financial reporting

preparation of

financial statements

accordance with

generally accepted accounting principles.

internal control over financial reporting includes those policies and

procedures that

maintenance of

records that,

in reasonable

detail, accurately

transactions and dispositions of

the assets of the

(ii) provide reasonable

assurance that transactions are

as necessary to permit preparation of financial statements in accordance with generally accepted accounting

principles, and

that receipts and expenditures

of the company are

being made only in

accordance with authorizations of

management and

directors of the

and (iii) provide reasonable

assurance regarding prevention

or timely detection of

acquisition, use, or disposition of the company’s assets that

could have a material effect on the financial statements.

Because of its inherent limitations, internal

control over financial reporting may not

prevent or detect misstatements.

projections of any evaluation of effectiveness

to future periods are subject to

the risk that controls may become inadequate

because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated

statements that was

communicated or required

to be communicated to

the audit committee and

that (i) relates

or disclosures

the consolidated

financial statements

especially challenging,

subjective, or complex

The communication

of critical audit

matters does not

way our opinion

the consolidated financial statements,

taken as a whole,

and we are not,

by communicating the critical

audit matter below,

providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impairment of Long-Lived Assets - Store

Location Asset Groupings

As described in Notes 1 and 6 to the consolidated financial

statements, the Company’s consolidated

equipment, net

balance was $72.6

million, of which

the store locations

were a portion,

and consolidated operating

right-of-use assets, net

balance was $199.8

million as of

January 30, 2021.

The Company invests

in leaseholds, right-of-

and equipment, primarily

in connection

with the opening

and remodeling of

stores, and in

computer software

and hardware.

periodically reviews

locations and

estimates the

recoverability of

its long-lived

assets, which primarily relate

to fixtures and

equipment, leasehold improvements,

right-of-use assets net

liabilities, and

information technology

equipment and

impairment charge

which the carrying value exceeds the estimated fair

management 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

factors, including the

store’s historical

operating results

and projected cash

flows, which include

growth rates,

margin rates,

Company assesses

by considering

market rents and any lease terms that

may adjust market rents under certain conditions

such as the loss of an anchor

or a leased space

in a shopping center

not meeting certain criteria.

An impairment charge for

store assets of $11.4

was recorded during the year ended January 30, 2021.

The principal

considerations for

our determination

that performing

procedures relating

impairment of

store location

asset groupings

critical audit

significant judgment

by management

determining the

measurement of

the store location

asset groupings,

judgment, subjectivity, and effort

in performing procedures and evaluating management’s

projected cash flow assumptions

related to future sales growth rates, margin rates, and expense projections.

Addressing the

matter involved

performing procedures

and evaluating

audit evidence

in connection

overall opinion

on the consolidated

financial statements.

These procedures included

testing the effectiveness

management’s long-

– store location

recoverability test and

determination of

the fair value

These procedures also

included, among

others (i) testing

the completeness

and accuracy of

underlying data

the projected

cash flows and

store location

asset groupings,

(ii) evaluating the

reasonableness of

assumptions related to future sales

growth rates, margin rates, and expense projections

by considering current and

historical performance

store location

asset groupings

the assumptions were

consistent with

evaluating the

appropriateness of

the projected

evaluating management’s assessment of

the fair value of the leased assets included in the store location asset groupings.

/s/ PricewaterhouseCoopers LLP

1 unchanged sentence

March 29, 2021

We have served as the Company’s auditor since 2003.

We have served as the

Company’s auditor since

THE CATO CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND

COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS

OF INCOME (LOSS) AND

COMPREHENSIVE INCOME (LOSS)

Fiscal Year Ended

February 1, 2020

January 30, 2021

February 1, 2020

12 unchanged sentences

Cost and expenses, net

Income before income taxes

Income tax expense

Basic earnings per share

Diluted earnings per share

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Basic earnings (loss) per share

Diluted earnings (loss) per share

Dividends per share

Comprehensive income:

Net income (loss)

Unrealized gain (loss) on available-for-sale

securities, net of deferred income taxes of

$ 453 , $ 77 , and $ 28 for fiscal 2019, 2018

for fiscal 2020, 2019

and 2018, respectively

Comprehensive income

Comprehensive income (loss)

See notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

February 1, 2020

January 30, 2021

February 1, 2020

5 unchanged sentences

Restricted short-term investments

Accounts receivable, net of allowance for doubtful accounts of $ 726 at

February 1, 2020 and $ 842 at February 2, 2019

Accounts receivable, net of allowance for customer credit losses of $

January 30, 2021 and $

at February 1, 2020

Merchandise inventories

16 unchanged sentences

Stockholders' Equity:

Preferred stock, $ 100 par value per share, 100,000 shares authorized,

Class A common stock, $ .033 par value per share, 50,000,000

Preferred stock, $

par value per share,

shares authorized,

22,535,779 and 22,838,149 shares issued at

February 1, 2020 and February 2, 2019, respectively

Convertible Class B common stock, $ .033 par value per share,

Class A common stock, $

par value per share,

shares authorized;

1,763,652 and 1,763,652 shares issued at

February 1, 2020 and February 2, 2019, respectively

shares issued at

January 30, 2021 and February 1, 2020, respectively

Convertible Class B common stock, $

par value per share,

shares authorized;

shares issued at

January 30, 2021 and February 1, 2020, respectively

Additional paid-in capital

5 unchanged sentences

THE CATO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

February 1, 2020

CONSOLIDATED STATEMENTS

OF CASH FLOWS

Fiscal Year Ended

January 30, 2021

February 1, 2020

2 unchanged sentences

Operating Activities:

Net income (loss)

Adjustments to reconcile net income to net cash provided

by operating activities:

Provision for doubtful accounts

by (used in) operating activities:

Provision for customer credit losses

Purchase premium and premium amortization of investments

Gain on sale of assets held for investment

Share based compensation

9 unchanged sentences

Accounts payable, accrued expenses and other liabilities

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Investing Activities:

13 unchanged sentences

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

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

Cash, cash equivalents, and restricted cash at beginning of period

Cash, cash equivalents, and restricted cash at end of period

Non-cash activity:

3 unchanged sentences

THE CATO CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

CONSOLIDATED STATEMENTS

OF STOCKHOLDERS' EQUITY

Comprehensive

1 unchanged sentence

(Dollars in thousands)

Balance — January 28, 2017

Balance — February 3, 2018

Comprehensive income:

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

income tax liability of $ 28

Dividends paid ($ 1.32 per share)

Net income (loss)

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

deferred income tax liability of $

Dividends paid ($

Class A common stock sold through employee stock purchase

plan — 34,238 shares

Class B common stock sold through stock option plans —

Class A common stock issued through restricted stock grant plans —

169,907 shares

Repurchase and retirement of treasury shares – 2,082,535 shares

Repurchase and retirement of treasury shares –

Balance — February 2, 2019

Comprehensive income:

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

income tax liability of $ 77

Dividends paid ($ 1.32 per share)

Net income (loss)

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

deferred income tax liability of $

Dividends paid ($

Class A common stock sold through employee stock purchase

plan — 44,770 shares

Class B common stock sold through stock option plans —

Class A common stock issued through restricted stock grant plans —

341,744 shares

Repurchase and retirement of treasury shares – 593,404 shares

Repurchase and retirement of treasury shares –

Balance — February 1, 2020

Comprehensive income:

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

income tax liability of $ 453

Dividends paid ($ 1.32 per share)

Net income (loss)

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

deferred income tax benefit of ($

Dividends paid ($

Class A common stock sold through employee stock purchase

plan — 48,626 shares

Class B common stock sold through stock option plans —

Class A common stock issued through restricted stock grant plans —

321,484 shares

Repurchase and retirement of treasury shares – 622,480 shares

Balance — February 1, 2020

Repurchase and retirement of treasury shares –

Balance — January 30, 2021

See notes to consolidated financial statements.

3 unchanged sentences

Principles of Consolidation:

The Consolidated Financial Statements include the accounts of The Cato Corporation and its wholly-owned subsidiaries (the “Company”).

All significant intercompany accounts and transactions have been eliminated.

Description of Business and Fiscal Year:

The Company has two reportable segments — the operation of a fashion specialty stores segment (“Retail Segment”) and a credit card segment (“Credit Segment”).

The apparel specialty stores operate under the names “Cato,” “Cato Fashions,” “Cato Plus,” “It’s Fashion,” “It’s Fashion Metro” and “Versona,” including e-commerce websites.

The stores are located primarily in strip shopping centers principally in the southeastern United States.

The Company’s fiscal year ends on the Saturday nearest January 31 of the subsequent year.

The Consolidated Financial Statements include the accounts of The Cato

Corporation and its

wholly-owned subsidiaries (the

All significant

intercompany accounts

and transactions have been eliminated.

Description of Business and Fiscal

The Company has two

reportable segments — the

specialty stores

segment (“Retail

Segment”) and

specialty stores operate

under the names

“Cato,” “Cato Fashions,”

“It’s Fashion,”

“It’s Fashion

“Versona,” including

e-commerce websites.

located primarily in

strip shopping centers

principally in the

southeastern United States.

fiscal year ends on the Saturday nearest January 31 of the subsequent year.

Use of Estimates:

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Significant accounting estimates reflected in the Company’s financial statements include the allowance for doubtful accounts, inventory shrinkage, the calculation of potential asset impairment, workers’ compensation, general and auto insurance liabilities, reserves relating to self-insured health insurance, and uncertain tax positions.

Cash and Cash Equivalents:

Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less.

The preparation of

the Company’s

financial statements in

conformity with

accounting principles

generally accepted in

the United States

(“GAAP”) requires management

estimates and

assumptions that

reported amounts

and liabilities

and disclosure

contingent assets

and liabilities

the financial

statements and

expenses during

the reporting

results could

those estimates.

Significant accounting estimates

the Company’s

financial statements

credit losses,

inventory shrinkage,

the calculation

asset impairment,

compensation, general and auto insurance liabilities, reserves relating to self-insured health insurance,

uncertain tax positions.

Cash Equivalents:

cash equivalents

highly liquid investments

original maturities of three months or less.

Short-Term Investments:

Investments with original maturities beyond three months are classified as short-term investments.

See Note 3 for the Company’s estimated fair value of, and other information regarding, its short-term investments.

The Company’s short-term investments are all classified as available-for-sale.

As they are available for current operations, they are classified on the Consolidated Balance Sheets as Current Assets.

Available-for-sale securities are carried at fair value, with unrealized gains and temporary losses, net of income taxes, reported as a component of Accumulated other comprehensive income.

Other than temporary declines in the fair value of investments are recorded as a reduction in the cost of the investments in the accompanying Consolidated Balance Sheets and a reduction of Interest and other income in the accompanying Consolidated Statements of Income and Comprehensive Income.

The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity.

The amortization of premiums, accretion of discounts and realized gains and losses are included in Interest and other income.

Investments with original

maturities beyond three

months are classified

as short-term investments.

for the Company’s

estimated fair value

of, and other

regarding, its short-

term investments.

The Company’s

short-term investments are

all classified as

available-for-sale.

available for

current operations,

classified on

the Consolidated

Balance Sheets as

Current Assets.

-for-sale securities are

carried at fair

gains and temporary losses,

net of income taxes,

reported as a component

of Accumulated other

comprehensive income.

than temporary declines in

the fair value

of investments are

recorded as a

reduction in the cost

of the investments in the

accompanying Consolidated Balance Sheets and a

accompanying Consolidated

Statements of

Comprehensive Income.

debt securities is adjusted for

amortization of premiums and

amortization of

premiums, accretion

gains and losses are included in Interest and other income.

Restricted Cash and Restricted Short-term Investments:

The Company had $ 3.9 million and $ 3.8 million in escrow at February 1, 2020 and February 2, 2019, respectively, as security and collateral for administration of the Company’s self-insured workers’ compensation and general liability coverage, which is reported as Restricted cash and Restricted short-term investments on the Consolidated Balance Sheets.

Supplemental Cash Flow Information:

Income tax payments, net of refunds received, for the fiscal years ended February 1, 2020, February 2, 2019 and February 3, 2018 were a payment of $ 4,681,000 , a refund of $ 407,000 and a payment of $ 4,356,000 , respectively.

Merchandise inventories are stated at the net realizable value as determined by the weighted-average cost method.

The Company had $

million and $

million in escrow

at January 30,

2021 and February

1, 2020, respectively,

as security and

collateral for

administration of

the Company’s

self-insured workers’

compensation and

general liability

which is reported

as Restricted cash

and Restricted short-

term investments on

the Consolidated Balance

Supplemental Cash Flow

Income tax payments, net

of refunds received, for

years ended January

30, 2021, February

February 2, 2019

were a payment

and a refund of $

, respectively.

Merchandise inventories

net realizable

determined by

weighted-average cost method.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Property and Equipment:

Property and equipment are recorded at cost, including land.

Maintenance and repairs are expensed to operations as incurred;

renewals and betterments are capitalized.

Depreciation is determined on the straight-line method over the estimated useful lives of the related assets excluding leasehold improvements.

Leasehold improvements are amortized over the shorter of the estimated useful life or lease term.

For leases with renewal periods at the Company’s option, the Company generally uses the original lease term plus reasonably assured renewal option periods (generally one five-year option period) to determine estimated useful lives.

Property and equipment are recorded at

cost, including land.

and repairs are expensed to operations as incurred;

renewals and betterments

are capitalized.

is determined on

the straight-line method

over the estimated

useful lives of

assets excluding

leasehold improvements.

Leasehold improvements are amortized over the shorter

of the estimated useful

life or lease term.

For leases with renewal periods at the

Company’s option, the Company generally

plus reasonably

assured renewal

option periods

(generally one

five-year option

period) to determine estimated useful lives.

Typical estimated useful lives are as follows:

4 unchanged sentences

Information technology equipment and software

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.

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 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.

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.

Asset impairment charges of $ 146,000 , $ 1,548,000 and $ 7,698,000 were incurred in fiscal 2019, fiscal 2018 and fiscal 2017, respectively.

In addition, the Company regularly evaluates its other long-lived assets and may accelerate depreciation over the revised useful life if the asset is expected to be replaced or has limited future value.

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts, and any resulting gain or loss is reflected in income for that period.

In 2019, the Company impaired the remaining book value related to an investment in a solar partnership.

Impairment of

Long-Lived Assets:

leaseholds, right-

of-use assets

equipment primarily in

connection with the

opening and remodeling

of stores and

in computer software

periodically reviews its

store locations and

estimates the recoverability

lived assets, which

primarily relate to

Fixtures and equipment,

Leasehold improvements, Right-of

net of Lease liabilities and Information

technology equipment and software.

An impairment charge

value exceeds

the estimated

determines that projected

cash flows associated

with those long-

lived assets will

not be sufficient

determination is

including the

store’s historical

operating results and

future projected cash

flows, which include

future sales growth

rates, margin

expense projections.

assesses the fair

value of each lease

by considering market rents

lease terms that

may adjust market

rents under certain

conditions, such as

leased space in

a shopping center

not meeting certain

in determining when

the Company considers real

estate development in the area

and perceived local market conditions,

be difficult to predict

and may be subject to

Asset impairment charges of

were incurred in fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

The 2020 asset impairment

charges included $11.4

million of store asset impairments and

$2.3 million worth of fixtures planned

Other Assets:

Other assets are comprised of long-term assets, primarily insurance contracts related to deferred compensation assets and land held for investment purposes.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fiscal Year Ended

February 1, 2020

February 2, 2019

Other assets are comprised of

long-term assets, primarily insurance contracts related

deferred compensation assets and land held for investment purposes.

(Dollars in thousands)

2 unchanged sentences

Other Deposits

Investment In Partnership

Land Held for Investment

Total Other Assets

In 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Codification (“ASC”) 842 - Leases , with amendments issued in 2018.

The guidance requires lessees to recognize most leases on the balance sheet but does not change the manner in which expenses are recorded in the income statement.

For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases.

The Company utilized a comprehensive approach to assess the impact of this guidance on its financial statements and related disclosures, including the increase in the assets and liabilities on its balance sheet and the impact on its current lease portfolio from a lessee perspective.

The Company completed its comprehensive review of its lease portfolio, which includes mostly store leases impacted by the new guidance.

The Company reviewed its internal controls over leases and, as a result, the Company enhanced these controls;

however, these changes are not considered material.

In addition, the Company implemented a new software platform, and corresponding controls, for administering its leases and facilitating compliance with the new guidance.

The Company elected the transition package of practical expedients that is permitted by the standard.

The package of practical expedients allows the Company to not reassess previous accounting conclusions regarding whether existing arrangements are or contain leases, the classification of existing leases, and the treatment of initial direct costs.

The Company did not elect the hindsight transition practical expedient allowed for by the new standard, which allows entities to use hindsight when determining lease term and impairment of right-of-use assets.

The Company adopted ASC 842 utilizing the modified retrospective approach as of February 3, 2019.

The modified retrospective approach the Company selected provides a method of transition allowing recognition of existing leases as of the beginning of the period of adoption (i.e., February 3, 2019), and which does not require the adjustment of comparative periods.

The adoption had a material impact on the Company’s financial statements, resulting in an increase of 40% to each of its total assets and total liabilities on its balance sheet, but had no impact to retained earnings as of the beginning of 2019.

See Note 11 for further information.

The Company determines the classification of leases consistent with ASC 840 – Leases for fiscal years 2018 and 2017.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

the Financial

Accounting Standards

Board (“FASB”)

issued Accounting

Codification (“ASC”) 842

amendments issued in

requires lessees to

recognize most

which expenses

guidance modifies

the classification

accounting for sales-type and direct financing leases.

The Company utilized a comprehensive approach to

assess the impact of this guidance

on its financial

statements and related

disclosures, including the increase

in the assets

and liabilities on

its balance sheet

lease portfolio

lessee perspective.

completed its

comprehensive review

lease portfolio,

which includes

leases impacted

The Company reviewed its internal controls over leases and, as a result, the Company enhanced

these controls;

however, these

not considered

addition, the

implemented a new software

platform, and corresponding controls, for

administering its leases and

facilitating compliance with the new guidance.

The Company elected the

transition package of

practical expedients that is

permitted by the

The package of practical expedients allows the

Company to not reassess previous accounting conclusions

regarding whether existing arrangements are or contain leases, the classification

of existing leases, and the

initial direct

the hindsight

transition practical

allowed for by the

new standard, which allows entities

to use hindsight when determini

ng lease term and

impairment of right-of-use assets.

The Company adopted ASC 842 utilizing

the modified retrospective approach as of

February 3, 2019.

retrospective approach

selected provides

of transition

recognition of existing

the beginning of

the period of

adoption (i.e., February

3, 2019), and

which does not require the adjustment of comparative periods.

11 for further information.

The Company determined the classification of leases consistent

with ASC 840 –

for fiscal year

The Company leases all of its retail stores.

Most lease agreements contain construction allowances and rent escalations.

For purposes of recognizing incentives and minimum rental expenses on a straight-line basis over the terms of the leases, including renewal periods considered reasonably assured, the Company begins amortization as of the initial possession date which is when the Company enters the space and begins to make improvements in preparation for intended use.

Most lease agreements contain construction allowances

and rent escalations.

For purposes of recognizing incentives

and minimum rental expenses on

including renewal

periods considered

reasonably assured,

Company begins

amortization as

initial possession

space and begins to make improvements in preparation for intended use.

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.

recognizes sales

purchase when

takes possession of

the merchandise and

purchase, generally with

cash or credit.

purchases made

layaway sales

recorded when

customer takes

possession of

the merchandise.

E-commerce sales are

recorded when the

transferred to

the customer.

revenue until

Layaway sales

are recorded as

deferred revenue until

the customer takes

possession or forfeits

the merchandise.

do not have expiration

A provision is

made for estimated merchandise

returns based on

sales volumes and

the Company’s

actual returns

have not varied

from historical amounts.

A provision is made for estimated write-offs associated with sales made with

Company’s proprietary

Amounts related to

handling billed

sales transaction

are classified

shipping product to

(billed and accrued) are classified as Cost of goods sold.

In accordance with ASU 2014-09,

Revenue from Contracts with Customers (Topic

(“Topic 606”),

in fiscal 2020, 2019

and 2018, the Company

, respectively,

on unredeemed

breakage”) as

Consolidated Statements

Comprehensive Income

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 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.

In accordance with ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“Topic 606”), in fiscal 2019 and 2018, the Company recognized $ 921,000 and $ 591,000 , respectively, of income on unredeemed gift cards (“gift card breakage”) as a component of Other Revenue on the Consolidated Statements of Income and Comprehensive Income.

Under Topic 606, the Company recognizes gift card breakage using an expected breakage percentage based on redeemed gift cards.

In fiscal 2017, the Company recognized $ 1,380,000 of gift card breakage as a component of Other income on the Consolidated Statements of Income and Comprehensive Income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Company recognizes gift

card breakage using

breakage percentage based

on redeemed gift

See Note 2 for further information on miscellaneous income.

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 uncollectible amounts of $ 700,000 and $ 897,000 for the twelve months ended February 1, 2020 and February 2, 2019, respectively, on sales purchased on the Company’s proprietary credit card of $ 26.6 million and $ 27.4 million for the twelve months ended February 1, 2020 and February 2, 2019, respectively.

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

The Company offers

its own proprietary

credit card to

activity is performed

the Company’s

wholly-owned subsidiaries.

the credit card receivables

Company estimated

customer credit

twelve months

January 30, 2021

and February 1,

2020, respectively,

on sales purchased

on the Company’s

February 1, 2020, respectively.

The following table provides information about receivables and

contract liabilities from contracts with

customers (in thousands):

Balance as of

February 1, 2020

January 30, 2021

February 1, 2020

2 unchanged sentences

Cost of Goods Sold:

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 our buying departments and distribution center.

Occupancy expenses include rent, real estate taxes, insurance, common area maintenance, utilities and maintenance for stores and distribution facilities.

Buying, distribution, occupancy and internal transfer costs are treated as period costs and are not capitalized as part of inventory.

The direct costs associated with shipping goods to customers are recorded as a component of Cost of goods sold.

Advertising costs are expensed in the period in which they are incurred.

Advertising expense was approximately $ 5,600,000 , $ 5,546,000 and $ 5,558,000 for the fiscal years ended February 1, 2020, February 2, 2019 and February 3, 2018, respectively.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cost of goods sold includes

merchandise costs, net of discounts and

buying costs, distribution costs, occupancy costs, freight, and

inventory shrinkage.

Net merchandise costs

bound freight

are capitalized

and distribution

costs include

payroll-related costs

and operating

departments and

distribution center.

Occupancy expenses

include rent,

taxes, insurance,

maintenance, utilities

maintenance for

distribution facilities.

Buying, distribution,

occupancy and

internal transfer

costs are treated

as period costs

capitalized as part

of inventory.

The direct costs

with shipping goods to customers are recorded as a component of Cost of

Advertising costs

are incurred.

expense was approximately $

for the fiscal years ended January 30,

2021, February 1, 2020 and February 2, 2019, respectively.

Stock Repurchase Program:

For fiscal year ended February 1, 2020, the Company had 1,346,522 shares remaining in open authorizations.

There is no specified expiration date for the Company’s repurchase program.

Share repurchases are recorded in Retained earnings, net of par value.

Through March 27, 2020, the Company repurchased 600,330 shares for $ 8,859,676 , to offset dilution from its equity compensation plans.

Earnings Per Share:

ASC 260 - Earnings Per Share , requires dual presentation of basic EPS and diluted 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 Consolidated Statements of Income and Comprehensive Income.

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 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.

The following table reflects the basic and diluted EPS calculations for the fiscal years ended February 1, 2020, February 2, 2019 and February 3, 2018:

For the fiscal year

ended January 30, 2021, the

shares remaining in

open authorizations.

is no specified

expiration date for

Company’s repurchase

Share repurchases

are recorded in

Retained earnings, net

Through March 29,

2021, the Company

repurchased 83,256 shares

for $971,866, to

offset dilution from

its equity compensation plan.

requires dual

presentation of

statements for

capital structures.

presented one

accompanying Consolidated Statements of Income (Loss)

and Comprehensive Income (Loss).

Company’s certificate of

incorporation provides the right

for the Board

of Directors to declare

shares without declaration

of commensurate dividends

shares, the Company

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

EPS computation is

Class B shares

amounts reported herein

applicable to both Class A and Class B shares.

computed as net

income less earnings

allocated to non-

vested equity awards

average number

shares outstanding

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

potential dilution that could occur

from common shares issuable through stock options

and the Employee

Stock Purchase Plan.

The following table

reflects the basic

and diluted EPS

calculations for the

fiscal years ended

30, 2021, February 1, 2020 and February 2, 2019:

Fiscal Year Ended

February 1, 2020

January 30, 2021

February 1, 2020

1 unchanged sentence

(Dollars in thousands)

Earnings allocated to non-vested equity awards

Net earnings available to common stockholders

Net earnings (loss)

(Earnings) loss allocated to non-vested equity awards

Net earnings (loss) available to common stockholders

Basic weighted average common shares outstanding

Diluted weighted average common shares outstanding

Net income per common share

Basic earnings per share

Diluted earnings per share

Net income (loss) per common share

Basic earnings (loss) per share

Diluted earnings (loss) per share

Vendor Allowances:

The Company receives certain allowances from vendors primarily related to purchase discounts and markdown and damage allowances.

All allowances are reflected in Cost of goods sold as earned when the related products are sold.

Cash consideration received from a vendor is presumed to be a reduction of the purchase cost of merchandise and is reflected as a reduction of inventory.

receives certain

allowances from

vendors primarily

purchase discounts and markdown and

damage allowances.

All allowances are reflected

in Cost of goods

sold as earned when the related products are sold.

Cash consideration received from a vendor is

merchandise and

The Company does not receive cooperative advertising allowances.

Income Taxes:

The Company files a consolidated federal income tax return.

Income taxes are provided based on the asset and liability method of accounting, whereby deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities.

Unrecognized tax benefits for uncertain tax positions are established in accordance with ASC 740 when, despite the fact that the tax return positions are supportable, the Company believes these positions

consolidated federal

provided based

liability method

of accounting,

whereby deferred

provided for temporary differences

between the financial reporting basis

and the tax basis

Company’s assets and liabilities.

Unrecognized tax benefits

for uncertain

tax positions are

established in

accordance with ASC

when, despite the

fact that the

tax return positions

are supportable, the

Company believes

these positions may be

challenged and the results

are uncertain.

The Company adjusts these

liabilities in

changing facts

and circumstances.

Potential accrued

penalties related

unrecognized tax

benefits within

operations are

recognized as

before income

The Company assesses the likelihood

that deferred tax assets will

be able to be

realized, and based on

that assessment, the Company will determine if a valuation allowance should

In addition, the

Act implemented a

new minimum tax

on global intangible

taxed income (“GILTI”).

The Company has elected

to account for

in the period

incurred, which is included as a component of its current year provision for

income taxes.

Store Opening

Costs relating to

the opening of new stores

or the relocating or

existing stores

of construction,

selection costs are capitalized to new, relocated and remodeled stores.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

may be challenged and the results are uncertain.

The Company adjusts these liabilities in light of changing facts and circumstances.

Potential accrued interest and penalties related to unrecognized tax benefits within operations are recognized as a component of Income before income taxes.

In addition, the Tax Cuts and Jobs Act implemented a new minimum tax on global intangible low-taxed income (“GILTI”).

The Company has elected to account for GILTI tax in the period in which it is incurred, which is included as a component of its current year provision for income taxes.

Store Opening Costs:

Costs relating to the opening of new stores or the relocating or

expanding of existing stores are expensed as incurred.

A portion of construction, design, and site selection costs are capitalized to new, relocated and remodeled stores.

Closed Store Lease Obligations:

At the time stores are closed, provisions are made for the rentals

required to be paid over the remaining lease terms on a discounted cash flow basis, reduced by any expected sublease rentals.

The Company is self-insured with respect to employee health care, workers’ compensation and general liability.

The Company’s self-insurance liabilities are based on the total estimated cost of claims filed and estimates of claims incurred but not reported, less amounts paid against such claims, and are not discounted.

Management reviews current and historical claims data in developing its estimates.

The Company has stop-loss insurance coverage for individual claims in excess of $ 325,000 for employee healthcare, $ 350,000 for workers’ compensation and $ 250,000 for general liability.

Fair Value of Financial Instruments:

The Company’s carrying values of financial instruments, such as cash and cash equivalents, short-term investments, restricted cash and short-term investments, approximate their fair values due to their short terms to maturity and/or their variable interest rates.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

The Company is self-insured with respect to employee health care, workers’ compensation

Company’s self

-insurance liabilities

total estimated

claims filed and estimates of claims

incurred but not reported, less amounts paid

against such claims, and

are not discounted.

Management reviews current

and historical claims

data in developing

its estimates.

The Company has stop-loss insurance coverage

for individual claims in excess of

healthcare, $

for workers’ compensation and $

for general liability.

of Financial Instruments:

The Company’s carrying

values of financial instruments, such

and cash equivalents,

short-term investments, restricted

short-term investments,

approximate their fair values due to their short terms to maturity and/or their

variable interest rates.

Stock Based Compensation:

The Company records compensation expense associated with restricted stock and other forms of equity compensation in accordance with ASC 718 - Compensation – Stock Compensation.

Compensation cost associated with stock awards recognized in all years presented includes:

1) amortization related to the remaining unvested portion of all stock awards based on the grant date fair value and 2) adjustments for the effects of actual forfeitures versus initial estimated forfeitures.

Subsequent Events:

The spread of COVID-19 has caused public health officials to recommend, and in some cases mandate, precautions to mitigate the spread of the virus, especially when congregating in heavily populated areas, such as malls and shopping centers.

Responses by customers, government and the private sector may adversely impact our business operations.

At this time, it is impossible to predict the impact of the COVID-19 pandemic as this unprecedented situation continues to evolve rapidly.

The Company temporarily closed all Cato, Its Fashion, Its Fashion Metro and Versona stores for an expected period of two weeks beginning March 19, 2020.

There is significant uncertainty around the duration, breadth and severity of these store closures and other 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 once they re-open.

The Company is also unable to predict the outcome or effect of national, state or local legislation that attempts to address the economic effects of COVID-19 on our customers, suppliers or the Company.

The Company continues to assess the potential impact of COVID-19, which remains uncertain and fluid at this time.

Primarily in response to potential disruption in the Capital markets, the Company drew $ 30 million on its $ 35 million line of credit on March 16, 2020.

The additional $ 30 million enhances the Company’s liquidity position with over $200 million of cash and short-term investments.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company records

compensation expense associated with

compensation in

accordance with

Compensation –

Compensation.

Compensation cost associated with stock awards recognized in all years presented

1) amortization related to the

remaining unvested portion of all

stock awards based on the

date fair value and 2) adjustments for the effects of actual forfeitures versus initial estimated forfeitures.

Recently Adopted Accounting Policies

See Lease accounting policy above for information related to the adoption of ASC 842 – Leases.

Financial Instruments

Losses (Topic

Measurement of

Credit Losses

requires companies

recognize expected

credit losses

for financial

rather than incurred losses.

The new accounting rules

were effective for

the Company in the

first quarter

of 2020 and had a minimal impact on the financial statements.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which modifies the measurement of expected credit losses of certain financial instruments.

Topic 326 is effective for annual reporting periods beginning after December 15, 2019 with early adoption permitted.

The Company anticipates the ASU will not have a material impact on its financial statements.

Simplifying the

Accounting for Income Taxes

The new accounting

rules reduce complexity by

removing specific

exceptions to

general principles

intraperiod tax

allocations, ownership

investments, and

interim period

accounting for

year-to-date losses

accounting rules also

simplify accounting for

franchise taxes that

are partially based

income, transactions

government that

goodwill, separate

financial statements of legal entities that are not subject

to tax, and enacted changes in tax laws

new accounting

Company is currently in

the process of evaluating

the impact of adop

tion of the new

accounting rules on

the Company’s financial position, results of operations, cash flows and disclosures.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Interest and Other Income:

The components of Interest and other income are shown below (in thousands):

February 1, 2020

January 30, 2021

February 1, 2020

5 unchanged sentences

Interest and other income

During 2020, the Company recorded a gain on the sale of land held

for investment of $2.3 million

within Interest and other income on the Consolidated Statements of Income

(Loss) and Comprehensive

Income (Loss).

Short-Term Investments:

At February 1, 2020, the Company’s investment portfolio was primarily invested in corporate and governmental debt securities held in managed accounts.

These securities are classified as available-for-sale as they are highly liquid and are recorded on the Consolidated Balance Sheets at estimated fair value, with unrealized gains and temporary losses reported net of taxes in Accumulated other comprehensive income.

The table below reflects gross accumulated unrealized gains (losses) in short-term investments at February 1, 2020 and February 2, 2019 (in thousands):

February 1, 2020

the Company’s

investment portfolio

was primarily

corporate and

governmental debt securities

held in managed

These securities are

classified as available-

sale as they are highly liquid and are recorded on the Consolidated Balance Sheets at estimated fair value,

with unrealized

temporary losses

in Accumulated

other comprehensive

below reflects

gross accumulated

unrealized gains

short-term investments

January 30, 2021 and February 1, 2020 (in thousands):

January 30, 2021

February 1, 2020

10 unchanged sentences

Estimated fair value

Accumulated other comprehensive income on the Consolidated Balance Sheets reflects the accumulated unrealized net gains in short-term investments in addition to unrealized gains from equity investments and restricted cash investments.

The table below reflects gross accumulated unrealized gains in these investments at February 1, 2020 and February 2, 2019 (in thousands) :

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

February 1, 2020

Accumulated other

comprehensive income

Consolidated Balance

Sheets reflects

accumulated unrealized net

short-term investments in

unrealized gains

investments and restricted cash investments.

The table below reflects gross accumulated unrealized gains

in these investments at January 30, 2021 and February 1, 2020 (in thousands):

January 30, 2021

February 1, 2020

2 unchanged sentences

Equity Investments

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Fair Value Measurements:

The following tables set forth information regarding the Company’s financial assets that are measured at fair value as of February 1, 2020 and February 2, 2019 (in thousands):

February 1, 2020

The following tables set forth information regarding the Company’s financial

assets that are measured

at fair value as of January 30, 2021 and February 1, 2020 (in thousands):

January 30, 2021

State/Municipal Bonds

4 unchanged sentences

Corporate Equities

Certificates of Deposit

Commercial Paper

Deferred Compensation

10 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

The Company’s

investment portfolio

was primarily invested

bonds and tax-

taxable governmental debt

securities held in

managed accounts with

underlying ratings of

January 30, 2021.

The state, municipal

and corporate bonds and

asset-backed securities have contractual

maturities which range

Treasury Notes

and Certificates of

have contractual maturities

which range from

three months to

These securities are classified

available-for-sale

and are recorded as Short

-term investments,

cash, Restricted

and Other assets

on the accompanying

fair value with

other comprehensive

The asset-backed

of auto loans

loan asset-backed

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

February 1, 2020.

The state, municipal and corporate bonds and asset-backed securities have contractual maturities which range from five days to 7.5 years.

Treasury Notes and Certificates of Deposit have contractual maturities which range from 1 month to 2.75 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 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 February 1, 2020, the Company had $0.7 million of corporate equities, which are recorded within Other assets in the Consolidated Balance Sheets.

At February 2, 2019, the Company had $0.7 million of corporate equities, which are recorded within Other assets in the 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 primarily 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 compensation obligation, the value of which is tracked via underlying insurance funds’ net asset values, as recorded in Other noncurrent liabilities in the Consolidated Balance Sheets.

These funds are designed to mirror the return of existing 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 February 1, 2020 and February 2, 2019 (in thousands):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

by captive auto

units, banks or

The bank credit

card asset-backed

card receivables

JPMorgan Chase,

Additionally, at

equities, which

recorded within Other assets in the Consolidated Balance

At February 1, 2020, the Company had

equities, which are

recorded within

Consolidated Balance

are measured at

fair value using

market prices.

and municipal

active exchanges

for identical

market values

by management with assistance of a third-party pricing service.

Since quoted prices in active markets for

are not available,

are determined

by the pricing

using observable

such as quotes from less active markets

and/or quoted

of securities

characteristics,

Deferred compensation

consist primarily

insurance policies.

policies are valued based on the cash surrender value of the insurance contract, which is determined based

the underlying

discounted cash

are therefore

classified within Level 3 of the valuation hierarchy.

The Level 3 liability associated with the life

insurance policies

deferred compensation

obligation, the

underlying insurance

asset values,

noncurrent liabilities

Consolidated Balance Sheets.

funds are designed to

mirror the return of

existing mutual funds and

money market funds that are observable and actively traded.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

The following

in fair value

of the Company’s

and liabilities

as of January

February 1, 2020

(in thousands):

Measurements Using

6 unchanged sentences

changes in net assets)

Ending Balance at February 1, 2020

Ending Balance at January 30, 2021

Measurements Using

5 unchanged sentences

changes in net assets)

Ending Balance at February 1, 2020

Ending Balance at January 30, 2021

Measurements Using

16 unchanged sentences

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Accounts Receivable:

Accounts receivable consist of the following (in thousands):

February 1, 2020

January 30, 2021

February 1, 2020

Customer accounts — principally deferred payment accounts

Income tax receivable

Miscellaneous receivables

Bank card receivables

Less allowance for doubtful accounts

Less allowance for customer credit losses

Accounts receivable — net

Finance charge and late charge revenue on customer deferred payment accounts totaled $ 3,605,000 , $ 3,814,000 and $ 4,222,000 for the fiscal years ended February 1, 2020, February 2, 2019 and February 3, 2018, respectively, and charges against the allowance for doubtful accounts were approximately $ 524,000 , $ 470,000 and $ 690,000 for the fiscal years ended February 1, 2020, February 2, 2019 and February 3, 2018, respectively.

Expenses relating to the allowance for doubtful accounts are classified as a component of Selling, general and administrative expense in the accompanying Consolidated Statements of Income and Comprehensive Income.

Finance charge and

late charge revenue

on customer deferred

payment accounts totaled

for the fiscal

years ended January 30, 2021, February 1, 2020

and February 2,

2019, respectively,

allowance for

customer credit

approximately

ended January

February 2, 2019,

respectively.

relating to the

allowance for customer credit

classified as

administrative expense

Consolidated Statements of Income (Loss) and Comprehensive Income

Property and Equipment:

Property and equipment consist of the following (in thousands):

February 1, 2020

January 30, 2021

February 1, 2020

6 unchanged sentences

Property and equipment — net

Construction in progress primarily represents costs related to new store development and investments in new technology.

Construction in progress primarily represents costs related to new store

development and

investments in new technology.

Accrued Expenses:

Accrued expenses consist of the following (in thousands):

February 1, 2020

February 2, 2019

Accrued employment and related items

1 unchanged sentence

Accrued self-insurance

Financing Arrangements:

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

The revolving credit agreement is committed until May 2022.

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 February 1, 2020.

There were no borrowings outstanding under this credit facility as of February 1, 2020, February 2, 2019 or February 3, 2018.

At February 1, 2020, the weighted average interest rate under the credit facility was zero due to no borrowings outstanding at the end of the year.

Subsequent to February 1, 2020, the Company drew against the line of credit.

See Note 1 for further information.

At February 1, 2020, February 2, 2019 and February 3, 2018, the Company had no outstanding revocable letters of credit relating to purchase commitments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Financing Arrangements:

As of January

30, 2021, the

had an unsecured revolving credit

The revolving credit

until May 2023.

The credit agreement

and limitations,

the maintenance of specific

ratios with which

the Company was

in compliance as

There were no borrowings outstanding

under this credit facility

as of January 30, 2021,

1, 2020 or February 2,

At January 30, 2021, the

rate under the

credit facility

no borrowings

had no outstanding

Stockholders’ Equity:

The holders of Class A Common Stock are entitled to one vote per share, whereas the holders of Class B Common Stock are entitled to ten votes per share.

Each share of Class B Common Stock may be converted at any time into one share of Class A Common Stock.

Subject to the rights of the holders of any shares of Preferred Stock that may be outstanding at the time, in the event of liquidation, dissolution or winding up of the Company, holders of Class A Common Stock are entitled to receive a preferential distribution of $1.00 per share of the net assets of the Company.

Cash dividends on the Class B Common Stock cannot be paid unless cash dividends of at least an equal amount are paid on the Class A Common Stock.

The Company’s certificate of incorporation provides that shares of Class B Common Stock may be transferred only to certain “Permitted Transferees” consisting generally of the lineal descendants of holders of Class B Common Stock, trusts for their benefit, corporations and partnerships controlled by them and the Company’s employee benefit plans.

Any transfer of Class B Common Stock in violation of these restrictions, including a transfer to the Company, results in the automatic conversion of the transferred shares of Class B Common Stock held by the transferee into an equal number of shares of Class A Common Stock.

On March 24, 2020, the Company paid a quarterly dividend of $0.33 per share.

Class B Common Stock are entitled to

ten votes per share.

share of Class B Common Stock may

converted at any time into one share of Class A Common Stock.

Subject to the rights of the holders

shares of Preferred

Stock that may

be outstanding at

liquidation, dissolution or

Company, holders

distribution of $1.00 per share of

the net assets of the

Cash dividends

on the Class B Common

Stock cannot be paid

unless cash dividends of

at least an equal

amount are paid on

the Class A Common

The Company’s

certificate of

incorporation provides that

Class B Common Stock

transferred only

“Permitted Transferees”

consisting generally

lineal descendants

Class B Common

Stock, trusts

benefit, corporations

and partnerships

controlled by

them and the Company’s

employee benefit plans.

The Company has a defined contribution retirement savings plan (“401(k) plan”) which covers all associates who meet minimum age and service requirements.

The 401(k) plan allows participants to contribute up to 75 % of their annual compensation up to the maximum elective deferral, designated by the IRS.

The Company is obligated to make a minimum contribution to cover plan administrative expenses.

Further Company contributions are at the discretion of the Board of Directors.

The Company’s contributions for the years ended February 1, 2020, February 2, 2019 and February 3, 2018 were approximately $ 1,499,000 , $ 1,442,000 and $ 1,207,000 , respectively.

The Company has a trusteed, non-contributory Employee Stock Ownership Plan (“ESOP”), which covers substantially all associates who meet minimum age and service requirements.

The amount of the Company’s discretionary contribution to the ESOP is determined annually by the Compensation Committee of the Board of Directors and can be made in Company Class A Common stock or cash.

The Company has chosen to contribute cash and the plan purchases stock on the open market consistent with prior years.

The Committee approved a contribution of approximately $ 7,198,000 for the year ended February 1, 2020.

The Company’s contribution was $ 1,229,000 and $ 1,026,000 for the years ended February 2, 2019 and February 3, 2018, respectively.

of Class B Common Stock in

these restrictions, including a transfer to

the Company, results

in the automatic conversion of the

transferred shares

transferee into

Class A Common Stock.

Employee Benefit Plans:

defined contribution

retirement savings

plan (“401(k)

associates who

service requirements.

participants to

contribute up to

compensation up to

the maximum elective

deferral, designated by

The Company is obligated to

make a minimum contribution to cover plan administrative

Further Company contributions are

at the discretion of the

Board of Directors.

The Company’s

contributions for the years ended January 30, 2021, February 1, 2020 and February 2, 2019 were

approximately $

, respectively.

trusteed, non

-contributory Employee

Stock Ownership

Plan (“ESOP”),

covers substantially all associates

who meet minimum age

and service requirements.

The amount of

Company’s discretionary

contribution to

is determined

annually by the

During fiscal 2020,

the Company contributed

plan purchased stock

the ESOP award earned for fiscal 2019.

operating loss in fiscal 2020,

the Committee did not

contribution to

year ended January

The Company’s

for the years ended February 1, 2020 and February 2, 2019, respectively.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

The Company is primarily self-insured for healthcare.

These costs are significant primarily due to the large number of the Company’s retail locations and associates.

The Company’s self-insurance liabilities are based on the total estimated costs of claims filed and estimates of claims incurred but not reported, less amounts paid against such claims.

Management reviews current and historical claims data in developing its estimates.

If the underlying facts and circumstances of the claims change or the historical trend is not indicative of future trends, then the Company may be required to record additional expense or a reduction to expense which could be material to the Company’s reported financial condition and results of operations.

The Company funds healthcare contributions to a third-party provider.

We determine whether an arrangement is a lease at inception.

We have operating leases for stores, offices and equipment.

Our 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.

We consider these options in determining the lease term used to establish our right-of-use assets and lease liabilities.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate based on the information available at commencement date of the lease in determining the present value of lease payments.

These costs are significant primarily due to the

large number of

the Company’s

retail locations and

The Company’s

self-insurance liabilities

the total estimated

claims filed and

estimates of claims

incurred but not

paid against such claims.

Management reviews current and historical claims data in

developing its estimates.

If the underlying

facts and circumstances

of the claims

change or the

trend is not indicative of future trends, then the Company may be required to record additional

a reduction to expense which could

be material to the Company’s

reported financial condition and results

of operations.

The Company funds healthcare contributions to a third-party

The Company determines whether an arrangement is

a lease at inception.

Company has operating

stores, offices

and equipment.

leases have remaining

lease terms of

some of which

include options to

extend the lease

to five years,

options to terminate

the lease within

The Company considers

these options in

determining the

lease term used

to establish its

right-of-use assets and

lease liabilities.

Company’s lease

do not contain any material residual value guarantees or material restrictive

Company’s leases

implicit rate,

incremental borrowing

information available

at commencement

determining the present value of lease payments.

The components of lease cost are shown below (in thousands):

Twelve Months Ended

January 30, 2021

February 1, 2020

Operating lease cost (a)

Variable lease cost (b)

lease cost (b)

ASC 840 prepaid rent expense (c)

(a) Includes right-of-use asset amortization of ($ 4.9 ) million.

(a) Includes right-of-use asset amortization of ($

) million and ($

) million for the twelve months

ended January 30, 2021 and February 1, 2020, 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 our operating leases are as follows (in thousands):

Supplemental cash flow

information and non-cash

activity related to

the Company’s

operating leases

are as follows (in thousands):

Operating cash flow information:

Twelve Months Ended

January 30, 2021

February 1, 2020

1 unchanged sentence

Non-cash activity:

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

Weighted-average remaining lease term and discount rate for our operating leases are as follows:

Right-of-use assets obtained in exchange for lease obligations, net of rent violations

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Weighted-average remaining

lease term and

discount rate for

the Company’s

operating leases are

January 30, 2021

February 1, 2020

1 unchanged sentence

Weighted-average discount rate

Maturities of lease liabilities by fiscal year for our operating leases are as follows (in thousands):

Maturities of

lease liabilities

the Company’s

operating leases

Total lease payments

1 unchanged sentence

Present value of lease liabilities

As of February 2, 2019, the minimum rental commitments under non-cancelable operating leases are (in thousands):

Total minimum lease payments

The following schedule shows the composition of total rental expense for all leases (in thousands):

February 2, 2019

February 3, 2018

Fiscal Year Ended

Minimum rentals

Contingent rent

Total rental expense

Income Taxes:

Unrecognized tax benefits for uncertain tax positions, primarily recorded in Other noncurrent liabilities, are established in accordance with ASC 740 when, despite the fact that the tax return positions are supportable, the Company believes these positions may be challenged and the results are uncertain.

The Company adjusts these liabilities in light of changing facts and circumstances.

As of February 1, 2020, the Company had gross unrecognized tax benefits totaling approximately $7.9 million, of which approximately $ 10.1 million (inclusive of interest) would affect the effective tax rate if recognized.

The Company had approximately $ 3.3 million, $ 3.2 million and $ 2.8 million of interest and penalties accrued related to uncertain tax positions as of February 1, 2020, February 2, 2019 and February 3, 2018, respectively.

The Company recognizes interest and penalties related to the resolution of uncertain tax

Unrecognized tax

uncertain tax

positions, primarily recorded

liabilities, are established in accordance with

ASC 740 when, despite the fact

that the tax return positions

are supportable,

the Company believes

these positions may

be challenged

and the results

are uncertain.

The Company adjusts

these liabilities

of changing facts

and circumstances.

gross unrecognized

totaling approximately $5.9

approximately $

million (inclusive of

interest) would

effective tax

Company had approximately $

million and $

million of interest and penalties accrued

uncertain tax

respectively.

recognizes interest

and penalties

the resolution

of interest and penalties in the Consolidated Statements of Income (Loss)

and Comprehensive

Income (Loss) for the years ended January 30, 2021, February 1, 2020 and

February 2, 2019, respectively.

longer subject

federal income tax

examinations for y

jurisdictions, the

limited exposure

months, various

authorities’ statutes

of limitations

examinations may

potential reduction

of unrecognized

which a range cannot be determined.

A reconciliation of

the beginning and

ending amount of

gross unrecognized tax benefits

is as follows

(in thousands):

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

positions as a component of income tax expense.

The Company recognized $ 574,000 , $ 1,023,000 and $ 986,000 of interest and penalties in the Consolidated Statements of Income and Comprehensive Income for the years ended February 1, 2020, February 2, 2019 and February 3, 2018, respectively.

The Company is no longer subject to U.S.

federal income tax examinations for years before 2016.

In state and local tax jurisdictions, the Company has limited exposure before 2009.

During the next 12 months, various state and local taxing authorities’ statutes of limitations will expire and certain state examinations may close, which could result in a potential reduction of unrecognized tax benefits for which a range cannot be determined.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):

February 1, 2020

February 2, 2019

February 3, 2018

Fiscal Year Ended

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Balances, beginning

1 unchanged sentence

Reduction for tax positions of prior years for:

Changes in judgment

Settlements during the period

1 unchanged sentence

Balances, ending

The provision for income taxes consists of the following (in thousands):

February 1, 2020

February 2, 2019

February 3, 2018

Fiscal Year Ended

The provision

taxes consists

of the following

(in thousands):

Current income taxes:

1 unchanged sentence

Total income tax expense

Significant components of the Company’s deferred tax assets and liabilities as of February 1, 2020 and February 2, 2019 are as follows (in thousands):

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

February 1, 2020

February 2, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

of the Company’s deferred tax assets and

as of January 30, 2021

are as follows

(in thousands):

Deferred tax assets:

Allowance for doubtful accounts

Allowance for customer credit losses

Inventory valuation

6 unchanged sentences

Lease liabilities

Total deferred tax assets before valuation allowance

Valuation allowance

Total deferred tax assets after valuation allowance

Total deferred

tax assets before valuation allowance

Total deferred

tax assets after valuation allowance

Deferred tax liabilities:

Property and equipment

Deferred lease liability

Accrued self-insurance reserves

Right-of-Use assets

Total deferred tax liabilities

Total deferred

tax liabilities

Net deferred tax assets

As of February 1, 2020, the Company had $1.2 million of state tax credits to offset future state income tax expense, which are set to expire by fiscal 2023.

Based on the available evidence, the Company has recorded a valuation allowance of $1.1 million for the portion it expects to not be realized.

As of February 1, 2020, the Company’s position is that its overseas subsidiaries will not invest undistributed earnings indefinitely.

Future unremitted earnings when distributed are expected to be either distributions of GILTI-previously taxed income or eligible for a 100% dividends received deduction.

The withholding tax rate on any unremitted earnings is zero and state income taxes on such earnings are considered immaterial.

Therefore, the Company has not provided deferred U.S.

income taxes on approximately $3.5 million of earnings from non-U.S.

As of January

set to expire

the available

As of January 30,

2021, the Company had $4.5

of state net operating loss

carryforwards.

the likelihood

that deferred

loss carryforwards

be realized in

impact on the

Company’s financial statements and

Based on this assessment,

that it is more likely

than not the Company

will not be able to realize net operating

a valuation allowance

As of February 1, 2020, the Company’s position

is that its overseas subsidiaries

will not invest

undistributed

indefinitely.

Future unremitted

when distributed

are expected to be

distributions

of GILTI-previously

taxed income or eligible for a

100% dividends

income taxes on

such earnings are

the Company has not

income taxes on

approximately

$22.5 million

from non-U.S.

subsidiaries.

The reconciliation of the Company’s effective income tax rate with the statutory rate is as follows:

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

February 1, 2020

February 2, 2019

February 3, 2018

Fiscal Year Ended

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

The reconciliation

Company’s effective

the statutory

Federal income tax rate

State income taxes

CARES ACT - Carryback differential

Global intangible low-taxed income

2 unchanged sentences

Offshore claim

Deemed repatriation

Work opportunity credit

4 unchanged sentences

Deferred rate change

Valuation allowance

Effective income tax rate (1)

(1) The income tax rate for year ended January 30, 2021

represents an income tax benefit, while the

rate for the years ended February 1, 2020 and February 2, 2019

represent income tax expenses.

The annual effective

the current fiscal year

is impacted by the

ability to carryback federal

net operating losses due to the

Coronavirus Aid, Relief and Economic Security

Act (“CARES Act”)

offset by changes in management’s

judgment regarding the ability to realize deferred tax assets, primarily

net operating

losses generated

current fiscal

realizability of

these deferred

estimated annual effective

current year.

extent that actual

results and/or events

from the predicted results, the Company may continue

to see effects on the estimated

annual effective tax

rate in future periods.

Further, the CARES Act allows the Company to

carryback losses to 2015;

therefore, the Company has

recorded $32.6

estimated refunds

calculated through the

fourth quarter

receivable in the Consolidated Balance Sheets.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Quarterly Financial Data (Unaudited):

Summarized quarterly financial results are as follows (in thousands, except per share data):

Summarized quarterly financial results are as follows (in thousands, except

per share data):

Total revenues

1 unchanged sentence

Net income (loss)

Basic earnings per share

Diluted earnings per share

Basic earnings (loss) per share

Diluted earnings (loss) per share

Total revenues

1 unchanged sentence

Net income (loss)

Basic earnings per share

Diluted earnings per share

Basic earnings (loss) per share

Diluted earnings (loss) per share

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 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 terms of product offered, as they all offer women’s apparel, shoes and accessories.

Merchandise inventory of the Company’s retail operating segments is

The Company has

As outlined in

The Company has aggregated its

three retail operating segments,

based on the aggregation criteria outlined

in ASC 280-10, which states that two

more operating

may be aggregated

into a single

if aggregation

is consistent

the objective and

basic principles of

the segments have

characteristics,

of distribution.

The Company’s retail operating segments have similar economic characteristics

and similar operating,

and competitive risks.

They are similar

offer women’s

Company’s retail operating segments

same countries

same vendors,

using similar

for the Company’s retail operating segments

is distributed

to retail stores in a similar manner

the Company’s

single distribution center and

is subsequently distributed to

offers its own credit

card to its customers

and all credit authorizations,

and collection

by a separate

of the Company.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

sourced from the same countries and some of the same vendors, using similar production processes.

Merchandise for the Company’s retail 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 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 following schedule summarizes certain segment information (in thousands):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

The following

(in thousands):

Interest and other income

Income before taxes

Income (loss) before taxes

Capital expenditures

Interest and other income

Income before taxes

Income (loss) before taxes

Capital expenditures

Interest and other income

Income before taxes

Income (loss) before taxes

Capital expenditures

Total assets as of February 1, 2020

Total assets as of January

Total assets as of February 1,

The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies in Note 1.

The Company evaluates performance based on profit or loss from operations before income taxes.

The Company does not allocate certain corporate expenses 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):

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

February 1, 2020

The accounting

of the segments are the same as those described

in the Summary of Significant

based on profit

before income

to the credit

The following schedule summarizes the

of the credit

which are reflected in

and administrative

(in thousands):

January 30, 2021

February 1, 2020

February 2, 2019

Bad debt expense

Other expenses

1 unchanged sentence

Stock Based Compensation:

As of February 1, 2020, the Company had two long-term compensation plans pursuant to which stock-based compensation was outstanding.

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 February 1, 2020:

As of January 30,

2021, the Company had two long-term

plans pursuant

to which stock-

based compensation was outstanding.

2018 Incentive Compensation Plan and

2013 Incentive

Plan are for the granting of various forms of equity-based awards,

longer available

2013 Incentive

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

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 January 30, 2021:

Options and/or restricted stock initially authorized

1 unchanged sentence

February 1, 2020

January 30, 2021

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 a five-year vesting period.

As of January 30, 2021, there

unrecognized compensation expense related

to unvested restricted stock

awards, which is

expected to be

recognized over a remaining weighted-average vesting period of

The total grant date fair value

shares recognized

as compensation

expense during

February 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 a five-year vesting period.

As of February 1, 2020, there was $ 11,900,000 of total unrecognized compensation expense related to unvested restricted stock awards, which is expected to be recognized over a remaining weighted-average vesting period of 2.2 years.

The total grant date fair value of the shares recognized as compensation expense during the twelve months ended February 1, 2020, February 2, 2019 and February 3, 2018 was $ 4,559,000 , $ 4,833,000 and $ 4,093,000 , respectively.

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

The following summary shows the changes in the shares of unvested restricted stock outstanding during the years ended February 1, 2020, February 2, 2019 and February 3, 2018:

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and February 2,

, respectively.

classified as

administrative expenses

Consolidated Statements of Income (Loss) and Comprehensive Income

The following

shows the changes

in the shares

stock outstanding

ended January

Weighted Average

Grant Date Fair

Value Per Share

Restricted stock awards at January 28, 2017

Forfeited or expired

Restricted stock awards at February 3, 2018

3 unchanged sentences

Restricted stock awards at February 1, 2020

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 twelve month period ended February 1, 2020, the Company sold 48,626 shares to employees at an average discount of $ 2.27 per share under the Employee Stock Purchase Plan.

The compensation expense recognized for the 15% discount given under the Employee Stock Purchase Plan was approximately $ 111,000 , $ 101,000 and $ 86,000 for fiscal years 2019, 2018 and 2017, respectively.

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

Forfeited or expired

Restricted stock awards at January 30, 2021

The Company’s

Employee Stock

Purchase Plan

allows eligible

full-time employees

limited number

Company’s Class

annual offering

15% discount through payroll

During the twelve

month period ended January

2021, the Company sold

shares to employees at

an average discount of

per share under the

Employee Stock Purchase Plan.

compensation expense recognized for the

15% discount given under

the Employee Stock

Purchase Plan was

approximately $

for fiscal years

2020, 2019 and 2018, respectively.

These expenses are classified as a

component of Selling, general and

administrative expenses.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Commitments and Contingencies:

The Company is, from time to time, involved in routine litigation incidental to the conduct of our business, including litigation regarding the merchandise that we sell, litigation regarding intellectual property, litigation instituted by persons injured upon premises under our 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 our business, as with any business of our 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 our 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 operations and cash flows in any particular reporting period.

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

time, involved

litigation incidental to

business, including

litigation regarding

the merchandise

sell, litigation

regarding intellectual

property, litigation

instituted by persons

injured upon premises

under our 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

our business, as with any

a significant

employees and

significant merchandise

could result in

large monetary

information currently available,

management does not

any reasonably possible

losses arising

pending litigation

adverse effect

on our Consolidated Financial Statements.

However, given the inherent uncertainties

involved in such matters, an adverse outcome in

one or more such matters could materially and

affect the Company’s

financial condition, results of

operations and cash flows

in any particular reporting

Company accrues

the liability

Accumulated Other Comprehensive Income:

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) as of February 1, 2020:

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table

forth information regarding

the reclassification out of

comprehensive

(in thousands)

as of January

Changes in Accumulated Other

2 unchanged sentences

and (Losses) on

Available-for-Sale

Available-for

Beginning Balance at February 1, 2020

3 unchanged sentences

other comprehensive income (b)

Net current-period other comprehensive income/(loss)

Ending Balance at February 1, 2020

Net current-period other comprehensive income

Ending Balance at January 30, 2021

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

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

(b) Includes $ 359 impact of accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities.

Amounts in parentheses indicate

a debit/reduction to other comprehensive

income (“OCI”).

impact of accumulated other comprehensive income reclassifications into Interest

other income for net gains on available-for-sale securities.

The tax impact of this reclassification was $

Amounts in parentheses indicate a debit/reduction to OCI.

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) as of February 2, 2019:

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

The following table sets forth information regarding the reclassification out

of Accumulated other

comprehensive income (in thousands) as of February 1, 2020:

Changes in Accumulated Other

2 unchanged sentences

and (Losses) on

Available-for-Sale

Available-for

Beginning Balance at February 2, 2019

6 unchanged sentences

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

Amounts in parentheses indicate a debit/reduction to OCI.

(b) Includes ($ 45 ) impact of accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities.

Amounts in parentheses indicate

a debit/reduction to OCI.

(b) Includes $

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 $

Amounts in parentheses indicate a debit/reduction to OCI.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure:

parentheses indicate a debit/reduction to OCI.

Changes in and Disagreements with Accountants on Accounting and Financial

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-K

Item 8. Financial Statements and Supplementary Data