What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-25 compared with 2021-05-27 · 345 added, 694 removed, 252 unchanged (80% of the section changed)

1 unchanged sentence

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF INCOME (LOSS) AND

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND

COMPREHENSIVE INCOME (LOSS)

Three Months Ended

Six Months Ended

July 31, 2021

August 1, 2020

July 31, 2021

August 1, 2020

(Dollars in thousands, except per share data)

6 unchanged sentences

Interest and other income

Costs and expenses, net

Cost and expenses, net

Income (loss) before income taxes

5 unchanged sentences

Net income (loss)

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

of deferred income taxes of ($

) for May 1, 2021

and May 2, 2020, respectively

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

deferred income taxes of ($ 44 ) and ($ 85 ) for the three and

six months ended July 31, 2021 and $ 146 and $ 56 for

the three and six months ended August 1, 2020, respectively

Comprehensive income (loss)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

July 31, 2021

January 30, 2021

6 unchanged sentences

Accounts receivable, net of allowance for customer credit losses of

at May 1, 2021 and January 30, 2021, respectively

$ 742 and $ 605 at July 31, 2021 and January 30, 2021, respectively

Merchandise inventories

8 unchanged sentences

Accrued expenses

Accrued bonus and benefits

Accrued employee benefits and bonus

Accrued income taxes

4 unchanged sentences

Stockholders' Equity:

Preferred stock, $

par value per share,

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

authorized, none issued

Class A common stock, $

par value per share,

Class A common stock, $ 0.033 par value per share, 50,000,000

shares authorized;

shares issued

at May 1, 2021 and January 30, 2021, respectively

Convertible Class B common stock, $

par value per share,

20,776,585 shares and 20,839,795 shares

issued at July 31, 2021 and January 30, 2021, respectively

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

15,000,000 shares authorized;

shares issued at May 1, 2021 and January 30, 2021, respectively

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

issued at July 31, 2021 and January 30, 2021, respectively

Additional paid-in capital

5 unchanged sentences

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF CASH FLOWS

Three Months Ended

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

July 31, 2021

August 1, 2020

(Dollars in thousands)

1 unchanged sentence

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:

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

by operating activities:

Provision for customer credit losses

4 unchanged sentences

Impairment of store assets

Changes in operating assets and liabilities which provided (used) cash:

Changes in operating assets and liabilities which provided

Accounts receivable

10 unchanged sentences

Sales of other assets

Net cash provided (used) by investing activities

Net cash provided (used) in investing activities

Financing Activities:

4 unchanged sentences

Proceeds from employee stock purchase plan

Net cash provided (used) by financing activities

Net cash provided (used) in financing activities

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

3 unchanged sentences

Accrued other assets and property and equipment

Accrued treasury stock

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF STOCKHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Comprehensive

4 unchanged sentences

Net income (loss)

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

income tax benefit of ($

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

deferred income tax benefit of ($ 40 )

Dividends paid ($0.00 per share)

Class A common stock sold through employee stock purchase

plan — 19,248 shares

Class B common stock sold through stock option plans —

Class A common stock issued through restricted stock grant plans —

Repurchase and retirement of treasury shares –

396,558 shares

Repurchase and retirement of treasury shares – 425,661 shares

Balance — May 1, 2021

Comprehensive income:

Net income (loss)

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

deferred income tax benefit of ($ 44 )

Dividends paid ($ 0.11 per share)

Class A common stock sold through employee stock purchase

plan — 1,336 shares

Class B common stock sold through stock option plans —

Class A common stock issued through restricted stock grant plans —

10,018 shares

Repurchase and retirement of treasury shares – 64,709 shares

Balance — July 31, 2021

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Comprehensive

4 unchanged sentences

Net income (loss)

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

income tax benefit of ($

Dividends paid ($

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

deferred income tax benefit of ($ 90 )

Dividends paid ($ 0.33 per share)

Class A common stock sold through employee stock purchase

plan — 26,957 shares

Class B common stock sold through stock option plans —

Class A common stock issued through restricted stock grant plans —

Repurchase and retirement of treasury shares –

307,354 shares

Repurchase and retirement of treasury shares – 618,056 shares

Balance — May 2, 2020

Comprehensive income:

Net income (loss)

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

deferred income tax liability of $ 146

Dividends paid ($0.00 per share)

Class A common stock sold through employee stock purchase

plan — 0 shares

Class B common stock sold through stock option plans —

Class A common stock issued through restricted stock grant plans —

( 57,805 ) shares

Repurchase and retirement of treasury shares – 0 shares

Balance — August 1, 2020

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY

The condensed

consolidated financial

statements as

the thirteen-

prepared from

the accounting

Corporation and its

wholly-owned subsidiaries (the

“Company”), and all

amounts shown are

In the opinion of management, all adjustments considered necessary for a fair presentation of the financial

statements have been

All such adjustments

normal, recurring nature

unless otherwise

The results of the interim period may not be indicative of the results expected for

the entire year.

The interim financial statements should

be read in conjunction with

the consolidated financial statements

thereto, included

Company’s Annual

January 30, 2021.

Amounts as of January 30, 2021 have been derived from the audited balance sheet, but

do not include all disclosures required by accounting principles generally

accepted in the United States of

On May 20, 2021, the Board of Directors declared the quarterly dividend at $0.11 per share.

The COVID-19 pandemic adversely

impacted the Company's business,

financial condition and operating

results through fiscal 2020.

The first quarter of

2021 saw significant improvements in

sales compared to

This improvement was

primarily attributable to

government stimulus, increased

customer traffic,

states continuing

capacity limits

vaccinated, consumers’

increasing comfort

venturing out

customers’ preparing

Company’s sales

were well below 2019

sales for the

comparable period, and there

high level of

uncertainty regarding the

lingering effects of

the COVID-19 pandemic

continued impact on

Company’s customers’

buying habits.

additional uncertainty

effects of disruption in the global supply chain and available workers as it attempts

to hire associates as its

operating hours

Company expects

uncertainties and

perhaps others

related to the

pandemic will continue

to impact the

Company in fiscal

2021 and possibly

adverse financial impacts associated with the continued

effects of, and uncertainties related to, the

COVID-19 pandemic include, but

are not limited

to, (i) lower net

sales in markets affected

by the actual

outbreak, whether

local orders,

reductions in

store traffic

demand, labor

shortages, or

these factors,

production and fulfillment,

incremental costs associated

to mitigate the

the outbreak, including increased freight and logistics costs and other

ultimately impacts

the Company’s

business, financial

condition, results of operations, cash flows, and liquidity may

differ from management’s current estimates

due to inherent

uncertainties regarding the

duration and further

spread of the

outbreak or its

variants, its

severity, actions taken

to contain the virus or

treat its impact, and how

quickly and to what extent normal

economic and operating conditions can resume.

While the Company currently anticipates a continuation of the adverse impacts

of COVID-19 during 2021

these effects

developments, which are

highly uncertain, including

the relative speed

and success of,

confidence in, mitigation measures

such as the current

effort to vaccinate substantial

portions of the U.S.

population, emerging

information regarding

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

NOTE 1 - GENERAL :

The condensed consolidated financial statements have been prepared from the accounting records of The Cato Corporation and its wholly-owned subsidiaries (the “Company”), and all amounts shown as of and for the periods ended July 31, 2021 and August 1, 2020 are unaudited.

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

All such adjustments are of a normal, recurring nature unless otherwise noted.

The results of the interim period may not be indicative of the results expected for the entire year.

The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2021.

Amounts as of January 30, 2021 have been derived from the audited balance sheet, but do not include all disclosures required by accounting principles generally accepted in the United States of America.

Subsequent to July 31, 2021, the Company repurchased 168,390 shares for $2,802,850.

COVID-19 Update

The COVID-19 pandemic adversely impacted the Company's business, financial condition and operating results through fiscal 2020.

The first and second quarters of 2021 saw significant improvements in sales compared to 2020.

This improvement was primarily attributable to government stimulus, increased customer traffic, states lifting capacity limits as more people were vaccinated, consumers’ increasing comfort level with venturing out to social events and customers’ preparing to return to work.

However, the Company’s sales were well below 2019 sales for the comparable period, and there is still a high level of uncertainty regarding the lingering effects of the pandemic, as well as renewed concerns over the impact of new, more transmissible variants of the virus, slowing vaccination rates and related factors that have in some cases slowed and may continue to slow progress toward the return to pre-pandemic activities and levels of consumer confidence.

The Company faces additional uncertainty from the continued effects of disruption in the global supply chain and available workers as it attempts to hire associates as its operating hours continue to expand.

The Company expects that these uncertainties and perhaps others related to the pandemic will continue to impact the Company in fiscal 2021 and possibly beyond.

The adverse financial impacts associated with the continued effects of, and uncertainties related to, the COVID-19 pandemic include, but are not limited to, (i) lower net sales in markets affected by actual or potential adverse changes in conditions relating to the pandemic, whether due to increases in case counts, state and local orders, reductions in store traffic and customer demand, labor shortages, or all of these factors, (ii) lower net sales caused by the delay of inventory production and fulfillment, (iii) and incremental costs associated with efforts to mitigate the effects of the outbreak, including increased freight and logistics costs and other expenses.

The extent to which the COVID-19 pandemic ultimately impacts the Company’s business, financial condition, results of operations, cash flows, and liquidity may differ from management’s current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak or its variants, its severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.

While the Company currently anticipates a continuation of the adverse impacts of COVID-19 during 2021 and possibly beyond, the duration and severity of these effects will depend on the course of future

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY

potential impact on

current mitigation efforts,

public attitudes toward

continued compliance with

containment and

mitigation measures, and

possible new information

and understanding that

the course and duration of current measures to combat the spread of the virus.

In December 2019,

issued ASU 2019-

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

rules also simplify

accounting for franchise

taxes that are

partially based on

income, transactions

government that

goodwill, separate

financial statements of legal entities that are not subject

to tax, and enacted changes in tax laws

Company adopted this

accounting standards update

first quarter

2021 with no material impact on its Condensed Consolidated Financial

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

developments, which are highly uncertain, including the relative speed and success of, as well as public confidence in, mitigation measures such as the current effort to vaccinate substantial portions of the U.S.

and global population, emerging information regarding variants of the virus or new viruses and their potential impact on current mitigation efforts, public attitudes toward continued compliance with containment and mitigation measures, and possible new information and understanding that could alter the course and duration of current measures to combat the spread of the virus.

Recently Adopted Accounting Policies

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

The new accounting rules reduce complexity by removing specific exceptions to general principles related to intraperiod tax allocations, ownership changes in foreign investments, and interim period income tax accounting for year-to-date losses that exceed anticipated losses.

The new accounting rules also simplify accounting for franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods.

The Company adopted this accounting standards update on the first day of the first quarter of 2021 with no material impact on its Condensed Consolidated Financial Statements.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY

dual presentation

on the face of all

income statements

for all entities

has presented

for all common

the accompanying

Comprehensive

While the Company’s certificate of

incorporation

the right for

of commensurate

has historically

same dividends

to both Class

B shareholders

and the Board

this practice.

the Company’s

EPS computation is the

same for Class

the EPS amounts

as net income less

to non-vested equity awards divided by

number of common shares outstanding

for the period.

EPS reflects the potential

that could occur

from common shares

stock options and

the Employee Stock

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

NOTE 2 - EARNINGS PER SHARE:

Accounting Standard Codification (“ASC”) 260 – Earnings Per Share requires dual presentation of basic and diluted Earnings Per Share (“EPS”) on the face of all income statements for all entities with complex capital structures.

The Company has presented one basic EPS and one diluted EPS amount for all common shares in the accompanying Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).

While the Company’s certificate of incorporation provides the right for the Board of Directors to declare dividends on Class A shares without declaration of commensurate dividends on Class B shares, the Company has historically paid the same dividends to both Class A and Class B shareholders and the Board of Directors has resolved to continue this practice.

Accordingly, the Company’s allocation of income for purposes of the EPS computation is the same for Class A and Class B shares and the EPS amounts reported herein are applicable to both Class A and Class B shares.

Basic EPS is computed as net income less earnings allocated to non-vested equity awards divided by the weighted average number of common shares outstanding for the period.

Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options and the Employee Stock Purchase Plan.

Three Months Ended

Six Months Ended

July 31, 2021

August 1, 2020

July 31, 2021

August 1, 2020

(Dollars in thousands)

8 unchanged sentences

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY

OTHER COMPREHENSIVE

The following table sets

forth information

the reclassification

comprehensive

(in thousands)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the three months ended July 31, 2021:

Changes in Accumulated Other

3 unchanged sentences

Available-for-Sale

Beginning Balance at May 1, 2021

Other comprehensive income before

reclassification

Amounts reclassified from accumulated

other comprehensive income (b)

Net current-period other comprehensive income

Ending Balance at July 31, 2021

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

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

(b) Includes $ 34 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 $ 8 .

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the six months ended July 31, 2021:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Beginning Balance at January 30, 2021

Other comprehensive income (loss) before

Other comprehensive income before

reclassification

1 unchanged sentence

other comprehensive income (b)

Net current-period other comprehensive income (loss)

Ending Balance at May 1, 2021

Net current-period other comprehensive income

Ending Balance at July 31, 2021

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

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

(b) Includes $

impact of accumulated other comprehensive income reclassifications into Interest and other

net gains on available-for-sale securities.

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

(b) Includes $ 85 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 $ 20 .

The following table sets

forth information

the reclassification

comprehensive

(in thousands)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME (CONTINUED):

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

Changes in Accumulated Other

3 unchanged sentences

Available-for-Sale

Beginning Balance at May 2, 2020

Other comprehensive income before

reclassifications

Amounts reclassified from accumulated

other comprehensive income (b)

Net current-period other comprehensive income

Ending Balance at August 1, 2020

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

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

(b) Includes $ 83 impact of Accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities.

The tax impact of this reclassification was $ 19 .

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

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Beginning Balance at February 1, 2020

Other comprehensive income (loss) before

reclassification

Other comprehensive income before

reclassifications

Amounts reclassified from accumulated

other comprehensive income (b)

Net current-period other comprehensive income (loss)

Ending Balance at May 2, 2020

Net current-period other comprehensive income

Ending Balance at August 1, 2020

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

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

(b) Includes $

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.

(b) Includes $ 738 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 $ 171 .

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

NOTE 4 – FINANCING ARRANGEMENTS:

1, 2021, the Company had

an unsecured revolving credit agreement

the Company to

less the balance

of any letters

June 2, 2020,

signed an amendment extending the revolving credit agreement through May 2023.

and limitations,

the maintenance

was in compliance

as of May 1, 2021.

There were no borrowings

under this credit

as of May 1, 2021 or January 30, 2021.

to no borrowings

At May 1, 2021

had no outstanding

As of July 31, 2021, the Company had an unsecured revolving credit agreement, which provides for borrowings of up to $ 35.0 million, less the balance of any revocable letters of credit related to purchase commitments.

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

The credit agreement contains various financial covenants and limitations, including the maintenance of specific financial ratios with which the Company was in compliance as of July 31, 2021.

There were no borrowings outstanding under this credit facility, nor any outstanding letters of credit that reduced borrowing availability, as of July 31, 2021 or January 30, 2021.

The weighted average interest rate under the credit facility was zero at July 31, 2021 due to no borrowings outstanding.

At July 31, 2021 and January 30, 2021, the Company had no outstanding revocable letters of credit relating to purchase commitments.

NOTE 5 – REPORTABLE SEGMENT INFORMATION:

The Company has determined

that it has four operating segments,

as defined under ASC 280-10,

As outlined in

ASC 280-10, the

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

the aggregation

in ASC 280-10,

may be aggregated

into a single reportable

if aggregation

is consistent

with the objective

and basic principles of ASC 280

-10, which require the segments to have

characteristics,

of distribution.

The Company’s

retail operating

characteristics

and competitive

They are similar in

nature of product, as they

all offer women’s apparel,

shoes and accessories.

for the Company’s retail

is sourced from

the same countries

and some of the same vendors,

Company’s operating segments is distributed to

retail stores in a

the Company’s

single distribution

is subsequently

women’s fashion

specialty retail

principally in the

southeastern United States.

The Company offers its own credit card to its customers

authorizations,

and collection

by a separate

The Company has aggregated its three retail operating segments, including e-commerce, based on the aggregation criteria outlined in ASC 280-10, which states that two or more operating segments may be aggregated into a single reportable segment if aggregation is consistent with the objective and basic principles of ASC 280-10, which require the segments to have similar economic characteristics, products, production processes, clients and methods of distribution.

The Company’s retail operating segments have similar economic characteristics and similar operating, financial and competitive risks.

They are similar in nature of product, as they all offer women’s apparel, shoes and accessories.

Merchandise inventory for the Company’s retail operating segments is sourced from the same countries and some of the same vendors, using similar production processes.

Merchandise for the Company’s operating segments is distributed to retail stores in a similar manner through the Company’s single distribution center and is subsequently distributed to clients in a similar manner.

The Company operates its women’s fashion specialty retail stores in 32 states as of July 31, 2021, principally in the southeastern United States .

The Company offers its own credit card to its customers and all credit authorizations, payment processing and collection efforts are performed by a wholly-owned subsidiary of the Company.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY

NOTE 5 – REPORTABLE

SEGMENT INFORMATION (CONTINUED):

The following

segment information

(in thousands):

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

NOTE 5 – REPORTABLE SEGMENT INFORMATION (CONTINUED):

The following schedule summarizes certain segment information (in thousands):

Three Months Ended

Six Months Ended

July 31, 2021

Interest and other income

Income (loss) before taxes

Interest and other income

Income/(Loss) before

Capital expenditures

Three Months Ended

Six Months Ended

August 1, 2020

Interest and other income

Income (loss) before taxes

Interest and other income

Income/(Loss) before

Capital expenditures

Total assets as of May 1, 2021

Capital expenditures

Total assets as of July 31, 2021

Total assets as of January 30, 2021

The Company evaluates

before taxes.

The Company does

The following

of the credit segment

which are reflected

and administrative

(in thousands):

The Company evaluates segment performance based on income before taxes.

The Company does not allocate certain corporate expenses or income taxes to the credit segment.

The following schedule summarizes the direct expenses of the credit segment, which are reflected in Selling, general and administrative expenses (in thousands):

Three Months Ended

Six Months Ended

July 31, 2021

August 1, 2020

July 31, 2021

August 1, 2020

Other expenses

1 unchanged sentence

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

NOTE 6 – STOCK-BASED COMPENSATION:

the Company had two

plans pursuant to which

was outstanding or

for the granting

of equity-based

stock options

2013 Incentive

The following table presents the

of options and shares

of restricted stock initially authorized and

As of July 31, 2021, the Company had two long-term compensation plans pursuant to which stock-based compensation was outstanding or could be granted.

The 2018 Incentive Compensation Plan and 2013 Incentive Compensation Plan are for the granting of various forms of equity-based awards, including restricted stock and stock options for grant, to officers, directors and key employees.

Effective May 24, 2018, shares for grant were no longer available under the 2013 Incentive Compensation Plan.

The following table presents the number of options and shares of restricted stock initially authorized and available for grant under each of the plans as of July 31, 2021:

Options and/or restricted stock initially authorized

Options and/or restricted stock available for grant:

In accordance with ASC

718, the fair value

of current restricted stock

awards is estimated on

grant based on

the market price

of the Company’s

amortized to compensation

straight-line basis over

vesting periods.

2021 and January

30, 2021, there

, respectively,

of total unrecognized compensation

expense related to

nonvested restricted stock

awards, which had

a remaining weighted-average

vesting period of

years, respectively.

total compensation expense during

the three months

ended May 1, 2021

These expenses

classified as a component of

Selling, general and administrative expenses in

the Condensed Consolidated

Statements of Income (Loss).

The following

shows the changes

in the shares of unvested

stock outstanding

three months ended May 1,

July 31, 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 the related vesting periods.

As of July 31, 2021 and January 30, 2021, there was $ 13,551,000 and $ 10,550,000 , respectively, of total unrecognized compensation expense related to nonvested restricted stock awards, which had a remaining weighted-average vesting period of 2.8 years and 2.1 years, respectively.

The total compensation expense during the three and six months ended July 31, 2021 was $ 1,597,000 and $ 1,880,000 , respectively, compared to $ 1,253,000 and $ 1,859,000 , respectively, for the three and six months ended August 1, 2020.

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

The following summary shows the changes in the shares of unvested restricted stock outstanding during the six months ended July 31, 2021:

Weighted Average

Grant Date Fair

Value Per Share

Restricted stock awards at January 30, 2021

Forfeited or expired

Restricted stock awards at May 1, 2021

Restricted stock awards at July 31, 2021

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY

The Company’s Employee Stock Purchase Plan

to purchase a limited

number of shares of the Company’s Class

A Common Stock during each semi-annual offering period at a

shares to employees

at an average discount

respectively,

under the Employee Stock Purchase

The compensation

expense recognized

given under the Employee Stock Purchase

Plan was approximately $

three months ended

2020, respectively.

These expenses ar

and administrative

in the Condensed Consolidated Statements o

FAIR VALUE MEASUREMENTS:

The following tables

set forth information regarding

the Company’s financial assets and liabilities that are

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

NOTE 6 – STOCK BASED-COMPENSATION (CONTINUED):

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

During the six months ended July 31, 2021 and August 1, 2020, the Company sold 20,584 and 26,957 shares to employees at an average discount of $ 1.26 and $ 1.64 per share, respectively, under the Employee Stock Purchase Plan.

The compensation expense recognized for the 15% discount given under the Employee Stock Purchase Plan was approximately $ 26,000 and $ 44,000 for the six months ended July 31, 2021 and August 1, 2020, respectively.

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

NOTE 7 – FAIR VALUE MEASUREMENTS:

The following tables set forth information regarding the Company’s financial assets and liabilities that are measured at fair value (in thousands) as of July 31, 2021 and January 30, 2021:

July 31, 2021

State/Municipal Bonds

8 unchanged sentences

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

January 30, 2021

State/Municipal Bonds

7 unchanged sentences

Total Liabilities

The Company’s investment

was primarily

bonds and tax-exempt

debt securities

held in managed

with underlying

of A or better

at May 1, 2021

and January 30, 2021.

The state, municipal and corporate bonds have con

are classified

as available-for-sale

and are recorded

as Short-term

cash, Restricted

and Other assets

on the accompanying

at fair value with

losses reported

net of taxes in Accumulated

other comprehensive

The asset-backed

are bonds comprised

of auto loans

and bank credit

The auto loan

pools of auto

were originated

credit card asset

are backed by

by account holders

from American Express,

JPMorgan Chase,

Additionally,

plan assets of $

At January 30, 2021, the Company

Level 1 category

at fair value

active market

Level 2 investment

and municipal bonds for

which quoted prices may

not be available on

for identical instruments.

Their fair value is principally based on market

with assistance of

Since quoted prices

in active markets

are not available,

are determined

by the pricing

using observable

such as quotes from less active markets

and/or quoted

of securities

characteristics,

of life insurance

cash surrender

of the underlying

and are therefore

with the life

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 July 31, 2021 and January 30, 2021.

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

Treasury Notes have contractual maturities which range from two months to two years .

These securities are classified as available-for-sale and are recorded as Short-term investments, Restricted cash and Restricted short-term investments on the accompanying Condensed Consolidated Balance Sheets.

These assets are carried at fair value with unrealized gains and losses reported net of taxes in Accumulated other comprehensive income.

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 July 31, 2021, the Company had $ 0.8 million of corporate equities and deferred compensation plan assets of $ 11.7 million.

At January 30, 2021, the Company had $ 0.7 million of corporate equities and deferred compensation plan assets of $ 11.3 million.

All of these assets are recorded within Other assets in the Condensed Consolidated Balance Sheets.

Level 1 category securities are measured at fair value using quoted active market prices.

Level 2 investment securities include corporate bonds, municipal bonds and asset-backed securities for which quoted prices may not be available on active exchanges for identical instruments.

Their fair value is principally based on market values determined by management with assistance of a third-party pricing service.

Since quoted prices in active markets for identical assets are not available, these prices are determined by the pricing service using observable market information such as quotes from less active markets and/or quoted prices of securities with similar characteristics, among other factors.

Deferred compensation plan assets consist of life insurance policies.

These life insurance policies are valued based on the cash surrender value of the insurance contract, which is determined based on such factors as the fair value of the underlying assets and discounted cash flow and are therefore classified within Level 3 of the

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY

the value of which is tracked via underlying insurance funds’

net asset values, as

These funds are

are observable

The following tables summarize the change in

fair value of the

Company’s financial

assets and liabilities

in thousands):

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

valuation hierarchy.

The Level 3 liability associated with the life insurance policies represents a deferred compensation obligation, the value of which is tracked via underlying insurance funds’ net asset values, as recorded in Other noncurrent liabilities in the Condensed Consolidated Balance Sheet.

These funds are designed to mirror mutual funds and money market funds that are observable and actively traded.

The following tables summarize the change in fair value of the Company’s financial assets and liabilities measured using Level 3 inputs as of July 31, 2021 and January 30, 2021 (in thousands):

Measurements Using

6 unchanged sentences

Included in other comprehensive income

Ending Balance at May 1, 2021

Ending Balance at July 31, 2021

Measurements Using

6 unchanged sentences

Included in other comprehensive income

Ending Balance at May 1, 2021

Ending Balance at July 31, 2021

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

Measurements Using

9 unchanged sentences

Significant Unobservable

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY

Liability Inputs (Level 3)

5 unchanged sentences

Ending Balance at January 30, 2021

The presentation in the table above has been revised to reflect current year presentation.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

In March 2020

issued ASU 2020-

Reference Rate

Reform (Topic

Facilitation of

Effects of Referenc

Rate Reform on Financial Reporting

In January 2021,

the FASB clarified

of that guidance

with the issuance of

ASU 2021-01, “Reference Rate

Scope.” The new

accounting rules provide

optional expedients and

exceptions for

applying GAAP to

contracts and

transactions affected by reference

The amendments

in this standard can

be adopted any time

fourth quarter of

is currently in

the process of

evaluating the

the Company’s

financial condition,

operations, cash

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

In January 2021, the FASB clarified the scope of that guidance with the issuance of ASU 2021-01, Reference Rate Reform:

The new accounting rules provide optional expedients and exceptions for applying GAAP to contracts and other transactions affected by reference rate reform.

The amendments in this standard can be adopted any time before the fourth quarter of 2022.

The Company is currently in the process of evaluating the impact of adoption of the new rules on the Company’s financial condition, results of operations, cash flows and disclosures.

NOTE 9 – INCOME TAXES:

The Company had

an effective tax

first quarter of

% (Expense) compared

effective tax

% (Benefit) for

the first quarter

decrease in the

2021 first quarter

was primarily due

pre-tax earnings and

ability to realize

foreign tax credits,

adjustment in

for uncertain

tax positions

the Coronavirus

Economic Security

CARES”) allows

Company has recorded $33.0

million of estimated refunds

calculated through the first

quarter of 2021 in

Accounts receivable in the Condensed Consolidated Balance Sheets.

The Company had an effective tax rate for the first six months of 2021 of 18.0 % (Expense) compared to 26.7 % (Benefit) for the first six months of 2020.

The change in the effective tax rate for the first six months was primarily due to higher pre-tax earnings and ability to realize foreign tax credits, offset by increases in state income taxes and an upward adjustment in reserves for uncertain tax positions specific to state income taxes in the first quarter of 2020.

Further, the Coronavirus Aid, Relief and Economic Security Act (“CARES”) allows the Company to carryback losses five years;

therefore, the Company has recorded $33.0 million of estimated refunds calculated through the first quarter of 2021 in Accounts receivable on the Condensed Consolidated Balance Sheets.

NOTE 10 – COMMITMENTS AND CONTINGENCIES:

The Company is, from time to time, involved in routine litigation incidental to the conduct of its business,

including litigation

regarding the

merchandise that

litigation regarding

intellectual property,

litigation instituted by

persons injured upon

premises under its

control, litigation with

respect to various

employment matters, including

alleged discrimination and

hour litigation, and

litigation with

present or former employees.

Although such litigation

is routine and

incidental to the conduct

of the Company’s

business, as with

significant number

and significant

merchandise sales,

litigation could result

monetary awards.

on information currently

available, management

any reasonably possible

losses arising

pending litigation

material adverse effect

on its condensed

consolidated financial statements.

However, given

uncertainties involved in such

matters, an adverse outcome

more such matters could

and adversely

Company’s financial

condition, results

particular reporting period.

The Company accrues for

these matters when the liability is deemed probable

and reasonably estimable.

The Company is, from time to time, involved in routine litigation incidental to the conduct of its business, including litigation regarding the merchandise that it sells, litigation regarding intellectual property, litigation instituted by persons injured upon premises under its control, litigation with respect to various employment matters, including alleged discrimination and wage and hour litigation, and litigation with present or former employees.

Although such litigation is routine and incidental to the conduct of the Company’s business, as with any business of its size with a significant number of employees and significant merchandise sales, such litigation could result in large monetary awards.

Based on information currently available, management does not believe that any reasonably possible losses arising from current pending litigation will have a material adverse effect on the Company’s condensed consolidated financial statements.

However, given the inherent uncertainties involved in such matters, an adverse outcome in one or more such matters could materially and adversely affect the Company’s financial condition, results of operations and cash flows in any particular reporting period.

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

NOTE 11 – REVENUE RECOGNITION:

recognizes sales

purchase when

takes possession

merchandise and

the purchase,

generally with cash

Sales from purchases

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

Gift cards are recorded

as deferred revenue until they are redeemed or

Layaway sales

revenue until

takes possession

the merchandise.

The Company recognizes sales at the point of purchase when the customer takes possession of the merchandise and pays for the purchase, generally with cash or credit.

Sales from purchases made with Cato credit, gift cards and layaway sales from stores are also recorded when the customer takes possession of the merchandise.

E-commerce sales are recorded when the risk of loss is transferred to the customer.

Gift cards are recorded as deferred revenue until they are redeemed or forfeited.

Layaway sales are recorded as deferred revenue until the customer takes possession of, or forfeits, the merchandise.

Gift cards do not have expiration dates.

A provision is made for estimated merchandise returns based on sales

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY

cards do not have expiration

A provision is made

for estimated merchandise returns based on

volumes and the

Company’s experience;

actual returns have

not varied materially from

estimated write-offs

associated with

sales made with

the Company’s

proprietary credit card.

Amounts related to

shipping and handling

billed to customers

transaction are classified

as Other revenue

and the costs

related to shipping

product to customers

and accrued) are classified as Cost of goods sold.

The Company offers

its own proprietary credit

card to customers.

All credit activity is

performed by the

Company’s wholly-

owned subsidiaries.

credit card receivables

estimated customer credit losses of $

for the periods ended May 1,

2021 and May 2,

2020, respectively, on

sales purchased by the Company’s

proprietary credit card of $

million and $

million for the periods ended May 1, 2021 and May 2, 2020, respectively.

The following

table provides

information about

receivables and

contract liabilities

from contracts

customers (in thousands):

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

volumes and the Company’s experience;

actual returns have not varied materially from historical amounts.

A provision is made for estimated write-offs associated with sales made with the Company’s proprietary credit card.

Amounts related to shipping and handling billed to customers in a sales transaction are classified as Other revenue and the costs related to shipping product to customers (billed and accrued) are classified as Cost of goods sold.

The Company offers its own proprietary credit card to customers.

All credit activity is performed by the Company’s wholly-owned subsidiaries.

None of the credit card receivables are secured.

During the three and six months ended July 31, 2021, the Company estimated customer credit losses of $, 144000 and $ 275,000 , respectively, compared to $, 116000 and $ 185,000 for the three and six months ended August 1, 2020, respectively.

Sales purchased on the Company’s proprietary credit card for the three and six months ended July 31, 2021 were $ 4.8 million and $ 9.2 million, respectively, compared to $ 4.3 million and $ 6.9 million for the three and six months ended August 1, 2020, respectively.

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

Balance as of

July 31, 2021

January 30, 2021

1 unchanged sentence

Gift Card Liability

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

NOTE 12 – LEASES:

determines whether

an arrangement

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,

its estimated

borrowing rate based on

the information available at

commencement date of the

lease in determining the

present value of lease payments.

The Company determines whether an arrangement is a lease at inception.

The Company has operating leases for stores, offices and equipment.

Its leases have remaining lease terms of up to 10 years based on the estimated likelihood of renewal.

Some include options to extend the lease term for up to five years, and some of which include options to terminate the lease within one year.

The Company considers these options in determining the lease term used to establish its right-of-use assets and lease liabilities.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date of the lease in determining the present value of lease payments.

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

Three Months Ended

July 31, 2021

August 1, 2020

Operating lease cost (a)

lease cost (b)

(a) Includes right-of-use asset amortization of ($1.2) million and

($1.7) million for the three months ended

May 1, 2021 and May 2, 2020, respectively.

Variable lease cost (b)

(a) Includes right-of-use asset amortization of ($0.5) million and ($1.0) million for the three months ended July 31, 2021 and August 1, 2020, respectively.

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

Six Months Ended

July 31, 2021

August 1, 2020

Operating lease cost (a)

Variable lease cost (b)

(a) Includes right-of-use asset amortization of ($1.6) million and ($2.7) million for the six months ended July 31, 2021 and August 1, 2020, respectively.

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

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY

Supplemental cash flow information

and non-cash activity related

to the Company’s

operating leases are

as follows (in thousands):

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

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

Operating cash flow information:

Three Months Ended

July 31, 2021

August 1, 2020

Cash paid for amounts included in the measurement of lease liabilities

1 unchanged sentence

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

Weighted-average remaining

the Company’s

operating leases

Six Months Ended

July 31, 2021

August 1, 2020

Cash paid for amounts included in the measurement of lease liabilities

Non-cash activity:

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

During the second quarter of 2021, the Company reassessed its initial accounting term for approximately 80 stores for the likelihood of renewal.

After evaluation, the Company now believes it is no longer probable that these stores will be renewed for a second lease term.

The remeasurement resulted in a $25.8 million reduction of the Company’s Right-of-Use assets on the Condensed Consolidated Balance Sheets.

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

July 31, 2021

August 1, 2020

Weighted-average remaining lease term

Weighted-average discount rate

As of May 1, 2021,

the maturities of lease liabilities by fiscal year for the Company’s operating leases

as follows (in thousands):

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

Total lease payments

1 unchanged sentence

Present value of lease liabilities

(a) Excluding the 3 months ended May 1, 2021.

(a) Excluding the 6 months ended July 31, 2021.

THE CATO CORPORATION

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

What changed 10-Q

Item 1. Financial Statements