~~Table of Contents~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~[X]~~☑		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October ~~28, 2017~~30, 2021
OR
OR

~~[ ]~~☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________to__________________
Commission file number 1-31340

THE CATO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware	56-0484485
~~Delaware~~	~~56-0484485~~
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

8100 Denmark Road, Charlotte, North ~~Carolina 28273-5975~~Carolina28273-5975
(Address of principal executive offices) (Zip Code)

(704)554-8510
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A - Common Stock, par value $.033 per share	CATO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filer þ☐ Accelerated filer ¨☑ Non-accelerated filer ¨☐ Smaller reporting company ¨☐ Emerging growth company ¨☐

~~(Do not check if a smaller reporting company)~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

~~Yes~~

☐

As of October ~~28, 2017,~~30, 2021, there were ~~23,276,248~~20,261,248 shares of Class A common stock and ~~1,755,601~~1,763,652 shares of Class B common stock outstanding.

THE CATO CORPORATION

FORM 10-Q

Quarter Ended October ~~28, 2017~~30, 2021

				Page No.

PART I – FINANCIAL INFORMATION (UNAUDITED)

	Item 1.		Financial Statements (Unaudited):

	Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)			3
		For the Three Months and Nine Months Ended October ~~28, 2017~~30, 2021 and October ~~29, 2016~~31, 2020

	Condensed Consolidated Balance Sheets			4
		At October ~~28, 2017~~30, 2021 and January ~~28, 2017~~30, 2021

	Condensed Consolidated Statements of Cash Flows			5
		For the Nine Months Ended October ~~28, 2017~~30, 2021 and October ~~29, 2016~~31, 2020

	Condensed Consolidated Statements of Stockholders’ Equity			6 – 7
		For the Nine Months Ended October 30, 2021 and October 31, 2020

	Notes to Condensed Consolidated Financial Statements			68 – 1824
		For the Three Months and Nine Months Ended October ~~28, 2017~~30, 2021 and October ~~29, 2016~~31, 2020

	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	1925 – 2532

	Item 3.		Quantitative and Qualitative Disclosures About Market Risk	2633

	Item 4.		Controls and Procedures	2633

PART II – OTHER INFORMATION

	Item 1.		Legal Proceedings	2734

	Item 1A.		Risk Factors	2734

	Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	2734

	Item 3.		Defaults Upon Senior Securities	2734

	Item 4.		Mine Safety Disclosures	2835

	Item 5.		Other Information	2835

	Item 6.		Exhibits	2835

	Signatures			2936

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND

COMPREHENSIVE INCOME

(LOSS)
(UNAUDITED)


		Three Months Ended			Nine Months Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020

		(Dollars in thousands, except per share data)
REVENUES
Retail sales	$	170,513	$	149,205	$	587,709	$	414,283
Other revenue (principally finance charges, late fees and
layaway charges)		1,700		1,586		5,335		5,410
Total revenues		172,213		150,791		593,044		419,693

COSTS AND EXPENSES, NET
Cost of goods sold (exclusive of depreciation shown below)		104,225		109,404		343,487		325,738
Selling, general and administrative (exclusive of depreciation
shown below)		62,466		51,885		196,687		148,353
Depreciation		3,173		3,619		9,352		11,113
Interest and other income		(541)		(791)		(1,719)		(3,603)
Costs and expenses, net		169,323		164,117		547,807		481,601

Income (loss) before income taxes		2,890		(13,326)		45,237		(61,908)

Income tax expense (benefit)		(5,713)		(9,704)		1,929		(22,698)

Net income (loss)	$	8,603	$	(3,622)	$	43,308	$	(39,210)

Basic earnings (loss) per share	$	0.39	$	(0.15)	$	1.93	$	(1.64)

Diluted earnings (loss) per share	$	0.39	$	(0.15)	$	1.93	$	(1.64)

Comprehensive income:
Net income (loss)	$	8,603	$	(3,622)	$	43,308	$	(39,210)
Unrealized gain (loss) on available-for-sale securities, net of
deferred income taxes of ($150) and ($235) for the three and
nine months ended October 30, 2021 and ($85) and ($29) for
the three and nine months ended October 31, 2020, respectively		(496)		(282)		(775)		(96)
Comprehensive income (loss)	$	8,107	$	(3,904)	$	42,533	$	(39,306)

Three Months Ended

Nine Months Ended

October 28, 2017

October 29, 2016

October 28, 2017

October 29, 2016

(Dollars in thousands, except per share data)
REVENUES

Retail sales
$
188,368

$
207,022

$
631,049

$
729,173
Other revenue (principally finance charges, late fees and

    layaway charges)

1,905

2,240

5,926

6,949
    Total revenues

190,273

209,262

636,975

736,122

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown below)

124,462

133,627

411,503

446,658
Selling, general and administrative (exclusive of depreciation

    shown below)

62,100

67,815

190,162

206,441
Depreciation

5,047

5,734

14,989

17,082
Interest and other income

(1,200)

(1,288)

(3,472)

(5,593)
    Cost and expenses, net

190,409

205,888

613,182

664,588

Income/(Loss) before income taxes

(136)

3,374

23,793

71,534

Income tax (benefit)/expense

(2,830)

(4,886)

(252)

11,513

Net income
$
2,694

$
8,260

$
24,045

$
60,021

Basic earnings per share
$
0.11

$
0.30

$
0.93

$
2.17

Diluted earnings per share
$
0.11

$
0.30

$
0.93

$
2.17

Dividends per share
$
0.33

$
0.33

$
0.99

$
0.96

Comprehensive income:

Net income
$
2,694

$
8,260

$
24,045

$
60,021
Unrealized gain (loss) on available-for-sale securities, net of

   deferred income taxes of ($101) and $272 for the three and

   nine months ended October 28, 2017 and ($530) and ($160) for

   the three and nine months ended October 29, 2016, respectively

(170)

(881)

455

(269)
Comprehensive income
$
2,524

$
7,379

$
24,500

$
59,752

See notes to condensed consolidated financial statements (unaudited).

The condensed consolidated financial statements have been prepared from the accounting records of The Cato Corporation and its wholly-owned subsidiaries (the “Company”), and all amounts shown as of and for the periods ended October ~~28, 2017~~30, 2021 and October ~~29, 2016~~31, 2020 are unaudited. In the opinion of management, all adjustments considered necessary for a fair ~~statement~~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 ~~28, 2017.~~30, 2021. Amounts as of January ~~28, 2017~~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.

During the first quarter of 2017, the Company changed its estimates for unrecognized benefits of uncertain tax positions. As a result of this change in estimate, Income tax expense decreased by $1.5 million, Other noncurrent liabilities decreased by $2.5 million, and Noncurrent deferred income taxes decreased by $1.0 million.

~~In November 2017, the Company repurchased 228,100 shares of its Class A common stock for $2,975,320.~~

On November ~~16, 2017,~~18, 2021, the Board of Directors maintained the quarterly dividend at ~~$0.33~~$0.17 per share.

The COVID-19 pandemic adversely impacted the Company's business, financial condition and operating results through fiscal 2020. Through the first three quarters of 2021, the Company 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 remain well below 2019 sales for the comparable period, and there is still significant uncertainty regarding the lingering effects of the pandemic, as well as concerns over the impact of new or potential variants of the virus that are more transmissible or severe, stagnant vaccination rates and related factors continue to impede 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 throughout the upcoming holiday shopping season and remainder of fiscal 2021 and likely 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.

~~Table of Contents~~

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ANDNINE MONTHS ENDED OCTOBER ~~28, 2017~~30, 2021 AND OCTOBER ~~29, 2016~~31, 2020

While the Company currently anticipates a continuation of the adverse impacts of COVID-19 during 2021 and likely beyond, the duration and severity of these effects will depend on the course of future developments, which are highly uncertain, including the relative speed and success of, as well as public confidence in, mitigation measures such as the current effort to vaccinate substantial portions of the U.S. and global population, emerging information regarding variants of the virus or new viruses and their potential impact on current mitigation efforts, public attitudes toward continued compliance with containment and mitigation measures, and possible new information and understanding that could alter the course and duration of current measures to combat the spread of the virus.

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.

9
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 30, 2021 AND OCTOBER 31, 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.~~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				Nine Months Ended						Three Months Ended				Nine Months Ended
				October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016				October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
		(Dollars in thousands)										(Dollars in thousands)
Numerator	Numerator										Numerator
	Net earnings		$	2,694	$	8,260	$	24,045	$	60,021	Net earnings (loss)		$	8,603	$	(3,622)	$	43,308	$	(39,210)
	Earnings/(loss) allocated to non-vested equity awards			(56)		(170)		(531)		(1,223)	(Earnings) loss allocated to non-vested equity awards			(464)		155		(2,239)		1,706
	Net earnings available to common stockholders		$	2,638	$	8,090	$	23,514	$	58,798	Net earnings (loss) available to common stockholders		$	8,139	$	(3,467)	$	41,069	$	(37,504)

Denominator	Denominator										Denominator
	Basic weighted average common shares outstanding			24,537,974		26,738,809		25,150,377		27,039,343	Basic weighted average common shares outstanding			21,030,099		22,674,507		21,295,693		22,847,776
	Dilutive effect of stock options			-		1,436		-		1,807	Diluted weighted average common shares outstanding			21,030,099		22,674,507		21,295,693		22,847,776
	Diluted weighted average common shares outstanding			24,537,974		26,740,245		25,150,377		27,041,150

Net income/(loss) per common share
Net income (loss) per common share											Net income (loss) per common share
	Basic earnings/(loss) per share		$	0.11	$	0.30	$	0.93	$	2.17	Basic earnings (loss) per share		$	0.39	$	(0.15)	$	1.93	$	(1.64)
	Diluted earnings/(loss) per share		$	0.11	$	0.30	$	0.93	$	2.17	Diluted earnings (loss) per share		$	0.39	$	(0.15)	$	1.93	$	(1.64)

710

~~Table of Contents~~

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ANDNINE MONTHS ENDED OCTOBER ~~28, 2017~~30, 2021 AND OCTOBER ~~29, 2016~~31, 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 October ~~28, 2017:~~30, 2021:

	Changes in Accumulated Other
	Comprehensive Income (a)
			Unrealized Gains
			and (Losses) on
			Available-for-Sale
			Securities
Beginning Balance at July 31, 2021		$	876
Other comprehensive income before
reclassification			(567)

Amounts reclassified from accumulated
other comprehensive income (b)			71

Net current-period other comprehensive income			(496)

Ending Balance at October 30, 2021		$	380

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.
(b) Includes $92 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 $21.

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at July 29, 2017

$
411

   Other comprehensive income before

   reclassification

(144)

   Amounts reclassified from accumulated

   other comprehensive income (b)

(26)

Net current-period other comprehensive income

(170)

Ending Balance at October 28, 2017

$
241

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.

(b) Includes ($41) 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 ($15).

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive ~~income/(loss)~~income (in thousands) for the nine months ended October ~~28, 2017:~~30, 2021:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at January 28, 2017

$
(214)

   Other comprehensive income before

   reclassification

478

   Amounts reclassified from accumulated

   other comprehensive income (b)

(23)

Net current-period other comprehensive income

455

Ending Balance at October 28, 2017

$
241

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.

(b) Includes ($36) 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 ($13).

	Changes in Accumulated Other
	Comprehensive Income (a)
			Unrealized Gains
			and (Losses) on
			Available-for-Sale
			Securities
Beginning Balance at January 30, 2021		$	1,155
Other comprehensive income before
reclassification			(911)

Amounts reclassified from accumulated
other comprehensive income (b)			136

Net current-period other comprehensive income			(775)

Ending Balance at October 30, 2021		$	380

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.
(b) Includes $177 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 $41.

811

~~Table of Contents~~

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ANDNINE MONTHS ENDED OCTOBER ~~28, 2017~~30, 2021 AND OCTOBER ~~29, 2016~~31, 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 October ~~29, 2016:~~31, 2020:

	Changes in Accumulated Other
	Comprehensive Income (a)
			Unrealized Gains
			and (Losses) on
			Available-for-Sale
			Securities
Beginning Balance at August 1, 2020		$	1,609
Other comprehensive income before
reclassifications			(350)

Amounts reclassified from accumulated
other comprehensive income (b)			68

Net current-period other comprehensive income			(282)

Ending Balance at October 31, 2020		$	1,327

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.
(b) Includes $89 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 $21.

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at July 30, 2016

$
1,412

   Other comprehensive income before

   reclassifications

(765)

   Amounts reclassified from accumulated

   other comprehensive income (b)

(116)

Net current-period other comprehensive income

(881)

Ending Balance at October 29, 2016

$
531

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.

(b) Includes ($185) 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 ($69).

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the nine months ended October ~~29, 2016:~~31, 2020:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at January 30, 2016

$
800

   Other comprehensive income before

   reclassifications

(101)

   Amounts reclassified from accumulated

   other comprehensive income (b)

(168)

Net current-period other comprehensive income

(269)

Ending Balance at October 29, 2016

$
531

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.

(b) Includes ($269) 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 ($101).

	Changes in Accumulated Other
	Comprehensive Income (a)
			Unrealized Gains
			and (Losses) on
			Available-for-Sale
			Securities
Beginning Balance at February 1, 2020		$	1,423
Other comprehensive income before
reclassifications			(732)

Amounts reclassified from accumulated
other comprehensive income (b)			636

Net current-period other comprehensive income			(96)

Ending Balance at October 31, 2020		$	1,327

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.
(b) Includes $827 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 $191.

912

~~Table of Contents~~

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ANDNINE MONTHS ENDED OCTOBER ~~28, 2017~~30, 2021 AND OCTOBER ~~29, 2016~~31, 2020

NOTE 4 – FINANCING ARRANGEMENTS:

As of October ~~28, 2017,~~30, 2021, the Company had an unsecured revolving credit agreement, ~~to borrow~~which provides for borrowings of up to $35.0 million, less the balance of any revocable letters of credit ~~as discussed below. The~~related to purchase commitments. On June 2, 2020, the Company signed an amendment extending the revolving credit agreement ~~is committed until August 2020.~~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 October ~~28, 2017.~~30, 2021. There were no borrowings outstanding under this credit facility, ~~during the periods ended~~nor any outstanding letters of credit that reduced borrowing availability, as of October ~~28, 2017~~30, 2021 or January ~~28, 2017.~~30, 2021. The weighted average interest rate under the credit facility was zero at October ~~28, 2017~~30, 2021 due to no borrowings outstanding.

~~At October 28, 2017 and January 28, 2017, 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, including Cato, It’s Fashion, Versona and Credit. As outlined in ASC 280-10, the Company has two reportable segments: Retail and Credit. The Company has aggregated its three retail operating segments, including e-commerce, based on the aggregation criteria outlined in ASC 280-10, which states that two or more operating segments may be aggregated into a single reportable segment if aggregation is consistent with the objective and basic principles of ASC 280-10, which require the segments to have similar economic characteristics, products, production processes, clients and methods of distribution.

The Company’s retail operating segments have similar economic characteristics and similar operating, financial and competitive risks. They are similar in nature of product, as they all offer women’s apparel, shoes and accessories. Merchandise inventory for the Company’s retail operating segments is sourced from the same countries and some of the same vendors, using similar production processes. Merchandise for the Company’s operating segments is distributed to retail stores in a similar manner through the Company’s single distribution center and is subsequently distributed to clients in a similar manner.

The Company operates its women’s fashion specialty retail stores in 3332 states as of October ~~28, 2017,~~30, 2021, principally in the southeastern United States. The Company offers its own credit card to its customers and all credit authorizations, payment processing and collection efforts are performed by a ~~separate~~wholly-owned subsidiary of the Company.

1013

~~Table of Contents~~

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ANDNINE MONTHS ENDED OCTOBER ~~28, 2017~~30, 2021 AND OCTOBER ~~29, 2016~~31, 2020

NOTE 5 – REPORTABLE SEGMENT INFORMATION (CONTINUED):

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

Three Months Ended				Nine Months Ended
October 30, 2021	Retail	Credit	Total	October 30, 2021	Retail	Credit	Total

Revenues	$171,708	$505	$172,213	Revenues	$591,497	$1,547	$593,044
Depreciation	3,172	1	3,173	Depreciation	9,351	1	9,352
Interest and other income	(541)	0	(541)	Interest and other income	(1,719)	0	(1,719)
Income/(Loss) before income taxes	2,863	27	2,890	Income/(Loss) before income taxes	44,769	468	45,237
Capital expenditures	665	0	665	Capital expenditures	1,790	0	1,790

Three Months Ended				Nine Months Ended
October 31, 2020	Retail	Credit	Total	October 31, 2020	Retail	Credit	Total

Revenues	$150,203	$588	$150,791	Revenues	$417,616	$2,077	$419,693
Depreciation	3,618	1	3,619	Depreciation	11,112	1	11,113
Interest and other income	(791)	0	(791)	Interest and other income	(3,603)	0	(3,603)
Income/(Loss) before income taxes	(13,559)	233	(13,326)	Income/(Loss) before income taxes	(62,851)	943	(61,908)
Capital expenditures	1,428	0	1,428	Capital expenditures	11,228	0	11,228

	Retail	Credit	Total

Total assets as of October 30, 2021	$544,131	$43,027	$587,158
Total assets as of January 30, 2021	549,349	42,103	591,452

Three Months Ended

Nine Months Ended

October 28, 2017
Retail
Credit
Total

October 28, 2017
Retail
Credit
Total

Revenues
$189,263
$1,010
$190,273

Revenues
$633,816
$3,159
$636,975
Depreciation
5,039
8
5,047

Depreciation
14,958
31
14,989
Interest and other income
(1,200)
-
(1,200)

Interest and other income
(3,472)
-
(3,472)
Income/(Loss) before
   income taxes
(313)
177
(136)

Income/(Loss) before
   income taxes
22,872
921
23,793
Capital expenditures
2,337
-
2,337

Capital expenditures
8,762
-
8,762

Three Months Ended

Nine Months Ended

October 29, 2016
Retail
Credit
Total

October 29, 2016
Retail
Credit
Total

Revenues
$208,060
$1,202
$209,262

Revenues
$732,408
$3,714
$736,122
Depreciation
5,722
12
5,734

Depreciation
17,045
37
17,082
Interest and other income
(1,288)
-
(1,288)

Interest and other income
(5,593)
-
(5,593)
Income/(Loss) before
   income taxes
3,010
364
3,374

Income/(Loss) before
   income taxes
70,330
1,204
71,534
Capital expenditures
14,091
-
14,091

Capital expenditures
24,043
-
24,043

Retail
Credit
Total

Total assets as of October 28, 2017
$492,785
$55,566
$548,351

Total assets as of January 28, 2017
554,716
51,608
606,324

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				Nine Months Ended				Three Months Ended				Nine Months Ended
		October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016		October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020

Bad debt expense	$	208	$	216	$	466	$	658
Payroll		210		214		654		650	$	80	$	135	$	362	$	417
Postage		133		153		406		488		59		85		252		278
Other expenses		274		255		681		714		338		134		464		438
Total expenses	$	825	$	838	$	2,207	$	2,510	$	477	$	354	$	1,078	$	1,133

1114

~~Table of Contents~~

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ANDNINE MONTHS ENDED OCTOBER ~~28, 2017~~30, 2021 AND OCTOBER ~~29, 2016~~31, 2020

NOTE 6 – STOCK-BASED COMPENSATION:

As of October ~~28, 2017,~~30, 2021, the Company had ~~three~~two long-term compensation plans pursuant to which stock-based compensation was outstanding or could be granted. The ~~Company’s 1987 Non-Qualified Stock Option Plan is for the granting of options to officers and key employees. As of October 28, 2017, there were no available stock options for grant. The 2013~~2018 Incentive Compensation Plan and ~~2004 Amended and Restated~~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 ~~23, 2013,~~24, 2018, shares for grant were no longer available under the ~~2004 Amended and Restated~~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 October ~~28, 2017:~~30, 2021:

	2013	2018
	Plan	Plan	Total
Options and/or restricted stock initially authorized	1,500,000	4,725,000	6,225,000
Options and/or restricted stock available for grant:
October 30, 2021	0	3,563,925	3,563,925

1987

2004

2013

Plan

Plan

Plan

Total
Options and/or restricted stock initially authorized
5,850,000

1,350,000

1,500,000

8,700,000
Options and/or restricted stock available for grant:

October 28, 2017
-

-

852,491

852,491

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 October ~~28, 2017~~30, 2021 and January ~~28, 2017,~~30, 2021, there was ~~$13,055,000~~$12,323,000 and ~~$12,685,000,~~$10,550,000, respectively, of total unrecognized compensation expense related to nonvested restricted stock awards, which had a remaining weighted-average vesting period of ~~2.2~~2.5 years and ~~2.5~~2.1 years, respectively. The total ~~fair value of the shares recognized as~~ compensation expense during the three and nine months ended October ~~28, 2017~~30, 2021 was ~~$1,185,000~~$1,088,000 and ~~$2,911,000,~~$2,968,000, respectively, compared to ~~$1,145,000~~$1,082,000 and ~~$2,948,000,~~$2,941,000, respectively, for the three and nine months ended October ~~29, 2016.~~31, 2020. These expenses are classified as a component of Selling, general and administrative expenses in the Condensed Consolidated Statements of ~~Income.~~Income (Loss) and Comprehensive Income (Loss).

The following summary shows the changes in the shares of unvested restricted stock outstanding during the nine months ended October ~~28, 2017:~~30, 2021:

			Weighted Average			Weighted Average
	Number of		Grant Date Fair	Number of		Grant Date Fair
	Shares		Value Per Share	Shares		Value Per Share
Restricted stock awards at January 28, 2017	561,323	$	32.22
Restricted stock awards at January 30, 2021				1,023,956	$	15.33
Granted	191,919		22.44	407,910		13.49
Vested	(125,761)		26.40	(176,575)		22.22
Forfeited or expired	(26,204)		31.78	(42,457)		13.98
Restricted stock awards at October 28, 2017	601,277	$	30.33
Restricted stock awards at October 30, 2021				1,212,834	$	13.76

1215

~~Table of Contents~~

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ANDNINE MONTHS ENDED OCTOBER ~~28, 2017~~30, 2021 AND OCTOBER ~~29, 2016~~31, 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 nine months ended October ~~28, 2017~~30, 2021 and October ~~29, 2016,~~31, 2020, the Company sold ~~31,466~~22,541 and ~~16,071~~48,191 shares to employees at an average discount of ~~$2.50~~$1.38 and ~~$5.12~~$1.43 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 ~~$79,000~~$31,000 and ~~$82,000~~$69,000 for the nine months ended October ~~28, 2017~~30, 2021 and October ~~29, 2016,~~31, 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 October ~~28, 2017~~30, 2021 and January ~~28, 2017:~~30, 2021:

				Quoted											Quoted
				Prices in											Prices in
				Active			Significant								Active			Significant
				Markets for			Other			Significant					Markets for			Other			Significant
				Identical			Observable			Unobservable					Identical			Observable			Unobservable
	October 28, 2017			Assets			Inputs			Inputs		October 30, 2021			Assets			Inputs			Inputs
Description			Level 1			Level 2			Level 3			October 30, 2021		Level 1			Level 2			Level 3
Assets:	October 28, 2017
State/Municipal Bonds	$	112,024		$	-		$	112,024		$	-	$	31,104		$	0		$	31,104		$	0
Corporate Bonds		23,793			-			23,793			-		99,364			0			99,364			0
U.S. Treasury Notes		402			402			-			-
U.S. Treasury/Agencies Notes and Bonds													22,388			0			22,388			0
Cash Surrender Value of Life Insurance		8,428			-			-			8,428		11,759			0			0			11,759
Asset-backed Securities (ABS)		389			-			389			-		21,920			0			21,920			0
Corporate Equities		762			762			-			-		828			828			0			0
Certificates of Deposit		100			100			-			-
Commercial Paper													1,344			0			1,344			0
Total Assets	$	145,898		$	1,264		$	136,206		$	8,428	$	188,707		$	828		$	176,120		$	11,759

Liabilities:
Deferred Compensation		(8,538)			-			-			(8,538)		(10,497)			0			0			(10,497)
Total Liabilities	$	(8,538)		$	-		$	-		$	(8,538)	$	(10,497)		$	0		$	0		$	(10,497)

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

January 28, 2017

Assets

Inputs

Inputs
Description

Level 1

Level 2

Level 3
Assets:

    State/Municipal Bonds

$
172,953

$
-

$
172,953

$
-
    Corporate Bonds

25,329

-

25,329

-
    U.S. Treasury Notes

1,206

1,206

-

-
    Cash Surrender Value of Life Insurance

7,973

-

-

7,973
    Asset-backed Securities (ABS)

2,951

-

2,951

-
    Corporate Equities

722

722

-

-
    Certificates of Deposit

100

100

-

-
Total Assets

$
211,234

$
2,028

$
201,233

$
7,973

Liabilities:

    Deferred Compensation

(7,649)

-

-

(7,649)
Total Liabilities

$
(7,649)

$
-

$
-

$
(7,649)

1316

~~Table of Contents~~

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ANDNINE MONTHS ENDED OCTOBER ~~28, 2017~~30, 2021 AND OCTOBER ~~29, 2016~~31, 2020

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
		January 30, 2021	Assets		Inputs		Inputs
Description		January 30, 2021	Level 1		Level 2		Level 3
Assets:
State/Municipal Bonds	$	23,254	$	0	$	23,254	$	0
Corporate Bonds		67,566		0		67,566		0
U.S. Treasury/Agencies Notes and Bonds		17,869		0		17,869		0
Cash Surrender Value of Life Insurance		11,263		0		0		11,263
Asset-backed Securities (ABS)		16,064		0		16,064		0
Corporate Equities		703		703		0		0
Commercial Paper		2,069		0		2,069		0
Total Assets	$	138,788	$	703	$	126,822	$	11,263

Liabilities:
Deferred Compensation		(10,316)		0		0		(10,316)
Total Liabilities	$	(10,316)	$	0	$	0	$	(10,316)

The Company’s investment portfolio was primarily invested in corporate bonds and tax-exempt and taxable governmental debt securities held in managed accounts with underlying ratings of A or better at October ~~28, 2017~~30, 2021 and January ~~28, 2017.~~30, 2021. The state, municipal and corporate bonds have contractual maturities which range from ~~four~~two days to ~~30.0~~five years. The U.S. Treasury Notes ~~and Certificates of Deposit~~ have contractual maturities which range from ~~five~~six months to ~~six months.~~two years. These securities are classified as available-for-sale and are recorded as Short-term investments, Restricted cash and Restricted short-term investments ~~and Other assets~~ on the accompanying Condensed Consolidated Balance Sheets. These assets are carried at fair value with unrealized gains and losses reported net of taxes in Accumulated other comprehensive income. The asset-backed securities are bonds comprised of auto loans and bank credit cards that carry AAA ratings. The auto loan asset-backed securities are backed by static pools of auto loans that were originated and serviced by captive auto finance units, banks or finance companies. The bank credit card asset-backed securities are backed by revolving pools of credit card receivables generated by account holders of cards from American Express, Citibank, JPMorgan Chase, Capital One and Discover.

Additionally, at October ~~28, 2017,~~30, 2021, the Company had $0.8 million of corporate equities and deferred compensation plan assets of ~~$8.4~~$11.8 million. At January ~~28, 2017,~~30, 2021, the Company had $0.7 million of corporate equities and deferred compensation plan assets of ~~$8.0~~$11.3 million. All of these assets are recorded within Other assets in the Condensed Consolidated Balance Sheets.

Level 1 category securities are measured at fair value using quoted active market prices. Level 2 investment securities include corporate ~~and~~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

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 30, 2021 AND OCTOBER 31, 2020

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.~~funds’ net asset values, as recorded in Other noncurrent liabilities in the Condensed Consolidated Balance Sheet. These funds are designed to mirror ~~existing~~ mutual funds and money market funds that are observable and actively traded. ~~Cash surrender values are provided by third parties and reviewed for reasonableness by the Company.~~

~~Table of Contents~~

~~THE CATO CORPORATION~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~FOR THE THREE MONTHS AND~~~~NINE MONTHS ENDED OCTOBER 28, 2017 AND OCTOBER 29, 2016~~

The following tables summarize the change in fair value of the Company’s financial assets and liabilities measured using Level 3 inputs as of October ~~28, 2017~~30, 2021 and January ~~28, 2017~~30, 2021 (in thousands):

	Fair Value		Fair Value
	Measurements Using		Measurements Using
	Significant Unobservable		Significant Unobservable
	Asset Inputs (Level 3)		Asset Inputs (Level 3)
	Cash Surrender Value		Cash Surrender Value
Beginning Balance at January 28, 2017	$	7,973
Redemptions		-
Beginning Balance at January 30, 2021			$	11,263
Additions		74		0
Total gains or (losses)
Included in interest and other income (or changes in net assets)		381		496
Included in other comprehensive income		-		0
Ending Balance at October 28, 2017	$	8,428
Ending Balance at October 30, 2021			$	11,759

	Fair Value		Fair Value
	Measurements Using		Measurements Using
	Significant Unobservable		Significant Unobservable
	Liability Inputs (Level 3)		Liability Inputs (Level 3)
	Deferred Compensation		Deferred Compensation
Beginning Balance at January 28, 2017	$	(7,649)
Beginning Balance at January 30, 2021			$	(10,316)
Redemptions				714
Additions		(338)		(245)
Total (gains) or losses
Included in interest and other income (or changes in net assets)		(551)		(650)
Included in other comprehensive income		-		-
Ending Balance at October 28, 2017	$	(8,538)
Ending Balance at October 30, 2021			$	(10,497)

1518

~~Table of Contents~~

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ANDNINE MONTHS ENDED OCTOBER ~~28, 2017~~30, 2021 AND OCTOBER ~~29, 2016~~31, 2020

	Fair Value		Fair Value
	Measurements Using		Measurements Using
	Significant Unobservable		Significant Unobservable
	Asset Inputs (Level 3)		Asset Inputs (Level 3)
	Cash Surrender Value		Cash Surrender Value
Beginning Balance at January 30, 2016	$	6,409
Redemptions		-
Beginning Balance at February 1, 2020			$	10,517
Additions		1,059		0
Total gains or (losses)
Included in interest and other income (or changes in net assets)		284		746
Included in other comprehensive income		-		0
Ending Balance at October 29, 2016	$	7,752
Ending Balance at January 30, 2021			$	11,263

	Fair Value		Fair Value
	Measurements Using		Measurements Using
	Significant Unobservable		Significant Unobservable
	Liability Inputs (Level 3)		Liability Inputs (Level 3)
	Deferred Compensation		Deferred Compensation
Beginning Balance at January 30, 2016	$	(6,187)
Beginning Balance at February 1, 2020			$	(10,391)
Redemptions				1,714
Additions		(592)		(652)
Total (gains) or losses
Included in interest and other income (or changes in net assets)		(464)		(987)
Included in other comprehensive income		-		-
Ending Balance at October 29, 2016	$	(7,243)
Ending Balance at January 30, 2021			$	(10,316)

1619

~~Table of Contents~~

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ANDNINE MONTHS ENDED OCTOBER ~~28, 2017~~30, 2021 AND OCTOBER ~~29, 2016~~31, 2020

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

~~Recently Adopted Accounting Policies~~

In ~~July 2015,~~March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ~~Accounting Standards Board issued an~~Reporting. In January 2021, the FASB clarified the scope of that guidance with the issuance of ASU 2021-01, Reference Rate Reform: Scope. The new accounting ~~standards update that will simplify~~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 measurement of inventory for companies. The standard differentiates the valuation methods used to measure inventory based on the type of inventory method utilized by a company. Companies using the first-in, first-out method and the average cost method will measure inventory at the net realizable value method to measure inventory. Companies using the last-in, first-out method and the retail method will use the lower of cost or market to measure inventory. The standard was effective for the Company’s firstfourth quarter of ~~its 2017 fiscal year. In the first quarter of 2017, the Company adopted this new guidance and it did not have a material impact on the financial statements.~~

~~Recent Accounting Pronouncements~~

In November 2015, the Financial Accounting Standards Board issued an effective date for a new leasing standard that will require substantially all leases to be recorded on the balance sheet. The standard is effective for the Company’s first quarter of its 2019 fiscal year; early adoption is permitted as of the beginning of an interim or annual reporting period.2022. The Company is ~~assessing what impacts this new standard will have on its consolidated financial statements and expects assets and liabilities to increase.~~

~~In May 2014,~~currently in the Financial Accounting Standards Board issued an accounting standards update that will supersede most current revenue recognition guidance and modify the accounting treatment for certain costs associated with revenue generation. The core principleprocess of the revised revenue recognition standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and provides several steps to apply to achieve that principle. In addition, the new guidance enhances disclosure requirements to include more information about specific revenue contracts entered into by the entity. The standard is effective for the Company’s first quarter of its 2018 fiscal year, and early adoption is permitted. We have substantially completed our evaluation ofevaluating the impact of adoption of the new standard and have determined it will primarily impact our gift card and credit card sales transactions whereby estimated gift card breakage and estimated credit card bad debts will be recognized at the time the initial revenue is recorded. Based on its assessment to date, the Company intends to adopt the full retrospective method in accordance with ASU 606-10-65-1. The Company will finalize our evaluation of the disclosure implications of the standard during the fourth quarter. This standard is not expected to have a material impactrules on the ~~consolidated~~Company’s financial ~~statements.~~condition, results of operations, cash flows and disclosures.

NOTE 9 – INCOME TAXES:

The Company had ~~a $2.8 million~~an effective tax benefit for the quarter ended October 28, 2017 compared to a $4.9 million tax benefit for the quarter ended October 29, 2016. For the first nine months of 2017, the Company had a tax benefit of $252,000 compared to $11.5 million income tax expenserate for the first nine months of ~~2016.~~2021 of 4.3% (Expense) compared to 36.7% (Benefit) for the first nine months of 2020. The ~~tax benefit is attributable to lower earnings, a higher proportion of income being generated from jurisdictions with lower tax rates, ongoing savings from tax initiatives, and a~~ change in ~~estimate~~the effective tax rate for the first nine months was primarily due to higher pre-tax earnings, ability to realize foreign tax credits, release of reserves for uncertain tax ~~positions. See Note 1, General.~~positions due to the expiration of the statute of limitations and a favorable adjustment to the federal net operating loss carryback, partially offset by increases in state income taxes. Further, the Coronavirus Aid, Relief and Economic Security Act (“CARES”) allows the Company to carryback losses five years; therefore, the Company has recorded $38.1 million of estimated refunds calculated through the third quarter of 2021 in Accounts receivable in the Condensed Consolidated Balance Sheets.

~~Table of Contents~~

~~THE CATO CORPORATION~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~FOR THE THREE MONTHS AND~~~~NINE MONTHS ENDED OCTOBER 28, 2017 AND OCTOBER 29, 2016~~

NOTE 10 – COMMITMENTS AND CONTINGENCIES:

The Company is, from time to time, involved in routine litigation incidental to the conduct of ~~our~~its business, including litigation regarding the merchandise that ~~we sell,~~it sells, litigation regarding intellectual property, litigation instituted by persons injured upon premises under ~~our~~its control, litigation with respect to various employment matters, including alleged discrimination and wage and hour litigation, and litigation with present or former employees. ~~The Company has approximately $9.9 million in accrued litigation expense at October 28, 2017.~~

Although such litigation is routine and incidental to the conduct of ~~our~~the Company’s business, as with any business of ~~our~~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 ~~our~~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. ~~We accrue~~The Company accrues for these matters when the liability is deemed probable and reasonably estimable.

NOTE 11 – REVENUE RECOGNITION:

The Company recognizes sales at the point of purchase when the customer takes possession of the merchandise and pays for the purchase, generally with cash or credit. Sales from purchases made with Cato credit, gift cards and layaway sales from stores are also recorded when the customer takes possession of the merchandise. E-commerce sales are recorded when the risk of loss is transferred to the customer. Gift cards are recorded as deferred revenue until they are redeemed or forfeited. Layaway sales

1820

~~Table of Contents~~

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 30, 2021 AND OCTOBER 31, 2020

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 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 nine months ended October 30, 2021, the Company estimated customer credit losses of $,134000 and $,409000, respectively, compared to $125,000 and $311,000 for the three and nine months ended October 31, 2020, respectively. Sales purchased on the Company’s proprietary credit card for the three and nine months ended October 30, 2021 were $4.4 million and $13.6 million, respectively, compared to $4.2 million and $11.1 million for the three and nine months ended October 31, 2020, respectively.

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

	Balance as of
		October 30, 2021		January 30, 2021

Proprietary Credit Card Receivables, net	$	8,710	$	9,606
Gift Card Liability	$	6,024	$	8,155

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 30, 2021 AND OCTOBER 31, 2020

NOTE 12 – LEASES:

The Company determines whether an arrangement is a lease at inception. The Company has operating leases for stores, offices and equipment. Its leases have remaining lease terms of 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 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
		October 30, 2021		October 31, 2020

Operating lease cost (a)	$	17,509	$	17,665
Variable lease cost (b)	$	660	$	480

(a) Includes right-of-use asset amortization of ($0.4) million and ($0.8) million for the three months ended October 30, 2021 and October 31, 2020, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the condensed consolidated balance sheets.

	Nine Months Ended
		October 30, 2021		October 31, 2020

Operating lease cost (a)	$	51,569	$	52,522
Variable lease cost (b)	$	2,153	$	999

(a) Includes right-of-use asset amortization of ($2.1) million and ($3.5) million for the nine months ended October 30, 2021 and October 31, 2020, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the condensed consolidated balance sheets.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 30, 2021 AND OCTOBER 31, 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
	October 30, 2021		October 31, 2020

Cash paid for amounts included in the measurement of lease liabilities	$	16,485	$	16,109
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations	$	1,705	$	(1,825)


	Nine Months Ended
	October 30, 2021		October 31, 2020

Cash paid for amounts included in the measurement of lease liabilities	$	48,158	$	47,554
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations	$	(23,718)	$	29,659

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:

	As of
	October 30, 2021	October 31, 2020

Weighted-average remaining lease term	2.0 years	2.7 years
Weighted-average discount rate	3.42%	4.14%

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

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 30, 2021 AND OCTOBER 31, 2020

Fiscal Year

2021 (a)	$	16,110
2022		49,333
2023		36,478
2024		22,788
2025		12,456
Thereafter		5,543
Total lease payments		142,708
Less: Imputed interest		7,839
Present value of lease liabilities	$	134,869

(a) Excluding the 9 months ended October 30, 2021.

THE CATO CORPORATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING INFORMATION:

The following information should be read along with the unaudited Condensed Consolidated Financial Statements, including the accompanying Notes appearing in this report. Any of the following are “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended: (1) statements in this Form 10-Q that reflect projections or expectations of our future financial or economic performance; (2) statements that are not historical information; (3) statements of our beliefs, intentions, plans and objectives for future operations, including those contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; (4) statements relating to our operations or activities for our fiscal year ending ~~February 3, 2018~~January 29, 2022 (“fiscal ~~2017”~~2021”) and beyond, including, but not limited to, statements regarding expected amounts of capital expenditures and store openings, relocations, remodels and ~~closures;~~closures and statements regarding the potential impact of the COVID-19 pandemic and related responses and mitigation efforts on our business, results of operations and financial condition; and (5) statements relating to our future contingencies. When possible, we have attempted to identify forward-looking statements by using words such as “will,” “expects,” “anticipates,” “approximates,” “believes,” “estimates,” “hopes,” “intends,” “may,” “plans,” “could,” “would,” “should” and any variations or negative formations of such words and similar expressions. We can give no assurance that actual results or events will not differ materially from those expressed or implied in any such forward-looking statements. Forward-looking statements included in this report are based on information available to us as of the filing date of this report, but subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those contemplated by the forward-looking statements. Such factors include, but are not limited to, the following: any actual or perceived deterioration in the conditions that drive consumer confidence and spending, including, but not limited to, prevailing social, economic, political and public health conditions and uncertainties, levels of unemployment, fuel, energy and food costs, wage rates, tax rates, interest rates, home values, consumer net worth and the availability of credit; changes in laws, regulations or ~~regulations~~governmental policies affecting our ~~business;~~business, including tariffs; uncertainties regarding the impact of any governmental actions regarding, or responses to, the foregoing conditions; competitive factors and pricing pressures; our ability to predict and respond to rapidly changing fashion trends and consumer demands; our ability to successfully implement our new store development strategy to increase new store openings and our ability of any such new stores to grow and perform as expected; adverse weather, public health threats (including the COVID-19 pandemic) or similar conditions that may affect our sales or operations; inventory risks due to shifts in market demand, including the ability to liquidate excess inventory at anticipated margins; and other factors discussed under “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K for the fiscal year ended January ~~28, 2017~~30, 2021 (“fiscal ~~2016”~~2020”), as amended or supplemented, and in other reports we file with or furnish to the Securities and Exchange Commission (“SEC”) from time to time. We do not undertake, and expressly decline, any obligation to update any such forward-looking information contained in this report, whether as a result of new information, future events, or otherwise.

2025

~~Table of Contents~~

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

CRITICAL ACCOUNTING ~~POLICIES:~~

POLICIES AND ESTIMATES:

The Company’s accounting policies are more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended January ~~28, 2017.~~30, 2021. As disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include the allowance for ~~doubtful accounts,~~customer credit losses, 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.

The Company’s critical accounting policies and estimates are discussed with the Audit Committee.

2126

~~Table of Contents~~

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS:

The following table sets forth, for the periods indicated, certain items in the Company's unaudited Condensed Consolidated Statements of Income as a percentage of total retail sales:

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016		October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Total retail sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Other revenue	1.0		1.1		0.9		1.0		1.0		1.1		0.9		1.3
Total revenues	101.0		101.1		100.9		101.0		101.0		101.1		100.9		101.3
Cost of goods sold (exclusive of depreciation)	66.1		64.5		65.2		61.3		61.1		73.3		58.4		78.6
Selling, general and administrative (exclusive of depreciation)	33.0		32.8		30.1		28.3		36.6		34.8		33.5		35.8
Depreciation	2.7		2.8		2.4		2.3		1.9		2.4		1.6		2.7
Interest and other income	(0.6)		(0.6)		(0.6)		(0.8)		(0.3)		(0.5)		(0.3)		(0.9)
Income before income taxes	(0.1)		1.6		3.8		9.8
Net income	1.4		4.0		3.8		8.2
Income (loss) before income taxes									1.7		(8.9)		7.7		(14.9)
Net income (loss)									5.0		(2.4)		7.4		(9.5)

2227

~~Table of Contents~~

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED):

COVID-19 Update

Comparison of the Three and Nine Months ended October ~~28, 2017~~30, 2021 with October ~~29, 2016~~31, 2020

Total retail sales for the third quarter were ~~$188.4~~$170.5 million compared to last year’s third quarter sales of ~~$207.0~~$149.2 million, a ~~9.0% decrease.~~14% increase. The Company’s sales increase in the third quarter of fiscal ~~2017 sales decreased~~2021 is primarily due to a ~~9.3% decrease~~14% increase in same-store sales and sales from new stores, partially offset by permanently closed stores in 2020. The increase in same-store sales ~~from non-comparable stores.~~is primarily due to stores being open in this year’s third quarter, as opposed to operating on limited hours during the third quarter of 2020. For the nine months ended October ~~28, 2017,~~30, 2021, total retail sales were ~~$631.0~~$587.7 million compared to last year’s comparable nine month sales of ~~$729.2 million.~~

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

$414.3 million, a 42% increase. Sales in the first nine months of fiscal ~~2017 decreased~~2021 increased primarily due to a ~~13.7% decrease~~41% increase in same-store sales and sales from new stores, partially offset by permanently closed stores in 2020. Same-store sales for the nine months ended October 30, 2021 increased primarily due to stores being open in the first nine months of 2021 as opposed to closed from ~~non-comparable stores.~~March 19, 2020 into the second quarter of 2020. Same-store sales include stores that have been open more than 15 months. Stores that have been relocated or expanded are also included in the same-store sales calculation after they have been open more than 15 months. The method of calculating same-store sales varies across the retail industry. As a result, our same-store sales calculation may not be comparable to similarly titled measures reported by other companies. E-commerce sales were less than 2%5% of total sales for the nine months ended October ~~28, 2017~~30, 2021 and are included in the same-store sales calculation. Total revenues, comprised of retail sales and other revenue (principally finance charges and late fees on customer accounts receivable and layaway fees), were ~~$190.3~~$172.2 million and ~~$637.0~~$593.0 million for the three and nine months ended October ~~28, 2017,~~30, 2021, compared to ~~$209.3~~$150.8 million and ~~$736.1~~$419.7 million for the three and nine months ended October ~~29, 2016,~~31, 2020, respectively. The Company operated ~~1,370~~1,324 stores at October ~~28, 2017~~30, 2021 compared to ~~1,372~~1,347 stores at the end of last year’s third quarter. ~~For~~During the first nine months of fiscal ~~2017,~~2021, the Company ~~opened~~closed six ~~new stores, relocated three stores and closed seven~~ stores. ~~In total, the~~The Company currently expects to open ~~approximately six stores, relocate two~~fewer than 10 stores and to close 26approximately 25 stores in fiscal ~~2017.~~2021.

Credit revenue of ~~$1.0~~$0.5 million represented ~~0.5%~~0.3% of total revenues in the third quarter of fiscal ~~2017,~~2021, compared to ~~2016~~2020 credit revenue of ~~$1.2~~$0.6 million or ~~0.6%~~0.4% of total revenues. ~~Credit revenue decreased for the most recent comparable period due to lower finance charge income under the Company’s proprietary credit card.~~ Credit revenue is comprised of interest earned on the Company’s private label credit card portfolio and related fee income. Credit revenue decreased slightly for the most recent comparable period due to lower finance charge income and lower late fee income from sales using the Company’s proprietary credit card. Related expenses principally include ~~bad debt expense,~~ payroll, postage and other administrative expenses and totaled ~~$0.8~~$0.5 million in the third quarter of fiscal ~~2017,~~2021, compared to last year’s third quarter expense of ~~$0.8~~$0.4 million.

Other revenue in total, as included in total revenues, was ~~$1.9~~$1.7 million and ~~$5.9~~$5.3 million for the three and nine months ended October ~~28, 2017,~~30, 2021, respectively, compared to ~~$2.2~~$1.6 million and ~~$6.9~~$5.4 million for the prior year’s comparable three and nine month periods. The overall slight decrease in the ~~three and~~ nine months ended October ~~28, 2017 resulted~~30, 2021 is primarily ~~from lower~~due to a decrease in finance charge income, partially offset by increases in layaway charges and ~~credit revenue.~~gift card breakage income.

Cost of goods sold was ~~$124.5~~$104.2 million, or ~~66.1%~~61.1% of retail sales and ~~$411.5~~$343.5 million, or ~~65.2%~~58.4% of retail sales for the three and nine months ended October ~~28, 2017,~~30, 2021, respectively, compared to ~~$133.6~~$109.4 million, or ~~64.5%~~73.3% of retail sales and ~~$446.7~~$325.7 million, or ~~61.3%~~78.6% of retail sales for the comparable three and nine month periods of fiscal ~~2016.~~2020. The overall ~~increase~~decrease in cost of goods sold as a percent of retail sales for the third quarter of fiscal ~~2017~~ 2021 resulted primarily from ~~lower~~the leveraging of occupancy, buying and distribution costs due to more normalized sales and higher sales of regular priced goods ~~and higher sales of markdown goods. In addition, occupancy and purchasing costs as a percent of retail sales increased due to much lower retail sales.~~. Cost of goods sold includes merchandise costs (net of discounts and allowances), buying costs, distribution costs, occupancy costs, freight and inventory shrinkage. Net merchandise costs and in-bound freight are capitalized as inventory costs. Buying and distribution costs include payroll, payroll-related costs and operating expenses for the buying departments and distribution center. Occupancy costs include rent, real estate taxes, insurance, common area maintenance, utilities and maintenance for stores and distribution facilities. Total gross margin dollars (retail sales less cost of goods sold exclusive of depreciation) ~~decreased~~ increased by ~~12.9%~~66.6% to ~~$63.9~~$66.3 million for the third quarter of fiscal ~~2017~~2021 and ~~decreased~~increased by ~~22.3%~~175.9% to ~~$219.5~~$244.2 million for the first nine months of fiscal ~~2017~~2021, compared to ~~$73.4~~$39.8 million and ~~$282.5~~$88.5 million for the prior year’s comparable three and nine months of fiscal ~~2016.~~2020. Gross margin as presented may not be comparable to those of other entities.

~~Table of Contents~~

~~THE CATO CORPORATION~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS (CONTINUED)~~

Selling, general and administrative expenses (“SG&A”) primarily include corporate and store payroll, related payroll taxes and benefits, insurance, supplies, advertising, bank and credit card processing ~~fees and bad debts.~~fees. SG&A

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

expenses were ~~$62.1~~$62.5 million, or ~~33.0%~~36.6% of retail sales and ~~$190.2~~$196.7 million, or ~~30.1%~~33.5% of retail sales for the third quarter and first nine months of fiscal ~~2017,~~2021, respectively, compared to ~~$67.8~~$51.9 million, or ~~32.8%~~34.8% of retail sales and ~~$206.4~~$148.4 million, or ~~28.3%~~35.8% of retail sales for the prior year’s comparable three and nine month ~~periods, respectively.~~periods. The ~~decrease~~overall increase in SG&A expense for the third quarter is primarily due to increased employee benefit/bonus expense and ~~for~~store operating expenses as store operating hours have increased substantially compared to the prior year’s phased store reopening following the extended store closure due to COVID-19, partially offset by a decrease in insurance expense. For the first nine months of fiscal ~~2017~~2021, the overall increase in SG&A expense was primarily attributable to ~~lower litigation costs~~increased employee benefit/bonus expense and store ~~expenses.~~operating expenses as operating hours have increased substantially compared to the prior year’s phased store reopening following the extended store closure due to COVID-19, partially offset by a $5.3 million non-cash impairment charge in 2020.

Depreciation expense was ~~$5.0~~$3.2 million, or ~~2.7%~~1.9% of retail sales and ~~$15.0~~$9.4 million, or ~~2.4%~~1.6% of retail sales for the third quarter and first nine months of fiscal ~~2017,~~2021, respectively, compared to ~~$5.7~~$3.6 million, or ~~2.8%~~2.4% of retail sales and ~~$17.1~~$11.1 million or ~~2.3%~~2.7% of retail sales for the comparable three and nine month periods of fiscal ~~2016,~~2020, respectively. The decrease in depreciation expense is attributable to lower net fixed assets primarily due to $13.7 million of impairment charges in 2020.

Interest and other income was ~~$1.2~~$0.5 million, or ~~0.6%~~0.3% of retail sales and ~~$3.5~~$1.7 million, or ~~0.6%~~0.3% of retail sales for the three and nine months ended October ~~28, 2017,~~30, 2021, respectively, compared to ~~$1.3~~$0.8 million, or ~~0.6%~~0.5% of retail sales and ~~$5.6~~$3.6 million, or ~~0.8%~~0.9% of retail sales for the comparable three and nine month periods of fiscal ~~2016,~~2020, respectively. The decrease for the first nine months of fiscal ~~2017~~2021 compared to ~~2016~~2020 is primarily attributable to lower ~~gift card breakage income as fiscal 2016 included~~interest rates and smaller gains from the ~~effect~~sale of ~~the Company’s change~~investments, partially offset by an increase in ~~the recognition of unredeemed gift card breakage income.~~short-term investments.

Income tax benefit was ~~$2.8 million and $0.3~~$5.7 million for the third quarter and $1.9 million expense for the first nine months of fiscal ~~2017,~~2021, respectively, compared to an income tax benefit of ~~$4.9~~$9.7 million and ~~income tax expense of $11.5~~$22.7 million for the comparable three and nine month periods of fiscal ~~2016,~~2020, respectively. ~~Income tax benefit in the~~ ~~third~~ ~~and first~~ ~~nine~~ months of fiscal 2017 is primarily attributable to lower earnings, a higher proportion of income being generated from jurisdictions with lower tax rates, ongoing savings from tax initiatives, and a change in estimate for uncertain tax positions. See Note 1, General.

~~LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK:~~

~~The Company has consistently maintained a strong liquidity position. Cash provided by operating activities during~~For the first nine months of fiscal ~~2017~~2021, the Company’s effective tax rate was ~~$38.3 million as~~4.3% (Expense) compared to $46.3 million in the first nine months of fiscal 2016. These amounts enable the Company to fund its regular operating needs, capital expenditure program, cash dividend payments, and share repurchases. In addition, the Company maintains a $35.0 million unsecured revolving credit facility for short-term financing of seasonal cash needs. There were no outstanding borrowings on this facility at October 28, 2017 and January 28, 2017.

~~Cash provided by operating activities~~36.7% (Benefit) for the first nine months of ~~fiscal 2017 was primarily generated by earnings adjusted for depreciation and changes~~2020. The change in ~~working capital. The decrease of $8.0 million for~~ the ~~first nine months of fiscal 2017 as compared to the first nine months of fiscal 2016~~2021 year-to-date tax rate was primarily due to higher pre-tax earnings, ability to realize foreign tax credits, release of reserves for uncertain tax positions due to the expiration of the statute of limitations and a ~~decrease in~~favorable adjustment to the federal net ~~income and accounts payable, accrued expenses and other liabilities,~~operating loss carryback, partially offset by ~~a decrease~~increases in ~~merchandise inventories.~~state income taxes.

~~Table of Contents~~

LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK:

~~THE CATO CORPORATION~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL~~

~~CONDITION AND RESULTS OF OPERATIONS (CONTINUED)~~

The Company believes that its cash, cash equivalents and short-term investments, together with cash flows from operations and borrowings available under its revolving credit agreement, will be adequate to fund the Company’s regular operating requirements and expected capital expenditures ~~dividends and share repurchases~~ for fiscal ~~2017~~2021 and the next 12 months.

Cash provided by operating activities during the first nine months of fiscal 2021 was $79.4 million as compared to $26.1 million used in the first nine months of fiscal 2020. Cash provided by operating activities for the first nine months of fiscal 2021 was primarily generated by earnings adjusted for depreciation and changes in working capital. The increase in cash provided of $105.5 million for the first nine months of fiscal 2021 as compared to the first nine months of fiscal 2020 was primarily due to a net income versus a net loss and an increase in accounts payable and accrued liabilities, partially offset by an increase in inventory and a decrease in impairment charges.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

At October ~~28, 2017,~~30, 2021, the Company had working capital of ~~$244.3~~$147.4 million compared to ~~$271.9~~$108.6 million at January ~~28, 2017.~~30, 2021.The increase in working capital is primarily attributable to higher inventory, accounts receivable and short-term investments, partially offset by higher accounts payable and accrued employee benefits and bonus.

At October ~~28, 2017~~30, 2021 and January ~~28, 2017,~~30, 2021, the Company had an unsecured revolving credit agreement, which provides for borrowings of up to $35.0 million, less the value of revocable letters of credit ~~discussed below.~~relating to purchase commitments. The revolving credit agreement is committed until ~~August 2020.~~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 October ~~28, 2017.~~30, 2021. There were no borrowings outstanding under the credit facility, nor outstanding letters of credit that reduced borrowing availability, as of October ~~28, 2017~~30, 2021 and January ~~28, 2017.~~30, 2021.

~~At October 28, 2017 and January 28, 2017, the Company had no outstanding revocable letters of credit relating to purchase commitments.~~

Expenditures for property and equipment totaled ~~$8.8~~$1.8 million in the first nine months of fiscal ~~2017,~~2021, compared to ~~$24.0~~$11.2 million in last fiscal year’s first nine months. ~~The expenditures for the first nine months of fiscal 2017 were primarily for the development of six new stores and additional investments in new technology.~~ For the full fiscal ~~2017~~2021 year, the Company expects to invest approximately ~~$11.5~~$4.1 million for capital ~~expenditures to open approximately six new stores, relocate approximately two stores and upgrade merchandise systems.~~expenditures.

Net cash ~~provided~~used by investing activities totaled ~~$53.8~~$51.3 million in the first nine months of fiscal ~~2017~~2021 compared to ~~net cash of $18.6~~$57.9 million ~~used~~provided by investing activities in the comparable period of ~~2016. Net~~2020. The increase in net cash ~~provided~~used in ~~2017~~2021 is primarily ~~attributable~~due to ~~sales~~a decrease in the sale of short-term investments and an increase in the purchase of short-term investments, partially offset by ~~the purchase of short-term investments and lower~~a decrease in capital expenditures.

Net cash used in financing activities totaled ~~$60.6~~$21.3 million in the first nine months of fiscal ~~2017~~2021 compared to ~~$61.9~~$24.3 million used in the comparable period of fiscal ~~2016.~~2020. The decrease was primarily due to ~~lower total dividend expenditures as a result~~less dividends paid and stock repurchases.

As of October 30, 2021, the Company had 872,513 shares remaining in open authorizations under its share ~~repurchases in 2017 and the back half of fiscal 2016.~~repurchase program.

On November ~~16, 2017,~~18, 2021, the Board of Directors maintained the quarterly dividend at ~~$0.33~~$0.17 per share.

~~As of October 28, 2017, the~~The Company ~~had 840,506 shares remaining in open authorizations under its share repurchase program.~~ does not use derivative financial instruments.

2531



	October 30, 2021		January 30, 2021

ASSETS	(Dollars in thousands)
Current Assets:
Cash and cash equivalents	$	23,990	$	17,510
Short-term investments		176,120		126,416
Restricted cash		3,918		3,512
Restricted short-term investments		1		406
Accounts receivable, net of allowance for customer credit losses of
$807 and $605 at October 30, 2021 and January 30, 2021, respectively		56,017		52,743
Merchandise inventories		90,229		84,123
Prepaid expenses and other current assets		11,478		5,840
Total Current Assets		361,753		290,550
Property and equipment – net		65,115		72,550
Noncurrent deferred income taxes		5,920		5,685
Other assets		23,528		22,850
Right-of-Use assets – net		130,842		199,817
Total Assets	$	587,158	$	591,452
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	92,922	$	73,769
Accrued expenses		44,267		40,790
Accrued employee benefits and bonus		20,985		1,916
Accrued income taxes		5,929		2,038
Current lease liability		50,234		63,421
Total Current Liabilities		214,337		181,934
Other noncurrent liabilities		17,408		19,705
Lease liability		84,635		143,315

Stockholders' Equity:
Preferred stock, $100 par value per share, 100,000 shares
authorized, none issued		0		0
Class A common stock, $0.033 par value per share, 50,000,000
shares authorized; 20,261,248 shares and 20,839,795 shares
issued at October 30, 2021 and January 30, 2021, respectively		683		703
Convertible Class B common stock, $0.033 par value per share,
15,000,000 shares authorized; 1,763,652 shares and 1,763,652 shares
issued at October 30, 2021 and January 30, 2021, respectively		59		59
Additional paid-in capital		118,427		115,278
Retained earnings		151,229		129,303
Accumulated other comprehensive income		380		1,155
Total Stockholders' Equity		270,778		246,498
Total Liabilities and Stockholders' Equity	$	587,158	$	591,452



	October 28, 2017		January 28, 2017

ASSETS	(Dollars in thousands)
Current Assets:
Cash and cash equivalents	$	78,666	$	47,234
Short-term investments		136,207		201,233
Restricted cash and investments		3,711		3,691
Accounts receivable, net of allowance for doubtful accounts of
$1,145 and $1,348 at October 28, 2017 and January 28, 2017, respectively		30,507		30,336
Merchandise inventories		127,763		145,682
Prepaid expenses and other current assets		16,563		15,632
Total Current Assets		393,417		443,808
Property and equipment – net		120,179		126,386
Noncurrent deferred income taxes		12,487		13,773
Other assets		22,268		22,357
Total Assets	$	548,351	$	606,324
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	88,341	$	105,249
Accrued expenses		55,266		61,313
Accrued bonus and benefits		3,243		3,068
Accrued income taxes		2,282		2,282
Total Current Liabilities		149,132		171,912
Other noncurrent liabilities		46,793		50,509

Stockholders' Equity:
Preferred stock, $100 par value per share, 100,000 shares
authorized, none issued		-		-
Class A common stock, $.033 par value per share, 50,000,000
shares authorized; issued 23,276,248 shares and 24,853,129 shares
at October 28, 2017 and January 28, 2017, respectively		782		837
Convertible Class B common stock, $.033 par value per share,
15,000,000 shares authorized; issued 1,755,601 shares and 1,751,576 shares
at October 28, 2017 and January 28, 2017, respectively		58		58
Additional paid-in capital		98,720		95,207
Retained earnings		252,625		288,015
Accumulated other comprehensive income/(loss)		241		(214)
Total Stockholders' Equity		352,426		383,903
Total Liabilities and Stockholders' Equity	$	548,351	$	606,324

		Nine Months Ended
	October 30, 2021		October 31, 2020

		(Dollars in thousands)

Operating Activities:
Net income (loss)	$	43,308	$	(39,210)
Adjustments to reconcile net income (loss) to net cash provided (used)
by operating activities:
Depreciation		9,352		11,113
Provision for customer credit losses		368		202
Purchase premium and premium amortization of investments		(952)		(613)
Share-based compensation		2,999		3,010
Deferred income taxes		0		1,201
Loss on disposal of property and equipment		392		438
Impairment of store assets		0		7,525
Changes in operating assets and liabilities which provided
(used) cash:
Accounts receivable		(3,641)		(21,814)
Merchandise inventories		(6,106)		31,084
Prepaid and other assets		(6,190)		(2,223)
Operating lease right-of-use assets and liabilities		(2,892)		(1,422)
Accrued income taxes		3,891		(315)
Accounts payable, accrued expenses and other liabilities		38,881		(15,041)
Net cash provided (used) by operating activities		79,410		(26,065)

Investing Activities:
Expenditures for property and equipment		(1,790)		(11,228)
Purchase of short-term investments		(131,837)		(54,910)
Sales of short-term investments		82,355		123,860
Sales of other assets		0		200
Net cash provided (used) in investing activities		(51,272)		57,922

Financing Activities:
Dividends paid		(6,276)		(7,912)
Repurchase of common stock		(15,152)		(16,823)
Proceeds from line of credit		0		34,000
Payments on line of credit		0		(34,000)
Proceeds from employee stock purchase plan		176		391
Net cash provided (used) in financing activities		(21,252)		(24,344)

Net increase (decrease) in cash, cash equivalents, and restricted cash		6,886		7,513

Cash, cash equivalents, and restricted cash at beginning of period		21,022		14,401
Cash, cash equivalents, and restricted cash at end of period	$	27,908	$	21,914

Non-cash activity:
Accrued other assets and property and equipment	$	862	$	2,604
Accrued treasury stock		0		556

		Nine Months Ended
	October 28, 2017		October 29, 2016

		(Dollars in thousands)

Operating Activities:
Net income	$	24,045	$	60,021
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation		14,989		17,082
Provision for doubtful accounts		466		658
Purchase premium and premium amortization of investments		2,742		(426)
Share-based compensation		3,002		3,044
Excess tax benefits from share-based compensation		-		(194)
Deferred income taxes		1,015		-
Loss on disposal of property and equipment		611		1,495
Changes in operating assets and liabilities which provided
(used) cash:
Accounts receivable		(497)		2,845
Merchandise inventories		17,919		(12,245)
Prepaid and other assets		(1,232)		(2,986)
Accrued income taxes		-		(943)
Accounts payable, accrued expenses and other liabilities		(24,752)		(22,097)
Net cash provided by operating activities		38,308		46,254

Investing Activities:
Expenditures for property and equipment		(8,762)		(24,043)
Purchase of short-term investments		(15,771)		(101,461)
Sales of short-term investments		78,964		107,131
Purchase of other assets		(657)		(261)
Sales of other assets		6		-
Change in restricted cash and investments		(20)		(12)
Net cash provided/(used) in investing activities		53,760		(18,646)

Financing Activities:
Dividends paid		(25,466)		(26,527)
Repurchase of common stock		(35,708)		(36,252)
Proceeds from line of credit		21,000		21,000
Payments to line of credit		(21,000)		(21,000)
Proceeds from employee stock purchase plan		443		466
Excess tax benefits from share-based compensation		-		194
Proceeds from stock options exercised		95		230
Net cash used in financing activities		(60,636)		(61,889)

Net increase/(decrease) in cash and cash equivalents		31,432		(34,281)

Cash and cash equivalents at beginning of period		47,234		67,057
Effect of exchange rate on cash		-		-
Cash and cash equivalents at end of period	$	78,666	$	32,776

Non-cash activity:
Accrued other assets and property and equipment	$	1,012	$	439
Accrued treasury stock		195		1,852

			Convertible						Accumulated
	Class A		Class B		Additional				Other		Total
	Common		Common		Paid-in		Retained		Comprehensive		Stockholders'
	Stock		Stock		Capital		Earnings		Income		Equity

	(Dollars in thousands)


Balance — January 30, 2021	$	703	$	59	$	115,278	$	129,303	$	1,155	$	246,498
Comprehensive income:
Net income (loss)		0		0		0		20,713		0		20,713
Unrealized gain (loss) on available-for-sale securities, net of
deferred income tax benefit of ($40)		0		0		0		0		(134)		(134)
Dividends paid ($0.00 per share)		0		0		0		0		0		0
Class A common stock sold through employee stock purchase
plan — 19,248 shares		1		0		150		0		0		151
Class B common stock sold through stock option plans —
0 shares		0		0		0		0		0		0
Class A common stock issued through restricted stock grant plans —
396,558 shares		13		0		271		0		0		284
Repurchase and retirement of treasury shares – 425,661 shares		(14)		0		0		(5,615)		0		(5,629)

Balance — May 1, 2021	$	703	$	59	$	115,699	$	144,401	$	1,021	$	261,883
Comprehensive income:
Net income (loss)		0		0		0		13,992		0		13,992
Unrealized gain (loss) on available-for-sale securities, net of
deferred income tax benefit of ($44)		0		0		0		0		(145)		(145)
Dividends paid ($0.11 per share)		0		0		0		(2,488)		0		(2,488)
Class A common stock sold through employee stock purchase
plan — 1,336 shares		0		0		23		0		0		23
Class B common stock sold through stock option plans —
0 shares		0		0		0		0		0		0
Class A common stock issued through restricted stock grant plans —
10,018 shares		0		0		1,590		5		0		1,595
Repurchase and retirement of treasury shares – 64,709 shares		(2)		0		0		(1,046)		0		(1,048)

Balance — July 31, 2021	$	701	$	59	$	117,312	$	154,864	$	876	$	273,812
Comprehensive income:
Net income (loss)		0		0		0		8,603		0		8,603
Unrealized gain (loss) on available-for-sale securities, net of
deferred income tax benefit of ($150)		0		0		0		0		(496)		(496)
Dividends paid ($0.17 per share)		0		0		0		(3,788)		0		(3,788)
Class A common stock sold through employee stock purchase
plan — 1,957 shares		0		0		34		0		0		34
Class B common stock sold through stock option plans —
0 shares		0		0		0		0		0		0
Class A common stock issued through restricted stock grant plans —
(9,028) shares		0		0		1,081		8		0		1,089
Repurchase and retirement of treasury shares – 508,266 shares		(18)		0		0		(8,458)		0		(8,476)

Balance — October 30, 2021	$	683	$	59	$	118,427	$	151,229	$	380	$	270,778

ITEM 1A. RISK FACTORS:

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS:

ITEM 3. DEFAULTS UPON SENIOR SECURITIES:

Table of Contents

Table of Contents

PART I FINANCIAL INFORMATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND

COMPREHENSIVE INCOME

(LOSS)
(UNAUDITED)

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

ITEM 4. CONTROLS AND PROCEDURES:

ITEM 4. MINE SAFETY DISCLOSURES:

ITEM 5. OTHER INFORMATION:

	Changes in Accumulated Other
	Comprehensive Income (a)
			Unrealized Gains
			and (Losses) on
			Available-for-Sale
			Securities
Beginning Balance at July 29, 2017		$	411
Other comprehensive income before
reclassification			(144)

Amounts reclassified from accumulated
other comprehensive income (b)			(26)

Net current-period other comprehensive income			(170)

Ending Balance at October 28, 2017		$	241

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.
(b) Includes ($41) 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 ($15).

	1987	2004	2013
	Plan	Plan	Plan	Total
Options and/or restricted stock initially authorized	5,850,000	1,350,000	1,500,000	8,700,000
Options and/or restricted stock available for grant:
October 28, 2017	-	-	852,491	852,491

				Total Number of	Maximum Number
				Shares Purchased as	(or Approximate Dollar
	Total Number		Average	Part of Publicly	Value) of Shares that may
Fiscal	of Shares		Price Paid	Announced Plans or	Yet be Purchased Under
Period	Purchased		per Share (1)	Programs (2)	The Plans or Programs (2)
August 2021	184,319	$	16.66	184,319
September 2021	209,497		16.59	209,497
October 2021	114,450		16.87	114,450
Total	508,266	$	16.68	508,266	872,513

Exhibit No.		Item

3.1		Registrant’s Amended and Restated Certificate of Incorporation, ~~dated March 6, 1987,~~ incorporated by reference to Exhibit ~~4.1~~3.1 to Form ~~S-8~~10-Q of the Registrant ~~filed February 7, 2000 (SEC File No. 333-96283)~~for the quarter ended May 2, 2020..

3.2		Registrant’s ~~By Laws,~~Amended and Restated By-Laws, incorporated by reference to Exhibit ~~99.2~~3.2 to Form ~~8-K~~ 10-Q of the Registrant ~~Filed December 10, 2007.~~for the quarter ended May 2, 2020.

31.1*		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive ~~Officer~~Officer..

31.2*		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial ~~Officer~~Officer..

32.1*		Section 1350 Certification of Principal Executive ~~Officer~~Officer..

32.2*		Section 1350 Certification of Principal Financial ~~Officer~~Officer..

101.1*		The following materials from Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended October ~~28, 2017,~~30, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the Three Months and Nine Months Ended October ~~28, 2017~~30, 2021 and October ~~29, 2016;~~31, 2020; (ii) Condensed Consolidated Balance Sheets at October ~~28, 2017~~30, 2021 and January ~~28, 2017;~~30, 2021; (iii) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October ~~28, 2017~~30, 2021 and October ~~29, 2016;~~31, 2020; (iv) Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended October 30, 2021 and ~~(iv)~~October 31, 2020; and (v) Notes to Condensed Consolidated Financial Statements.
104.1		Cover Page Interactive Data File (Formatted in Inline XBRL and contained in the Interactive Data Files submitted as Exhibit 101.1*)

November ~~21, 2017~~19, 2021		/s/ John P. D. Cato
Date		John P. D. Cato Chairman, President and Chief Executive Officer

November ~~21, 2017~~19, 2021		/s/ John R. Howe
Date		John R. Howe Executive Vice President Chief Financial Officer

Table of Contents

Table of Contents

PART I FINANCIAL INFORMATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND

COMPREHENSIVE INCOME

(LOSS)(UNAUDITED)

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

ITEM 4. CONTROLS AND PROCEDURES:

ITEM 1A. RISK FACTORS:

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS:

ITEM 3. DEFAULTS UPON SENIOR SECURITIES:

ITEM 5. OTHER INFORMATION:

(LOSS)
(UNAUDITED)