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

☑

QUARTERLY REPORT PURSUANT
TO SECTION
13 OR 15(d)
OF THE SECURITIES
EXCHANGE
ACT OF
1934
For the quarterly period ended October 28, 2017

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

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

8100 Denmark Road, Charlotte, North Carolina 28273-5975

(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)

Indicate by check mark whether the quarterly

period ended
April 30, 2022
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 (1) has filed all reports required
as specified
in its
charter)
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
(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 be filed by Section 13 or 15(d)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

X

No

X
No
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 during the
preceding 12 months (or
(or for such
shorter period
that the registrant
was required to
submit and post such files).

Yes

X

No

X
No
Indicate by check
mark whether the
registrant is a
large accelerated filer, an
accelerated filer, a
non-accelerated filer, smaller reporting
company,
or
an
emerging
growth
company.
See
the
definitions of “large
“large
accelerated filer,” “accelerated
“accelerated filer,” “smaller
“smaller
reporting
company,” and “emerging
“emerging
growth company”
in Rule
12b-2 of
the Exchange
Act.  (Check one):

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

(Do

☐
If
an
emerging
growth
company,
indicate
by
check
mark
if
the
registrant
has
elected
not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if

to
use
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-212b
-2 of the Exchange Act).

Yes

No

X

☐

As of October 28, 2017,April 30,
2022, there were 23,276,248
19,223,633
shares of Class
A common stock
and 1,755,601
1,763,652
shares of Class
B common stock outstanding.

 
outstanding.
1
THE CATO CORPORATION

FORM 10-Q

Quarter Ended October 28, 2017

April 30, 2022

Table
of Contents

Page No.

Page No.

PART I – FINANCIAL INFORMATION (UNAUDITED)

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Statements of Income and Comprehensive Income

3

For the Three Months and Nine Months Ended October 28, 2017 and October 29, 2016

Condensed Consolidated Balance Sheets

4

At October 28, 2017 and January 28, 2017

Condensed Consolidated Statements of Cash Flows

5

For the Nine Months Ended October 28, 2017 and October 29, 2016

Notes to Condensed Consolidated Financial Statements

6 – 18

For the Three Months and Nine Months Ended October 28, 2017 and October 29, 2016

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19 – 25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

27

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

28

Signatures

29

3

 
I – FINANCIAL INFORMATION

Table

(UNAUDITED)
Item 1.
Financial Statements (Unaudited):
Condensed
Consolidated
Statements
of Contents

Income
and Comprehensive
Income

2
For the
Three Months
Ended
April 30,
2022 and
May 1,
2021
Condensed
Consolidated
Balance Sheets
3
At April
30, 2022
and
January
29, 2022
Condensed
Consolidated
Statements
of Cash
Flows
4
For the
Three Months
Ended April
30, 2022
and May
1, 2021
Condensed
Consolidated
Statements
of Stockholders’
Equity
5
For the
Three Months
Ended April
30, 2022
and May
1, 2021
Notes to
Condensed
Consolidated
Financial
Statements
6 - 18
For the
Three Months
Ended April
30, 2022
and May
1, 2021
Item 2.
Management’s Discussion and Analysis
of Financial Condition and Results
of Operations
19 - 25
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26
Item 4.
Controls and Procedures
26
PART
II – OTHER INFORMATION
Item 1.
Legal Proceedings
27
Item 1A.
Risk Factors
27
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
27
Item 3.
Defaults Upon Senior Securities
27
Item 4.
Mine Safety Disclosures
28
Item 5.
Other Information
28
Item 6.
Exhibits
28
Signatures
29
2
PART
I FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS
OF INCOME AND

COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

April 30, 2022
May 1, 2021
(Dollars in thousands, except per share data)
REVENUES
Retail sales
$
204,933
$
211,234
Other revenue (principally finance charges, late fees and
layaway charges)
1,788
1,851
Total revenues
206,721
213,085
COSTS AND EXPENSES, NET
Cost of goods sold (exclusive of depreciation shown below)
132,243
123,675
Selling, general and administrative (exclusive of depreciation
shown below)
60,441
63,237
Depreciation
2,743
3,042
Interest and other income
(403)
(663)
Costs and expenses, net
195,024
189,291
Income before income taxes
11,697
23,794
Income tax expense
1,949
3,081
Net income
$
9,748
$
20,713
Basic earnings per share
$
0.46
$
0.92
Diluted earnings per share
$
0.46
$
0.92
Comprehensive income:
Net income
$
9,748
$
20,713
Unrealized gain (loss) on available-for-sale securities, net
of deferred income taxes of ($
362
) and ($
40
) for April 30, 2022
(1,206)
(134)
and May 1, 2021, respectively
Comprehensive income
$
8,542
$
20,579
See notes to condensed consolidated financial statements (unaudited).

4

 
Table of Contents

3
THE CATO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

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

April 30, 2022

January 29, 2022
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents
$
25,881
$
19,759
Short-term investments
120,021
145,998
Restricted cash
3,920
3,919
Accounts receivable, net of allowance for customer credit losses of
$
801
and $
803
at April 30, 2022 and January 29, 2022, respectively
60,121
55,812
Merchandise inventories
127,576
124,907
Prepaid expenses and other current assets
6,029
5,273
Total Current Assets
343,548
355,668
Property and equipment – net
67,079
63,083
Noncurrent deferred income taxes
9,674
9,313
Other assets
23,192
24,437
Right-of-Use assets – net
168,537
181,265
Total Assets
$
612,030
$
633,766
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$
106,229
$
109,546
Accrued expenses
45,377
40,373
Accrued bonus and benefits
18,901
26,488
Accrued income taxes
2,062
920
Current lease liability
63,175
66,808
Total Current Liabilities
235,744
244,135
Other noncurrent liabilities
17,797
17,914
Lease liability
107,837
117,521
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;
19,223,633
and
19,824,093
shares issued
at April 30, 2022 and January 29, 2022, respectively
649
669
Convertible Class B common stock, $
0.033
par value per share,
15,000,000
shares authorized;
1,763,652
and
1,763,652
shares issued at April 30, 2022 and January 29, 2022, respectively
59
59
Additional paid-in capital
120,249
119,540
Retained earnings
131,181
134,208
Accumulated other comprehensive income
(1,486)
(280)
Total Stockholders' Equity
250,652
254,196
Total Liabilities and Stockholders’ Equity
$
612,030
$
633,766
See notes to condensed consolidated financial statements (unaudited).

5

 
Table of Contents

4
THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS

(UNAUDITED)

 

 

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

 

Three Months Ended

April 30, 2022
May 1, 2021
(Dollars in thousands)
Operating Activities:
Net income
$
9,748
$
20,713
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation
2,743
3,042
Provision for customer credit losses
72
113
Purchase premium and premium amortization of investments
388
(1,121)
Share-based compensation
624
306
Deferred income taxes
0
(1)
Loss on disposal of property and equipment
16
58
Changes in operating assets and liabilities which provided (used) cash:
Accounts receivable
(4,382)
(2,510)
Merchandise inventories
(2,669)
(726)
Prepaid and other assets
474
(493)
Operating lease right-of-use assets and liabilities
(590)
(1,242)
Accrued income taxes
1,142
356
Accounts payable, accrued expenses and other liabilities
(8,331)
26,005
Net cash provided (used) by operating activities
(765)
44,500
Investing Activities:
Expenditures for property and equipment
(4,440)
(554)
Purchase of short-term investments
(1,529)
(62,075)
Sales of short-term investments
25,566
28,397
Net cash provided (used) by investing activities
19,597
(34,232)
Financing Activities:
Dividends paid
(3,638)
0
Repurchase of common stock
(9,162)
(5,629)
Proceeds from employee stock purchase plan
91
128
Net cash provided (used) by financing activities
(12,709)
(5,501)
Net increase (decrease) in cash, cash equivalents, and restricted cash
6,123
4,767
Cash, cash equivalents, and restricted cash at beginning of period
23,678
21,022
Cash, cash equivalents, and restricted cash at end of period
$
29,801
$
25,789
Non-cash activity:
Accrued other assets and property and equipment
$
2,971
$
263
See notes to condensed consolidated financial statements (unaudited).

6

 
5
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — January 29, 2022
$
728
$
119,540
$
134,208
$
(280)
$
254,196
Comprehensive income:

Table of Contents

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Net income
NOTE
-
-
9,748
-
9,748
Unrealized net losses on available-for-sale securities, net of deferred
income tax benefit of ($
362
)
-
-
-
(1,206)
(1,206)
Dividends paid ($
0.17
per share)
-
-
(3,638)
-
(3,638)
Class A common stock sold through employee stock purchase
plan —
9,468
shares
-
111
-
-
111
Class A common stock issued through restricted stock grant plans
—
0 shares
-
598
5
-
603
Repurchase and retirement of treasury shares –
609,928
shares
(20)
-
(9,142)
-
(9,162)
Balance — April 30, 2022
$
708
$
120,249
$
131,181
$
(1,486)
$
250,652
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — January 30, 2021
$
762
$
115,278
$
129,303
$
1,155
$
246,498
Comprehensive income:
Net income
-
-
20,713
-
20,713
Unrealized net losses on available-for-sale securities, net of deferred
income tax benefit of ($
40
)
-
-
-
(134)
(134)
Dividends paid ($0.00 per share)
-
-
0
-
0
Class A common stock sold through employee stock purchase
plan —
19,248
shares
1
150
-
-
151
Class A common stock issued through restricted stock grant plans
—
396,558
shares
13
271
0
-
284
Repurchase and retirement of treasury shares –
425,661
shares
(14)
-
(5,615)
-
(5,629)
Balance — May 1, - GENERAL:

The2021

$
762
$
115,699
$
144,401
$
1,021
$
261,883
See notes to condensed consolidated financial statements have been prepared from (unaudited).
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
6
NOTE 1
- GENERAL
:
The condensed
consolidated financial
statements as
of April
30, 2022
and for
the thirteen-week
periods
ended
April
30,
2022
and
May
1,
2021
have
been
prepared
from
the
accounting
records
of
The
Cato
Corporation and
its wholly-owned
subsidiaries (the “Company”
“Company”), and
all amounts
shown as of and for the periods ended October 28, 2017 and October 29, 2016 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.  29, 2022.
Amounts as of January 28, 201729, 2022 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

As
planned,
in
May
2022,
the
Company
made
a
$14.4
million
contribution
to
its
Employee
Stock
Ownership
Plan,
which
is
included
in
Accrued
bonus
and
benefits
on
the
accompanying
Condensed
Consolidated Balance Sheets.
Subsequent to
April 30,
2022, the
Company received
$18 million
of its
income tax
receivable, which
is
included in Accounts receivable. The Company anticipates that the firstremaining balance will
be received by
the end of the second 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.

fiscal 2022.

On November 16, 2017,May 19, 2022, the Board of Directors maintaineddeclared the quarterly dividend
at $0.33$0.17 per share.

6

 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
7

Table of Contents

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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 and Comprehensive Income.
While the
Company’s certificate
of incorporation
provides the right
for the Board of Directors
to declare dividends
on
Class
A
shares
without
declaration
of
commensurate dividends
on
Class
B
shares,
the
Company
has
historically
paid the
same dividends
to both Class
A and Class
B shareholders
and the Board
of Directors
has
resolved
to continue
this practice.
Accordingly,
the Company’s
allocation
of income
for purposes
of 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
April 30, 2022
May 1, 2021
(Dollars in thousands)
Numerator
Net earnings
$
9,748
$
20,713
Earnings allocated to non-vested equity awards
(541)
(942)
Net earnings available to common stockholders
$
9,207
$
19,771
Denominator
Basic weighted average common shares issuable through stock options and the Employee Stock Purchase Plan.   

outstanding

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

October 28, 2017

 

 

October 29, 2016

 

 

October 28, 2017

 

 

October 29, 2016

 

 

(Dollars in thousands)

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

2,694

 

$

8,260

 

$

24,045

 

$

60,021

 

Earnings/(loss) allocated to non-vested equity awards

 

 

(56)

 

 

(170)

 

 

(531)

 

 

(1,223)

 

Net earnings available to common stockholders

 

$

2,638

 

$

8,090

 

$

23,514

 

$

58,798

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

24,537,974

 

 

26,738,809

 

 

25,150,377

 

 

27,039,343

 

Dilutive effect of stock options

 

 

-

 

 

1,436

 

 

-

 

 

1,807

 

Diluted weighted average common shares outstanding

 

 

24,537,974

 

 

26,740,245

 

 

25,150,377

 

 

27,041,150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income/(loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings/(loss) per share

 

$

0.11

 

$

0.30

 

$

0.93

 

$

2.17

 

Diluted earnings/(loss) per share

 

$

0.11

 

$

0.30

 

$

0.93

 

$

2.17

20,149,201

7

21,489,162
Diluted weighted average common shares outstanding
20,149,201
21,489,162
Net income per common share
Basic earnings per share
$
0.46
$
0.92
Diluted earnings per share
$
0.46
$
0.92
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
8

Table of Contents

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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 April
30, 2022:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 29, 2022
$
(280)
Other comprehensive income (loss) before
reclassification
(1,203)
Amounts reclassified from accumulated
other comprehensive income (b)
(3)
Net current-period other comprehensive income (loss)
(1,206)
Ending Balance at April 30, 2022
$
(1,486)
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").
(b) Includes $
4
impact of Accumulated other comprehensive income (inreclassifications into Interest and other
income for net gains on available-for-sale securities. The tax impact of this reclassification was $
1
.
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:

 

 

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 ofMay 1,

2021:
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 (loss) before
reclassification
(173)
Amounts reclassified from accumulated
other comprehensive income/income (b)
39
Net current-period other comprehensive income (loss) (in thousands) for the nine months ended October 28, 2017:

 

 

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).

(134)

8

Ending Balance at May 1, 2021
$
1,021
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").
(b) Includes $
51
 

Table of Contents

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME (CONTINUED):

The following table sets forth information regarding the reclassification outimpact of Accumulated other comprehensive income (in thousands)reclassifications into Interest and other

income for the three months ended October 29, 2016:

 

 

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).

net gains on available-for-sale securities. The following table sets forth information regarding thetax impact of this reclassification out of Accumulated other comprehensive income (in thousands) for the nine months ended October 29, 2016:

was $

 

 

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).

12

9

.
 

Table of Contents

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
9
NOTE 4 – FINANCING ARRANGEMENTS:

As

At
April
30,
2022,
the
Company
had
an
unsecured
revolving
credit
agreement,
which
provided
for
borrowings of October 28, 2017, the Company had an unsecured revolving credit agreement to borrow up to $35.0 million less the balance of any revocable letters
of credit discussed below and was committed
through
May
2022.
In
May
2022,
the
Company
signed
a
new
unsecured
revolving
credit
agreement,
which replaces
the prior
credit agreement,
provides up
to $35.0
million in
committed availability
and is
committed
through
May
2027.
The
prior
credit
agreement
contained
various
financial
covenants
and
limitations,
including
the
maintenance
of
specific
financial
ratios
with
which
the
Company
was
in
compliance as discussed below.  of April 30, 2022.
The revolvingnew credit agreement is committed until August 2020.  The credit agreementalso 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.  ratios.
There were no borrowings outstanding borrowings
under thisthe prior credit facility during the periods ended October 28, 2017as of April 30, 2022 or January 28, 2017.  29, 2022.
The weighted average interest rate
under the prior credit facility was zero at October 28, 2017April 30, 2022 due to no borrowings outstanding.

outstanding

borrowings.
At October 28, 2017
April
30,
2022
and
January 28, 2017,
29,
2022,
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.  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, 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 through the Company’s single distribution center and is subsequently distributed to clients
manner.
The
Company
operates
its
women’s
fashion
specialty
retail
stores
in a similar manner.

The Company operates its women’s fashion specialty retail stores in 33

32
states
as
of October 28, 2017,
April
30,
2022,
principally in
the southeastern
United States.States. The Company offers its own credit card to its customers
and
all credit authorizations,
payment processing
and collection
efforts are performed
by a separate subsidiary
of
the Company.

10

 

Table of Contents

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
10
NOTE 5 – REPORTABLE
SEGMENT INFORMATION (CONTINUED):

The following
schedule
summarizes
certain
segment
information
(in thousands):
Three Months Ended
April 30, 2022
Retail
Credit
Total
Revenues
$206,208
$513
$206,721
Depreciation
2,743
0
2,743
Interest and other income
(403)
0
(403)
Income before taxes
11,613
84
11,697
Capital expenditures
4,440
0
4,440
Three Months Ended
May 1, 2021
Retail
Credit
Total
Revenues
$212,547
$538
$213,085
Depreciation
3,042
0
3,042
Interest and other income
(663)
0
(663)
Income before taxes
23,540
254
23,794
Capital expenditures
554
0
554
Retail
Credit
Total
Total assets as of April 30, 2022
$574,601
$37,429
$612,030
Total assets as of January 29, 2022
595,487
38,279
633,766
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 certain segment information (in thousands):

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
(in thousands):

 

Three Months Ended

 

Nine Months Ended

 

 

October 28, 2017

 

 

October 29, 2016

 

 

October 28, 2017

 

 

October 29, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Bad debt expense

$

208

 

$

216

 

$

466

 

$

658

Payroll

 

210

 

 

214

 

 

654

 

 

650

Postage

 

133

 

 

153

 

 

406

 

 

488

Other expenses

 

274

 

 

255

 

 

681

 

 

714

Total expenses

$

825

 

$

838

 

$

2,207

 

$

2,510

11

Three Months Ended
April 30, 2022
May 1, 2021
Payroll
$
137
$
117
Postage
93
78
Other expenses
199
89
Total expenses
$
429
$
284
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
11

Table of Contents

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 6 – STOCK-BASEDSTOCK BASED COMPENSATION:

As of October 28, 2017,
April 30, 2022,
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
2018
Incentive
Compensation Plan is
and
2013
Incentive
Compensation Plan
are
for
the
granting
of
various
forms
of
equity-based awards,
including
restricted
stock and
stock options
for the granting of options grant,
to officers,
directors
and key employees.  As of October 28, 2017, there
Effective
May 24, 2018,
shares
for grant
were no
longer
available stock options for grant. The 2013 Incentive Compensation Plan and 2004 Amended and Restated Incentive Compensation Plan are for
under
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 shares for grant were no longer available under the 2004 Amended and Restated
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 April
30, 2022:
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 under each of the plans as of October 28, 2017:

grant:

 

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

April 30, 2022
-
3,580,471
3,580,471
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
April 30, 2022
and January 28, 2017,29,
2022, there was  $13,055,000
$
9,868,000
and $12,685,000,
$
11,096,000
,
respectively,
of
total
unrecognized
compensation
expense
related
to nonvested
unvested restricted stock awards, which had a remaining weighted-average
vesting period of 2.2
2.4
years and 2.5
2.3
years,
respectively.
The
total fair value of
compensation
expense
during
the shares recognized as compensation expense during
three
months
ended
April
30,
2022
was
$
603,000
compared
to
$
283,000
for
the
three and nine
months
ended October 28, 2017 was $1,185,000 and $2,911,000, respectively, compared to $1,145,000 and $2,948,000, respectively, for the three and nine months ended October 29, 2016.
May
1,
2021.
These
expenses
are
classified as a component
of Selling, general and
administrative expenses in the
Condensed Consolidated
Statements of Income.

The following summary
shows the changes in the shares
of unvested restricted
stock outstanding
during thenine
three months ended October 28, 2017:

 

 

 

 

Weighted Average

 

Number of

 

 

Grant Date Fair

 

Shares

 

 

Value Per Share

Restricted stock awards at January 28, 2017

561,323

 

$

32.22

Granted

191,919

 

 

22.44

Vested

(125,761)

 

 

26.40

Forfeited or expired

(26,204)

 

 

31.78

Restricted stock awards at October 28, 2017

601,277

 

$

30.33

12

April
 
30, 2022:

Table of Contents

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Weighted

Average
NOTE 6 – STOCK BASED-COMPENSATION (CONTINUED):

Number of
Grant Date Fair
Shares
Value
Per Share
Restricted stock awards at January 29, 2022
1,196,288
$
13.76
Granted
0
0
Vested
0
0
Forfeited or expired
0
0
Restricted stock awards at April 30, 2022
1,196,288
$
13.76
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
12
The Company’s
Employee Stock Purchase Plan
allows eligible full-time employees to
purchase a
limited
number of shares of
the Company’s Class A
Common Stock during each semi-annual offering period at a
15% discount through
payroll deductions.
During the ninethree months ended October 28, 2017April
30, 2022 and October 29, 2016, May 1, 2021,
the Company
sold 31,466
9,468
and 16,071
19,248
shares
to employees
at an average
discount
of $2.50 $
2.21
and $5.12 $
1.17
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 $
21,000
and $82,000   $
23,000
for the nine
three
months ended October 28, 2017
April
30,
2022
and October 29, 2016,
May
1,
2021,
respectively.
These
expenses are
classified as
a
component of
Selling, general and
administrative expenses.

expenses in the

Condensed Consolidated Statements of
Income.
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
(in thousands)
as of October 28, 2017 April
30, 2022
and January 28, 2017:

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

Active

 

Significant

 

 

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

 

 

 

 

Identical

 

Observable

 

Unobservable

 

 

October 28, 2017

 

Assets

 

Inputs

 

Inputs

Description

 

 

Level 1

 

Level 2

 

Level 3

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

    State/Municipal Bonds

 

$

112,024

 

$

-

 

$

112,024

 

$

-

    Corporate Bonds

 

 

23,793

 

 

-

 

 

23,793

 

 

-

    U.S. Treasury Notes

 

 

402

 

 

402

 

 

-

 

 

-

    Cash Surrender Value of Life Insurance

 

 

8,428

 

 

-

 

 

-

 

 

8,428

    Asset-backed Securities (ABS)

 

 

389

 

 

-

 

 

389

 

 

-

    Corporate Equities

 

 

762

 

 

762

 

 

-

 

 

-

    Certificates of Deposit

 

 

100

 

 

100

 

 

-

 

 

-

Total Assets

 

$

145,898

 

$

1,264

 

$

136,206

 

$

8,428

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

    Deferred Compensation

 

 

(8,538)

 

 

-

 

 

-

 

 

(8,538)

Total Liabilities

 

$

(8,538)

 

$

-

 

$

-

 

$

(8,538)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

13

 
29, 2022:

Table of Contents

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Quoted

Prices in

Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
April 30, 2022
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
State/Municipal Bonds
$
28,514
$
-
$
28,514
$
-
Corporate Bonds
56,515
-
56,515
-
U.S. Treasury/Agencies Notes and Bonds
21,112
-
21,112
-
Cash Surrender Value of Life Insurance
11,033
-
-
11,033
Asset-backed Securities (ABS)
13,512
-
13,512
-
Corporate Equities
803
803
-
-
Commercial Paper
367
-
367
-
Total Assets
$
131,856
$
803
$
120,020
$
11,033
Liabilities:
Deferred Compensation
(9,272)
-
-
(9,272)
Total Liabilities
$
(9,272)
$
-
$
-
$
(9,272)
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
13
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
January 29,
2022
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
State/Municipal Bonds
$
30,451
$
-
$
30,451
$
-
Corporate Bonds
76,909
-
76,909
-
U.S. Treasury/Agencies Notes and Bonds
19,715
-
19,715
-
Cash Surrender Value of Life Insurance
11,472
-
-
11,472
Asset-backed Securities (ABS)
18,556
-
18,556
-
Corporate Equities
818
818
-
-
Commercial Paper
367
-
367
-
Total Assets
$
158,288
$
818
$
145,998
$
11,472
Liabilities:
Deferred Compensation
(10,020)
-
-
(10,020)
Total Liabilities
$
(10,020)
$
-
$
-
$
(10,020)
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, 2017April
30,
2022 and
January 28, 2017.  29,
2022.
The state,
municipal and corporate bonds
have contractual maturities which
range from four daysone day to 30.04.6 years. The U.S. Treasury Notes and Certificates of Deposit
have contractual
maturities which
range from five months 46
days
to six months.
2.4
years.
These
securities
are
classified
as
available-for-sale and
are
recorded
as
Short-term
investments,
Restricted
cash and 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,
April
30,
2022,
the
Company
had
$
0.8
million
of
corporate
equities
and
deferred
compensation
plan assets
of $
11.0
million.
At January
29, 2022, the
Company
had $0.8 $
0.8
million
of corporate
equities
and deferred
compensation
plan assets
of $8.4 $
11.5
million.  At January 28, 2017, the Company had $0.7 million of corporate equities and deferred compensation plan assets of $8.0 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
municipal bonds for
which quoted
prices may
not
be
available on
active
exchanges for identical instruments.
Their fair value is
principally based on market values determined by
management with
assistance of
a
third-party pricing
service.
Since
quoted
prices in
active
markets for
identical assets
are not available,
these prices are determined
by the pricing service
using observable
market
information
such
as
quotes
from
less
active
markets
and/or
quoted
prices
of
securities
with
similar
characteristics,
among
other factors.

Deferred compensation
plan assets consist
of life insurance
policies.
These life insurance
policies are
valued
based on the
cash surrender
value of the
insurance
contract,
which is determined
based on such
factors
as the
fair value
of the underlying
assets and
discounted
cash flow
and are therefore
classified
within Level
3 of the
valuation hierarchy. The
Level 3
liability associated with the
life insurance policies represents a
deferred
compensation
obligation, the value of which is tracked via underlying insurance funds.
funds’ net asset values, as
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
14
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.

14

 
traded.

Table of Contents

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ANDNINE 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 April
30, 2022
and January 28, 2017 (in
29, 2022
(dollars
in thousands):

 

Fair Value

 

Measurements Using

 

Significant Unobservable

 

Asset Inputs (Level 3)

 

Cash Surrender Value

Beginning Balance at January 28, 2017

$

7,973

Redemptions

 

-

Additions

 

74

Total gains or (losses)

 

 

      Included in interest and other income (or changes in net assets)

 

381

      Included in other comprehensive income

 

-

Ending Balance at October 28, 2017

$

8,428

 

 

 

 

Fair Value

 

Measurements Using

 

Significant Unobservable

 

Liability Inputs (Level 3)

 

Deferred Compensation

Beginning Balance at January 28, 2017

$

(7,649)

  Additions

 

(338)

  Total (gains) or losses

 

 

      Included in interest and other income (or changes in net assets)

 

(551)

      Included in other comprehensive income

 

-

Ending Balance at October 28, 2017

$

(8,538)

15

Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 29, 2022
$
11,472
Redemptions
-
Additions
-
Total gains or (losses)
 

Table of Contents

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Included in interest and other income (or changes in net assets)

 

Fair Value

 

Measurements Using

 

Significant Unobservable

 

 

Asset Inputs (Level 3)

 

 

Cash Surrender Value

 

Beginning Balance at January 30, 2016

$

6,409

 

Redemptions

 

-

 

Additions

 

1,059

 

Total gains or (losses)

 

 

 

      Included in interest and other income (or changes in net assets)

 

284

 

      Included in other comprehensive income

 

-

 

Ending Balance at October 29, 2016

$

7,752

 

 

 

 

 

 

Fair Value

 

 

Measurements Using

 

 

Significant Unobservable

 

 

Liability Inputs (Level 3)

 

 

Deferred Compensation

 

Beginning Balance at January 30, 2016

$

(6,187)

 

  Additions

 

(592)

 

  Total (gains) or losses

 

 

 

      Included in interest and other income (or changes in net assets)

 

(464)

 

      Included in other comprehensive income

 

-

 

Ending Balance at October 29, 2016

$

(7,243)

 

(439)

16

 
Included in other comprehensive income
-
Ending Balance at April 30, 2022
$
11,033
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 29, 2022
$
(10,020)

Table of Contents

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Redemptions
489
Additions
(149)
Total (gains) or losses
Included in interest and other income (or changes in net assets)
408
Included in other comprehensive income
-
Ending Balance at April 30, 2022
$
(9,272)
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 30, 2021
$
11,263
Redemptions
-
Additions
-
Total gains or (losses)
Included in interest and other income (or changes in net assets)
209
Included in other comprehensive income
-
Ending Balance at January 29, 2022
$
11,472
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
15
Deferred Compensation
Beginning Balance at January 30, 2021
$
(10,316)
Redemptions
1,010
Additions
(304)
Total (gains) or losses
Included in interest and other income (or changes in net assets)
(410)
Included in other comprehensive income
-
Ending Balance at January 29, 2022
$
(10,020)
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
16
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

Recently Adopted Accounting Policies

In July 2015, the Financial Accounting Standards Board issued

None.
NOTE 9 – INCOME TAXES:
The Company had an accounting standards update that will simplify 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 tax rate for the Company’s
first quarter of its 2017 fiscal year. In2022 of
16.7
% compared to an effective tax
rate of
12.9
% for the first quarter of 2017,2021. The increase in 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’s2022 first quarter of its 2019 fiscal year; early adoption is permitted as of the beginning of an interim or annual reporting period. The Company is assessing what impacts this new standard will have on its consolidated financial statements and expects assets and liabilities tax

rate was primarily due
to increase.

In May 2014, 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 principle 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

higher
Global
Intangible Low-taxed
Income (GILTI),
partially
offset
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 of the impact 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 impact on the consolidated financial statements.

NOTE 9 – INCOME TAXES:

The Company had a $2.8 million 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 expense for the first nine months of 2016. 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 for uncertain tax positions. See Note 1, General.

17

 
ability to
realize foreign
tax credits.

Table of Contents

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ANDNINE 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 ourits 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 ourthe
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 its
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 accrueThe Company accrues for
these matters when the liability is
deemed probable
and reasonably estimable.

18

NOTE 11 – REVENUE RECOGNITION:
The
 
Company
Table
recognizes
sales
at
the
point
of
purchase
when
the
customer
takes
possession
of
the
merchandise
and
pays
for
the
purchase,
generally
with
cash
or
credit.
Sales
from
purchases
made
with
Cato
credit,
gift
cards
and
layaway
sales
from
stores
are
also
recorded
when
the
customer
takes
possession of
the merchandise. E-commerce
sales are
recorded when the
risk of
loss is
transferred to the
customer. Gift cards
are recorded as deferred revenue until they are
redeemed or forfeited. Layaway sales
are
recorded
as
deferred
revenue
until
the
customer
takes
possession
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 Contents

goods sold.

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 withCompany

offers its
own proprietary
credit card
to customers.
All credit
activity is
performed by
the
Company’s
wholly-owned subsidiaries.
None of
the
credit card
receivables are
secured.
The
Company
estimated customer credit
losses of $
86,000
and $
131,000
for the unaudited Condensed Consolidated Financial Statements, includingperiods
ended April 30,
2022 and May
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
17
1,
2021,
respectively,
on
sales
purchased by
the
Company’s
proprietary credit
card
of
$
5.7
million and
$
4.4
million for the accompanying Notes appearingperiods ended April 30, 2022 and May 1, 2021,
respectively.
The
following
table
provides
information
about
receivables
and
contract
liabilities
from
contracts
with
customers (in thousands):
Balance as of
April 30, 2022
January 29, 2022
Proprietary Credit Card Receivables, net
$
9,522
$
8,998
Gift Card Liability
$
6,556
$
8,308
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
one
year
to
10
years,
some of
which include
options to
extend the
lease term
for up
to five
years, and
some of
which include
options to
terminate the
lease within
one year.
The Company
considers these
options in this report. Any
determining the
lease term
used to
establish its
right-of-use assets
and lease
liabilities. The
Company’s
lease agreements
do not contain any material residual value guarantees or material
restrictive covenants.
As
most
of
the
Company’s
leases
do
not
provide
an
implicit
rate,
it
uses
its
estimated
incremental
borrowing rate based
on the information
available at commencement date
of the followinglease
in determining the
present value of lease payments.
The components of lease cost are “forward-looking” statements withinshown below (in thousands):
Three Months Ended
April 30, 2022
May 1, 2021
Operating lease cost (a)
$
17,754
$
16,726
Variable
lease cost (b)
$
768
$
793
(a) Includes right-of-use asset amortization of ($0.4) million and
($1.2) million for the meaningthree months ended
April 30, 2022 and May 1, 2021, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.
Supplemental cash flow
information and non-cash
activity related to
the Company’s
operating leases are
as follows (in thousands):
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
18
Operating cash flow information:
Three Months Ended
April 30, 2022
May 1, 2021
Cash paid for amounts included in the measurement of lease liabilities
$
16,836
$
15,947
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
$
3,515
$
734
Weighted-average
remaining
lease
term
and
discount
rate
for
the
Company’s
operating
leases
are
as
follows:
As of
April 30, 2022
May 1, 2021
Weighted-average remaining lease term
2.4 years
2.7 years
Weighted-average discount rate
2.92%
3.73%
As of
April 30,
2022,
the maturities
of lease
liabilities by fiscal
year for
the Company’s
operating leases
are as follows (in thousands):
Fiscal Year
2022 (a)
$
53,370
2023
53,633
2024
36,956
2025
21,875
2026
10,602
Thereafter
2,986
Total lease payments
179,422
Less: Imputed interest
8,410
Present value of lease liabilities
$
171,012
(a) Excluding the 3 months ended April 30, 2022.
19
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
“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
28,
2023
(“fiscal 2017”
2022”)
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-lookingforward-
looking statements
by using
words
such
as “will,
“will,” “expects,” “anticipates,
“anticipates,” “approximates,” “believes,
“believes,” “estimates,
“estimates,” “hopes,
“hopes,” “intends,
“intends,” “may,
“may,” “plans,
“plans,” “could,
“could,” “would,
“would,” “should”
“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;
credit
and
inflation;
changes in
laws, or
regulations and
government policies
affecting
our business;
business,
including
but
not
limited
to
tariffs;
uncertainties
regarding
the
impact
of
any
governmental action regarding, the impact of any governmental 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 predict
successfully implement our
new store development
strategy to increase
new store openings
and respond our
ability of
any such
new stores
to rapidly changing fashion trends grow
and consumer demands; 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
“Risk
Factors”
in
Part
I,
Item
1A
of
our
annual
report
on
Form
10-K
for
the
fiscal
year
ended
January 28, 2017 (“
29,
2022
(“fiscal 2016”
2021”),
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.

20

 

Table of Contents

THE CATO CORPORATION

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
20
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.
29,
2022.
As
disclosed
in “Management’s
“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.

21

 

Table of Contents

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
21
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
April 30, 2022
May 1, 2021
Total retail sales:

sales

 

Three Months Ended

 

 

Nine Months Ended

 

 

October 28, 2017

 

October 29, 2016

 

 

October 28, 2017

 

October 29, 2016

 

Total retail sales

100.0

%

100.0

%

 

100.0

%

100.0

%

Other revenue

1.0

 

1.1

 

 

0.9

 

1.0

 

Total revenues

101.0

 

101.1

 

 

100.9

 

101.0

 

Cost of goods sold (exclusive of depreciation)

66.1

 

64.5

 

 

65.2

 

61.3

 

Selling, general and administrative (exclusive of depreciation)

33.0

 

32.8

 

 

30.1

 

28.3

 

Depreciation

2.7

 

2.8

 

 

2.4

 

2.3

 

Interest and other income

(0.6)

 

(0.6)

 

 

(0.6)

 

(0.8)

 

Income before income taxes

(0.1)

 

1.6

 

 

3.8

 

9.8

 

Net income

1.4

 

4.0

 

 

3.8

 

8.2

 

100.0

22

%
100.0
%
Other revenue
0.9
0.9
Total revenues
100.9
100.9
Cost of goods sold (exclusive of depreciation)
64.5
58.5
Selling, general and administrative (exclusive of depreciation)
29.5
29.9
Depreciation
1.3
1.4
Interest and other income
(0.2)
(0.3)
Income before income taxes
5.7
11.3
Net income
4.8
9.8
 

Table of Contents

THE CATO CORPORATION

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS
(CONTINUED)
22
RESULTS OF OPERATIONS
(CONTINUED):

Comparison

Management’s
Discussion and
Analysis of
Financial Condition
and Results
of Operations
(“MD&A”) is
intended
to
provide
information
to
assist
readers
in
better
understanding
and
evaluating
our
financial
condition
and
results
of
operations.
We
recommend
reading
this
MD&A
in
conjunction
with
our
Condensed
Consolidated
Financial
Statements
and
the
Notes
to
those
statements
included
in
the
“Financial Statements” section of this Quarterly Report on Form
10-Q, as well as our 2021 Form 10-K.
COVID-19
Update
There
is
still
significant
uncertainty
regarding
the
lingering
effects
of
the
COVID-19 pandemic
on
our
business, financial condition, results
of operations, cash flows,
and liquidity.
These uncertainties include
the
impact
of
new
or
potential
variants
of
the
virus
that
are
more
transmissible
or
severe,
stagnant
vaccination rates
and related
factors that
may continue
to
fuel
periodic surges
of
the
virus or
otherwise
impede
progress
toward
the
return
to
pre-pandemic
activities
and
levels
of
consumer
confidence
and
commercial
activity.
The
Company
also
faces
uncertainty
from
the
impacts
of
COVID-19
and
the
governmental
responses
to
COVID-19 surges,
including
lockdowns,
in
the
foreign
countries
where
our
merchandise is produced.
The Company is also subject to the continued effects of disruption in the global
supply
chain,
inflation
and
its
impact
on
our
cost
of
products,
transportation,
wage
rates
and
other
operating
costs,
as
well
as,
the
impact
on
our
customers’
disposable
incomes,
and
the
availability
of
workers.
The Company
expects that
these uncertainties
and perhaps
others related
to the
pandemic will
continue
to
impact
the
Company
in
fiscal
2022.
The
adverse
financial
impacts
associated
with
these
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 Threeoutbreak, including increased freight and Nine Months ended October 28, 2017 logistics costs and other
expenses.
While the Company currently anticipates a continuation of the
uncertainties listed above and the potential
adverse impacts
of COVID-19
during fiscal
2022, the
duration and
severity of
these effects
will depend
on
the
course of
future developments,
which are
highly uncertain.
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.
Comparison
of First Quarter
of 2022
with October 29, 2016

2021

Total retail sales
for the third first
quarter were $188.4
$204.9 million
compared
to last year’s third
first quarter
sales of $207.0 million, $211.2
million.
Sales
decreased primarily
due
to
a 9.0% decrease.
decrease in
same-store sales,
partially offset
by
sales
from
noncomparable stores. The Company’s third quarter of fiscal 2017decrease in
same-store sales decreased was
primarily due to a 9.3% decrease in same-store sales, partially offset by sales from non-comparable stores. For the nine months ended October 28, 2017, total retail sales were $631.0 million compared
cooler, wetter
weather, late
merchandise
shipments
due
to last year’s comparable nine month sales of $729.2 million. Sales in the first nine months of fiscal 2017 decreased primarily due to a 13.7% decrease in same-store sales, partially offset by sales from non-comparable stores. Same-store
supply
chain
disruptions
and
inflationary
pressure
on
our
customers’
disposable income. 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-storesame store sales calculation after they have been
open more
than 15
months.
The method
of calculating same-store
same store
sales varies
across the
retail industry.
As a
result, our same-storesame
store sales calculation
may not be comparable
to similarly
titled measures
reported
by other
companies.
E-commerce
sales were
less than 2%
5.0% of
sales
for the nine months ended October 28, 2017
first quarter
of fiscal
2022 and
are included
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
23
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,
shipping
charged
to
customers
for
e-
commerce purchases and
layaway fees),
were $190.3
$206.7 million and $637.0
for
the
first
quarter ended
April 30,
2022,
compared to $213.1 million
for the three and nine monthsfirst quarter ended October 28, 2017, compared to $209.3 million and $736.1 million for the three and nine months ended October 29, 2016, respectively.
May 1, 2021. The Company operated 1,370
1,315 stores at October 28, 2017
April 30,
2022 compared
to 1,372 1,325
stores
at the end
of last
fiscal year’s third
first quarter.
For the
first nine three
months
of fiscal 2017,2022, the Company opened six new stores, relocated three
five stores and permanently
closed seven stores.  In total, theone store.
The Company currently
expects
to open close
approximately six
25 stores relocate two stores and close 26 stores
in fiscal 2017.

2022.
Credit revenue
of $0.5
million
represented
0.2% of
total revenues
in the first
quarter
of fiscal
2022, compared
to 2021
credit revenue of
$0.5 million or
0.3% of
total revenues.
Credit revenue is
comprised of $1.0 interest
earned on
the Company’s
private
label credit
card portfolio
and related
fee income.
Related
expenses
include
principally
payroll,
postage and other
administrative
expenses,
and totaled $0.4
million represented 0.5% in
the first quarter
of
2022, compared
to last
year’s
first quarter
expenses
of $0.3
million.
Other revenue,
a component
of total revenues, in
was $1.8 million
for the third first
quarter
of fiscal 2017, 2022,
compared
to 2016 credit revenue of $1.2 million or 0.6% 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.  Related expenses principally include bad debt expense, payroll, postage and other administrative expenses and totaled $0.8 million in the third quarter of fiscal 2017, compared to last year’s third quarter expense of $0.8 million.

Other revenue in total, as included in total revenues, was $1.9 million and $5.9

$1.9
million for
the three
prior
year’s
comparable first
quarter.
The
slight
decrease was
due
to
lower
e-
commerce
shipping
revenue
and nine months ended October 28, 2017, respectively, compared to $2.2 million and $6.9 million for the prior year’s comparable three and nine month periods. The overall decrease in the three and nine months ended October 28, 2017 resulted primarily from lower finance
charges,
slightly
offset by
higher
layaway charges and credit revenue.

fees.
Cost of goods sold
was $124.5$132.2 million, or 66.1% of retail sales and $411.5 million or 65.2% of retail sales for the three and nine months ended October 28, 2017, respectively, compared to $133.6 million,
or 64.5% of retail sales and $446.7 million, or 61.3% of retail
sales for the comparable three and nine month periodsfirst
quarter of fiscal 2016.  The overall increase
2022, compared
to $123.7 million, or 58.5% of retail
sales in cost of goods sold as a percent of retail sales for the thirdfirst quarter of fiscal 2017 resulted primarily from lower sales2021.
The overall increase
in cost of regular priced
goods and higher sales of markdown goods. In addition, occupancy and purchasing costs sold
as a percent
of retail
sales increased for
first quarter
of 2022 resulted
primarily
from higher
markdown
sales
and an increase
in freight costs
due to much lower retail sales. higher fuel
prices.
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 (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 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
(retail
sales less
cost of
goods sold
exclusive of
depreciation) decreased by 12.9%17.0% to $63.9
$72.7 million for
the thirdfirst
quarter
of fiscal
2022 compared
to $87.6
million
in the first
quarter
of fiscal
2021.
Gross margin
as presented
may not
be comparable
to those
of other
entities.
Selling,
general
and administrative
expenses
(“SG&A”)
primarily
include
corporate
and store
payroll,
related
payroll taxes
and benefits,
insurance,
supplies,
advertising,
and bank and
credit card
processing
fees.
SG&A
expenses were 29.5% of retail
sales for the first quarter of fiscal 2017 and 2022, compared
to 29.9% of retail sales in
the first quarter
of fiscal 2021.
SG&A as a percent
of retail sales
decreased
primarily
due to lower
incentive
compensation, partially
offset by 22.3% increased payroll costs reflecting more normalized operations.
Depreciation
expense
was $2.7
million,
or 1.3%
of retail
sales for
the first
quarter
of fiscal
2022, compared
to $219.5
$3.0 million,
or 1.4% of retail sales
for the first nine months quarter
of fiscal 2017 2021. The decrease
in depreciation
expense
was attributable
to older
stores
being
fully depreciated.
Interest and
other
income
was
$0.4
million, or
0.2%
of
retail
sales
for
the
first
quarter of
fiscal
2022,
compared to $73.4 million and $282.5 million for the prior year’s comparable three and nine months of fiscal 2016.  Gross margin as presented may not be comparable to those of other entities.

23

 
$0.7

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.  SG&A expenses were $62.1 million, or 33.0%

0.3%
of
retail sales
for
the
first quarter
of
fiscal 2021.
The
decrease was
primarily
attributable
to a decrease
in short-term
investments.
Income tax expense
was $1.9 million or
1.0% of retail sales and $190.2 million, or 30.1% of retail sales for the third quarter and first nine months of fiscal 2017, respectively, compared to $67.8 million, or 32.8% of retail sales and $206.4 million, or 28.3% of retail sales for the prior year’s comparable three and nine month periods, respectively.  The decrease in SG&A expense for the third quarter and
for the first nine months quarter
of fiscal 2017 was 2022, compared
to
an
income
tax
expense
of
$3.1
million,
or
1.5%
of
retail
sales
for
the
first
quarter
of
fiscal
2021.
Income tax
expense
for
the
first
quarter
of
fiscal
2022
decreased
primarily attributable to
as
a
result
of
lower litigation costs and store expenses.

Depreciation expense was $5.0 million, or 2.7% of retail sales and $15.0 million, or 2.4% of retail sales

pre-tax
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
24
earnings.
The effective income
tax rate for
the thirdfirst quarter and first nine months
of fiscal 2017, respectively, 2022
was 16.7%
compared to $5.7 million, or 2.8%12.9%
for
the
first
quarter of retail sales and $17.1 million or 2.3% of retail sales for
2021. The
increase in
the comparable three and nine month periods of fiscal 2016, respectively. 

Interest and other income was $1.2 million, or 0.6% of retail sales and $3.5 million, or 0.6% of retail sales for the three and nine months ended October 28, 2017, respectively, compared to $1.3 million, or 0.6% of retail sales and $5.6 million, or 0.8% of retail sales for the comparable three and nine month periods of fiscal 2016, respectively.  The decrease for the

2022
first nine months of fiscal 2017 compared to 2016 is primarily attributable to lower gift card breakage income as fiscal 2016 included the effect of the Company’s change in the recognition of unredeemed gift card breakage income.

Income tax benefit was $2.8 million and $0.3 million for the third

quarter and first nine months of fiscal 2017, respectively, compared to income tax benefit of $4.9 million and income tax expense of $11.5 million for the comparable three and nine month periods of fiscal 2016, 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 the first nine months of fiscal 2017

rate was $38.3 million as 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 for the first nine months of fiscal 2017 was primarily generated by earnings adjusted for depreciation and changes 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 was

primarily due
to a decrease in net income and accounts payable, accrued expenses and other liabilities,
higher
Global Intangible Low-taxed Income (GILTI), partially offset by a decrease in merchandise inventories.

24

the ability to realize foreign tax credits.
 
LIQUIDITY, CAPITAL

Table of Contents

RESOURCES

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

AND MARKET

RISK:

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 2022
and the next 12
months.

At October 28, 2017,

Cash used
by operating
activities
for the
first three
months
of fiscal
2022 was
primarily
generated
by earnings
adjusted
for depreciation
and changes
in working capital.
The decrease
in cash provided
of $45.3 million
for
the first
three months
of fiscal
2022 as compared
to the first
three months
of fiscal
2021 was primarily
due to
lower net income
and a decrease
in accounts
payable and
accrued liabilities
from fiscal
2021 year end
versus
an increase
from 2020
year end,
partially
offset by
a decrease
in prepaid
and other
assets.
At
April
30,
2022,
the
Company had
working capital
of $244.3
$107.8
million compared
to $271.9
$111.5
million at
January 28, 2017.

29, 2022.

This decrease is primarily
attributable
to lower short-term
investments,
partially offset
by
lower accrued
incentive
compensation.
At October 28, 2017 and January 28, 2017,
April
30,
2022,
the
Company
had
an
unsecured
revolving
credit
agreement,
which provides
provided
for
borrowings of up to $35.0 million less the valuebalance of revocable letters
of credit discussed below.  below and was committed
through
May
2022.
In
May
2022,
the
Company
signed
a
new
unsecured
revolving
credit
agreement,
which replaces
the prior
credit agreement,
provides up
to $35.0
million in
committed availability
and is
committed
through
May
2027.
The
prior
credit
agreement
contained
various
financial
covenants
and
limitations,
including
the
maintenance
of
specific
financial
ratios
with
which
the
Company
was
in
compliance as of April 30, 2022.
The revolvingnew credit agreement is committed until August 2020. The credit agreementalso 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. ratios.
There were no borrowings outstanding borrowings
under the prior credit facility as of October 28, 2017 andApril 30, 2022 or January 28, 2017.

29, 2022.

At October 28, 2017
April
30,
2022
and
January 28, 2017,
29,
2022,
the
Company
had
no
outstanding revocable letters
of
credit
relating to
purchase
commitments.

Expenditures for
property
and
equipment totaled
$4.4
million
in
the
first
three
months
of
fiscal
2022,
compared to $0.6
million in
last year’s
first three
months.
The increase in
expenditures for property and
equipment totaled $8.8 million in the first nine months of fiscal 2017, compared to $24.0 million in last fiscal year’s first nine months.  The expenditures for the first nine months of fiscal 2017 werewas primarily for the development of six due
to
costs associated with
opening five
new stores
and additional capital
investments in new technology.
information technology
and the
distribution center.
For the
full fiscal 2017 2022
year, the
Company expects to
invest
approximately $11.5
$22.6
million for
in capital
expenditures, to open approximately six new stores, relocate approximately two stores and upgrade merchandise systems.

including
distribution
center
automation
projects.
Net
cash
provided by
investing activities
totaled $53.8
$19.6
million in
the
first nine
three
months
of
fiscal 2017
2022
compared
to net cash of $18.6$34.2 million
used in the comparable
period of 2016.  Net cash provided in 2017 isfiscal
2021, primarily attributable
due to sales lower purchases
of
short-term
investments,
partially
offset by the purchase of short-term investments and lower
an increase
in capital
expenditures.

Net cash used inby financing
activities
totaled $60.6$12.7 million
in the first ninethree months
of fiscal 20172022 compared
to $61.9 $5.5
million
used in
the comparable
period
of fiscal 2016.  The decrease was
2021, primarily
due to lower total dividend expenditures as a result of
an increase
in share
repurchases in 2017
and the back half of fiscal 2016.

dividends

paid.
On November 16, 2017, May
19, 2022,
the Board
of Directors maintained
declared
the quarterly
dividend
at $0.33 $0.17
per share.

THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
25
As
of October 28, 2017,
April 30,
2022, the
Company had 840,506
840,119 shares
remaining in
open authorizations under its
share
repurchase
program.

The Company
does not
use derivative
financial
instruments.
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, 2017April
30,
2022 and
January 28, 2017.  29,
2022.
The state,
municipal and corporate bonds
have contractual maturities which
range from four daysone day to 30.04.6 years. The U.S. Treasury Notes and Certificates of Deposit have contractual
maturities which
range from five months 46
days
to six months.
2.4
years.
These
securities
are
classified
as
available-for-sale and
are
recorded
as
Short-term
investments,
Restricted
cash and 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.

25

 
income. The
asset-backed

Table

securities
are bonds comprised
of Contents

auto loans and bank

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

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,
April
30,
2022,
the
Company
had
$0.8
million
of
corporate
equities
and
deferred
compensation
plan assets
of $11.0 million.
At January
29, 2022, the
Company
had $0.8 million
of corporate
equities
and deferred
compensation
plan assets
of $8.4$11.5 million.  At January 28, 2017, the Company had $0.7 million of corporate equities and deferred compensation plan assets of $8.0 million. 
All of these
assets
are recorded
within Other
assets
in the
Condensed
Consolidated
Balance
Sheets.

See Note
7, Fair
Value Measurements.

RECENT
ACCOUNTING
PRONOUNCEMENTS:

See Note 8, Recent Accounting Pronouncements.

26

 

Table of Contents

THE CATO CORPORATION

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

THE CATO CORPORATION

QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
26
ITEM 3. QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK:

The
Company
is
subject
to
market
rate
risk
from
exposure
to
changes
in
interest
rates
based
on
its
financing, investing and
cash management activities,
but the Company
does not
believe such exposure
is
material.

ITEM 4. CONTROLS AND PROCEDURES:

PROCEDURES:

We carried out
an evaluation,
with the
participation
of our
Principal
Executive
Officer
and Principal
Financial
Officer, of the
effectiveness
of our disclosure controls and procedures as of October 28, 2017.  April 30, 2022.
Based on this
evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of October 28, 2017,
April 30,
2022,
our disclosure controls and procedures, as defined in Rule 13a-15(e), under the
Securities Exchange
Act of
1934 (the “Exchange
“Exchange
Act”), were
effective
to ensure
that information
we are
required
to disclose
in the
reports that
we
file
or
submit under
the
Exchange Act
is
recorded, processed, summarized and
reported
within the time
periods specified
in the SEC’s rules and forms
and that such
information
is accumulated
and
communicated
to our management,
including
our Principal
Executive
Officer
and Principal
Financial
Officer,
as appropriate
to allow
timely
decisions
regarding
required
disclosure.

CHANGES
IN INTERNAL
CONTROL
OVER FINANCIAL
REPORTING:

No change in
the Company’s
internal
control over
financial
reporting (as
(as defined
in Exchange
Act Rule 13a-15(f)13a-
15(f)) has
occurred
during the
Company’s fiscal
quarter
ended October 28, 2017April
30,
2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

27

 
materially
affected,

Table of Contents

or
is
reasonably
likely
to
materially
affect,
the
Company’s
internal
control
over
financial
reporting.
THE CATO CORPORATION

PART
II OTHER
INFORMATION

27
ITEM 1.
LEGAL PROCEEDINGS:

Not Applicable

ITEM 1A.
RISK FACTORS:

In addition
to the
other
information
in this
report,
you should
carefully
consider
the factors
discussed
in Part
I, “Item
“Item 1A. Risk
Factors” in our
Annual Report on Form
10-K for
our fiscal year
ended January 28, 2017.  29, 2022.
These risks could materially
affect our business, financial
condition or future results;
however, they are not
the only
risks we
face.
Additional
risks and
uncertainties
not currently
known to
us or that
we currently
deem
to
be
immaterial
may
also
materially
adversely
affect
our
business,
financial
condition
or
results
of
operations.

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

The following table summarizes the Company’s purchases of its common stock for the three months
ended October 28, 2017:

April 30, 2022:

ISSUER
PURCHASES
OF EQUITY
SECURITIES

 

 

 

 

 

 

 

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 2017

 

287,100

 

$

14.33

 

287,100

 

 

September 2017

 

115,000

 

 

13.51

 

115,000

 

 

October 2017

 

15,000

 

 

13.01

 

15,000

 

 

Total

 

417,100

 

$

14.05

 

417,100

 

840,506

Total Number of

Maximum Number
Shares Purchased as
(or Approximate Dollar
Total Number
Average
Part of Publicly
Value)
of Shares that may
of Shares
Price Paid
Announced Plans or
Yet be Purchased
Under
Period
Purchased
per Share (1)
Programs (2)
The Plans or Programs (2)
February 2022
70,967
$
16.61
70,967
March 2022
327,897
15.01
327,897
April 2022
211,064
14.50
211,064
Total
609,928
$
15.02
609,928
840,119
(1)
Prices include trading costs.

(2)
As of July January
29, 2017,2022, the
Company’s share
repurchase program had 1,257,606
450,047 shares remaining
in
open
authorizations.
The
Board
of
Directors
authorized
an
additional
1,000,000
shares
for
repurchase under
the
program at
its
February 24,
2022 meeting.
During the third
first
quarter ending October 28, 2017, ended
April
30,
2022,
the
Company
repurchased
and
retired 417,100
609,928
shares
under
this
program
for
approximately $5,862,232$9,161,613 or an
average market price of $14.05
$15.02 per share.
As of April 30,
2022,
the third quarter ended October 28, 2017, the
Company
had 840,506
840,119
shares
remaining
in
open
authorizations.
There
is
no
specified
expiration date for the Company’s repurchase program.

ITEM 3.
DEFAULTS
UPON SENIOR SECURITIES:

Not Applicable

28

 

Table of Contents

THE CATO CORPORATION

PART
II OTHER
INFORMATION

28
ITEM 4.
MINE SAFETY DISCLOSURES:

Not Applicable

ITEM 5.
OTHER INFORMATION:

Not Applicable

ITEM 6.
EXHIBITS:

Exhibit No.

Item

   3.1

Registrant’s Restated Certificate of Incorporation dated March 6, 1987, incorporated by reference to Exhibit 4.1 to Form S-8 of the Registrant filed February 7, 2000 (SEC File No. 333-96283).

   3.2

Registrant’s By Laws, incorporated by reference to Exhibit 99.2 to Form
8-K of the Registrant Filed December 10, 2007.

 31.1*

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

 31.2*

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

 32.1*

Section 1350 Certification of Principal Executive Officer.

 32.2*

Section 1350 Certification of Principal Financial Officer.

101.1*

The following materials from Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 28, 2017, formatted in XBRL: (i) Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months and Nine Months Ended October 28, 2017 and October 29, 2016; (ii) Condensed Consolidated Balance Sheets at October 28, 2017 and January 28, 2017; (iii) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 28, 2017 and October 29, 2016; and (iv) Notes to Condensed Consolidated Financial Statements.

Exhibit
No.
Item
3.1
Registrant’sAmendedandRestatedCertificateofIncorporation,
incorporatedby referenceto Exhibit3.1 toForm 10-Qof the Registrant
for thequarterendedMay 2,2020.
3.2
Registrant’sAmendedandRestatedBy-Laws,incorporatedby
referenceto Exhibit 3.2 to Form 10-Qof the Registrantfor the quarter
ended May2, 2020.
10.1
Credit Agreement,dated asof May 19,2022, amongthe Registrant,the
guarantorsparty thereto,the banksparty theretoand Wells FargoBank,
National Association, as Agent,incorporated by reference toExhibit
10.1 toForm 8-Kof theRegistrantfiled May20, 2022.
31.1*
Rule 13a-14(a)/15d-14(a)
Certification
of Principal
Executive
Officer.
31.2*
Rule 13a-14(a)/15d-14(a)Certificationof PrincipalFinancialOfficer.
32.1*
Section1350 Certificationof PrincipalExecutiveOfficer.
32.2*
Section1350 Certificationof PrincipalFinancialOfficer.
101.1*
The following materials from Registrant’s Quarterly Report on
Form
10-Q for
the fiscal
quarter ended April
30, 2022,
formatted in Inline
XBRL:
(i)
Condensed
Consolidated
Statements
of
Income
and
Comprehensive Income for
the
Three Months
ended April
30,
2022
and May
1, 2021;
(ii) Condensed
Consolidated
Balance
Sheets
at April
30,
2022
and
January
29,
2022;
(iii)
Condensed
Consolidated
Statements
of Cash Flows for the Three
Months Ended
April 30, 2022
and
May
1,
2021;
(iv)
Condensed
Consolidated
Statements
of
Stockholders’
Equity for the Three Months Ended April 30, 2022 and
May
1,
2021;
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*)
* Submitted electronically herewith.

29

 

Table of Contents

THE CATO CORPORATION

PART
II OTHER
INFORMATION

29
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.

THE CATO
CORPORATION

November 21, 2017

/s/ John P. D. Cato

Date

John P. D. Cato

Chairman, President and

Chief Executive Officer

November 21, 2017

/s/ John R. Howe

Date

John R. Howe

Executive Vice President

Chief Financial Officer

May 26, 2022

30

/s/ John P.
D. Cato
Date
John P.
D. Cato
Chairman, President and
Chief Executive Officer
May 26, 2022
/s/ Charles D. Knight
Date
Charles D. Knight
Executive Vice President
Chief Financial Officer