CATO CORP - Annual Report: 2021 (Form 10-K)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
January 30, 2021
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number
1-31340
The Cato Corporation
Registrant
Delaware
56-0484485
State of Incorporation
I.R.S. Employer Identification Number
8100 Denmark Road
Charlotte
,
North Carolina
28273-5975
Address of Principal Executive Offices
704
/
554-8510
Registrant’s Telephone Number
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A - Common Stock, par value $.033 per share
CATO
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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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
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pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes
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reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes -Oxley Act (15 U.S.C. 7262(b)) by
the registered public accounting firm that prepared or issued its audit report.
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2020, the last business day of the Company’s most recent second quarter, was $
234,143,784
share on the New York Stock Exchange on that date.
20,839,795
1,763,652
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
following part of this annual report:
Part III — Items 10, 11, 12, 13 and 14
2
THE CATO CORPORATION
FORM 10-K
TABLE OF CONTENTS
Page
PART I
Item 1.
Business ..........................................................................................................................
5 – 10
Item 1A.
Risk Factors ....................................................................................................................
10 – 20
Item 1B.
Unresolved Staff Comments ...........................................................................................
20
Item 2.
Properties ........................................................................................................................
20
Item 3.
Legal Proceedings ...........................................................................................................
21
Item 3A.
Executive Officers of the Registrant ...............................................................................
22
Item 4.
Mine Safety Disclosures .................................................................................................
22
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities ........................................................................................
23 – 25
Item 6.
Selected Financial Data ..................................................................................................
26
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results
of Operations ..................................................................................................................
27 – 33
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk ........................................
33
Item 8.
Financial Statements and Supplementary Data ..............................................................
34 – 62
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure .......................................................................................................................
63
Item 9A.
Controls and Procedures .................................................................................................
63
Item 9B.
Other Information ...........................................................................................................
63
PART III
Item 10.
Directors, Executive Officers and Corporate Governance .............................................
64
Item 11.
Executive Compensation ................................................................................................
65
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ........................................................................................................
65
Item 13.
Certain Relationships and Related Transactions, and Director Independence ...............
65
Item 14.
Principal Accountant Fees and Services .........................................................................
65
PART IV
Item 15.
Exhibits and Financial Statement Schedules ..................................................................
66 – 70
Item 16.
Form 10-K Summary ………………………………………………………………….
68
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Forward-looking Information
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-K and any documents
incorporated by reference 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 “Managemen t’s Discussion and
Analysis of Financial Condition and Results of Operations” (4) statements relating to our operations or
activities for our fiscal year ending January 29, 2022 (“fiscal 2021”) and beyond, including, but not
limited to, statements regarding expected amounts of capital expenditures and store openings, relocations,
remodels and closures, 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
statements regarding new store development strategy ; and (5) statements relating to our future
contingencies. When possible, we have attempted to identify forward-looking statements by using words
such as “will,” “expects,” “anticipates,” “approximates,” “believes,” “estimates,” “hopes,” “intends,”
“may,” “plans,” “could,” “would,” “should” and any variations or negative formations of such words and
similar expressions. We can give no assurance that actual results or events will not differ materially from
those expressed or implied in any such forward-looking statements. Forward-looking statements included
in this report are based on information available to us as of the filing date of this report, but subject to
known and unknown risks, uncertainties and other factors that could cause actual results to differ
materially from those contemplated by the forward-looking statements. Such factors include, but are not
limited to, the following: any actual or perceived deterioration in the conditions that drive consumer
confidence and spending, including, but not limited to, prevailing social, economic, political and public
health conditions and uncertainties, levels of unemployment, fuel, energy and food costs, wage rates, tax
rates, interest rates, home values, consumer net worth and the availability of credit; changes in laws,
regulations or governmental policies affecting our business, including but not limited to tariffs;
uncertainties regarding the impact of any governmental action regarding, or responses to, the foregoing
conditions; competitive factors and pricing pressures; our ability to predict and respond to rapidly
changing fashion trends and consumer demands; our ability to successfully implement our new store
development strategy to increase new store openings and our ability of any such new stores to grow and
perform as expected; adverse weather, public health threats (including the global coronavirus (COVID-
19) pandemic) or similar conditions that may affect our sales or operations; inventory risks due to shifts in
market demand, including the ability to liquidate excess inventory at anticipated margins; and other
factors discussed under “Risk Factors” in Part I, Item 1A of this annual report on Form 10-K for the fiscal
year ended January 30, 2021 (“fiscal 2020”), as amended or supplemented, and in other reports we file
with or furnish to the Securities and Exchange Commission (“SEC”) from time to time. We do not
undertake, and expressly decline, any obligation to update any such forward- looking information
contained in this report, whether as a result of new information, future events, or otherwise.
and its subsidiaries, unless the context indicates another meaning and except that when used with
reference to common stock or other securities described herein and in describing the positions held by
management of the Company, such terms include only The Cato Corporation. Our website is located at
www.catofashions.com where we make available, free of charge, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other reports
(including amendments to these reports) filed or furnished pursuant to Section 13(a) or 15(d) under the
Securities Exchange Act of 1934. These reports are available as soon as reasonably practicable after we
electronically file these materials with the SEC. We also post on our website the charters of our Audit,
Compensation and Corporate Governance and Nominating Committees; our Corporate Governance
Guidelines; Code of Business Conduct and Ethics and Code of Ethics for the Principal Executive Officer,
Principal Financial Officer and Principal Accounting Officer and any amendments or waivers thereto for
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any of our directors or executive officers; and any other publicly available corporate governance materials
contemplated by SEC or New York Stock Exchange regulations. The information contained on our
website,
www.catofashions.com
, is not, and should in no way be construed as, a part of this or any other
report that we filed with or furnished to the SEC.
5
PART I
Item 1.
Business:
Background
states, principally in the southeastern United States, under the names “Cato,” “Cato Fashions,” “Cato
Plus,” “It’s Fashion,” “It’s Fashion Metro” and “Versona.” The Cato concept seeks to offer quality
fashion apparel and accessories at low prices every day, in junior/missy and plus sizes. The Cato
concept’s stores and e-commerce website feature a broad assortment of apparel and accessories, including
dressy, career, and casual sportswear, dresses, coats, shoes, lingerie, costume jewelry and handbags. A
major portion of the Cato concept’s merchandise is sold under its private label and is produced by various
vendors in accordance with the concept’s specifications. The It’s Fashion and It’s Fashion Metro
concepts offer fashion with a focus on the latest trendy styles for the entire family at low prices every day.
The Versona concept’s stores and e-commerce website offer quality fashion apparel items, jewelry and
accessories at exceptional values every day. The Company’s stores range in size from 2,100 to 19,000
square feet and are located primarily in strip shopping centers anchored by national discounters or
market-dominant grocery stores. The Company emphasizes friendly customer service and coordinated
merchandise presentations in an appealing store environment. The Company offers its own credit card
and layaway plan. Credit and layaway sales under the Company’s plan represented 5% of retail sales in
fiscal 2020. See Note 14 to the Consolidated Financial Statements, “Reportable Segment Information,”
for a discussion of information regarding the Company’s two reportable segments: retail and credit.
originated as a family-owned business and made its first initial public offering of stock in 1968. In 1980,
the Company went private and in 1987 again conducted an initial public offering.
Business Strategy
in its markets. Management believes the Company’s success is dependent upon its ability to differentiate
its stores from department stores, mass merchandise discount stores and competing specialty stores. The
key elements of the Company’s business strategy are:
Merchandise Assortment.
accessory items in primarily junior/missy, plus sizes, men’s and kids sizes, toddler to boys size 20 and
girls size 16 with an emphasis on color, product coordination and selection. Colors and styles are
coordinated and presented so that outfit selection is easily made.
Value Pricing.
merchandise offered by department stores and mall specialty apparel chains, but is generally more
fashionable than merchandise offered by discount stores. Management believes that the Company has
positioned itself as the every day low price leader in its market segment.
Strip Shopping Center Locations.
The Company locates its stores principally in convenient strip
centers anchored by national discounters or market-dominant grocery stores that attract large numbers of
potential customers.
Customer Service.
service and to assist customers in merchandise selection and wardrobe coordination.
Credit and Layaway Programs
. The Company offers its own credit card and a layaway plan to make
the purchase of its merchandise more convenient for its customers.
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Merchandising
Merchandising
accessories to suit the various lifestyles of fashion and value-conscious customers. In addition, the
Company strives to offer on-trend fashion in exciting colors with consistent fit and quality.
lingerie, costume jewelry, handbags, men’s wear and lines for kids and infants. The Company primarily
offers exclusive merchandise with fashion and quality comparable to mall specialty stores at low prices,
every day.
in-house product development and direct sourcing function has enhanced merchandise offerings and
delivers quality, exclusive on-trend styles at lower prices. The product development and direct sourcing
operations provide research on emerging fashion and color trends, technical services and direct sourcing
options.
frequently attend trade shows to stay abreast of latest trends and styles, visit selected stores to monitor the
merchandise offerings of other retailers, regularly communicate with store operations associates and
frequently confer with key vendors. The Company also takes aggressive markdowns on slow- selling
merchandise and typically does not carry over merchandise to the next season.
merchandise is purchased from approximately 100 primary vendors. In fiscal 2020, purchases from the
Company’s largest vendor accounted for approximately 10% of the Company’s total purchases. The
Company is not dependent on its largest vendor or any other vendor for merchandise purchases, and the
loss of any single vendor or group of vendors would not have a material adverse effect on the Company’s
operating results or financial condition. A substantial portion of the Company’s merchandise is sold under
its private labels and is produced by various vendors in accordance with the Company’s strict
specifications. The Company sources a majority of its merchandise directly from manufacturers overseas,
primarily in Southeast Asia . These manufacturers have a dependence on materials that are primarily
sourced from China. The Company purchases its remaining merchandise from domestic importers and
vendors, which typically minimizes the time necessary to purchase and obtain shipments; however, these
vendors are dependent on materials primarily sourced from China. The Company opened its own
overseas sourcing operations in the fall of 2014, replacing the Company’s former sourcing agent in 2015.
Although a significant portion of the Company’s merchandise is manufactu red overseas, primarily in
Southeast Asia, the Company does not expect that any economic, political, public health or social unrest
in any one country would have a material adverse effect on the Company’s ability to obtain adequate
supplies of merchandise. However, the Company can give no assurance that any changes or disruptions
in its merchandise supply chain would not materially and adversely affect the Company. See “Risk
Factors – Risks Relating To Our Business – Because we source a significant portion of our merchandise
directly and indirectly from overseas, we are subject to risks associated with international operations and
risks that affect the prevailing social, economic, political, public health and other conditions in the areas
from which we source merchandise; changes, disru ptions, cost changes or other problems affecting the
Company’s merchandise supply chain could materially and adversely affect the Company’s business,
results of operations and financial condition.”
stores based on an analysis of sales trends by merchandise category, customer profiles and climatic
7
conditions. A merchandise control system provides current information on the sales activity of each
merchandise style in each of the Company’s stores. Point-of-sale terminals in the stores collect and
transmit sales and inventory information to the Company’s central database, permitting timely response to
sales trends on a store-by-store basis.
where it is inspected and then allocated by the merchandise distribution staff for shipment to individual
stores. The flow of merchandise from receipt at the distribution center to shipment to stores is controlled
by an on-line system. Shipments are made by common carrier, and each store receives at least one
shipment per week. The centralization of the Company’s distribution process also subjects it to risks in
the event of damage to or destruction of its distribution facility or other disruptions affecting the
distribution center or the flow of goods into or out of Charlotte, North Carolina. See “Risk Factors –
Risks Relating To Our Information Te chnology and Related Systems – A disruption or shutdown of our
centralized distribution center or transportation network could materially and adversely affect our
business and results of operations.”
websites and social media as its primary advertising media. The Company’s total advertising
expenditures were approximately 0.8%, 0.7% and 0.7% of retail sales for fiscal years 2020, 2019 and
2018, respectively.
Store Operations
managers and 110 district managers. Regional managers receive a salary plus a bonus based on achieving
targeted goals for sales, payroll and shrinkage control. District managers receive a salary plus a bonus
based on achieving targeted objectives for district sales increases and shrinkage control. Stores are
typically staffed with a manager, two assistant managers and additional part-time sales associates
depending on the size of the store and seasonal personnel needs. In general, store managers are paid a
salary or on an hourly basis as are all other store personnel. Store managers, assistant managers and sales
associates are eligible for monthly and semi-annual bonuses based on achieving targeted goals for their
respective store’s sales increases and shrinkage control.
Store Locations
ranging from small towns to large metropolitan areas with trade area popula tions of 20,000 or more.
Stores average approximately 4,500 square feet in size.
7% in enclosed shopping malls. The Company typically locates stores in strip shopping centers anchored
by a national discounter, primarily Walmart Supercenters, or market-dominant grocery stores. The
Company’s strip center locations provide ample parking and shopping convenience for its customers.
markets, relocating selected existing stores to more desirable locations in the same market area and
closing underperforming stores. The following table sets forth information with respect to the Company’s
development activities since fiscal 2016:
8
Store Development
Number of Stores
Beginning of
Number
Number
Number of Stores
Fiscal Year
Year
Opened
Closed
End of Year
2016………………….……...………….
1,372
9
1,371
2017………………….……...………….
1,371
26
1,351
2018……………………….……...…….
1,351
40
1,311
2019…………....………….……...…….
1,311
35
1,281
2020………….………...….……...…….
1,281
27
1,330
closed based on its sales trends and profitability. The Company intends to continue this review process to
identify underperforming stores.
Credit and Layaway
The Company offers its own credit card, which accounted for 2.7%, 3.3% and 3.3% of retail sales in
fiscal 2020, 2019 and 2018, respectively. The Company’s net bad debt expense was 3.6%, 3.2% and 3.8%
of credit sales in fiscal 2020, 2019 and 2018, respectively.
Customers applying for the Company’s credit card are approved for credit if they have a satisfactory
credit record and the Company has considered the customer’s ability to make the required minimum
payment. Customers are required to make minimum monthly payments based on their account balances.
If the balance is not paid in full each month, the Company assesses the customer a finance charge. If
payments are not received on time, the customer is assessed a late fee subject to regulatory limits.
Under the Company’s layaway plan, merchandise is set aside for customers who agree to make
periodic payments. The Company adds a nonrefundable administrative fee to each layaway sale. If no
payment is made within four weeks, the customer is considered to have defaulted, and the merchandise is
returned to the selling floor and again offered for sale, often at a reduced price. All payments made by
customers who subsequently default on their layaway purchase are returned to the customer upon request,
less the administrative fee and a restocking fee.
The Company defers recognition of layaway sales to the accounting period when the customer picks
up and completely pays for layaway merchandise. Administrative fees are recognized in the period in
which the layaway is initiated. Recognition of restocking fees occurs in the accounting period when the
customer defaults on the layaway purchase. Layaway sales represented approximately 2.8%, 4.1% and
4.0% of retail sales in fiscal 2020, 2019 and 2018, respectively.
Information Technology Systems
information that is used by management to enhance the timeliness and effectiveness of purchasing and
pricing decisions. Management uses a daily report comparing actual sales with planned sales and a
weekly ranking report to monitor and control purchasing decisions. Weekly reports are also produced
which reflect sales, weeks of supply of inventory and other critical data by product categories, by store
and by various levels of responsibility reporting. Purchases are made based on projected sales, but can be
modified to accommodate unexpected increases or decreases in demand for a particular item.
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actual performance measured by stock keeping unit (SKU). Merchandise allocation models are used to
distribute merchandise to individual stores based upon historical sales trends, climatic differences,
customer demographic differences and targeted inventory turnover rates.
Competition
competitive factors in its industry include merchandise assortment and presentation, fashion, price, store
location and customer service. The Company competes with retail chains that operate similar women’s
apparel specialty stores. In addition, the Company competes with mass merchandise chains, discount store
chains, major department stores, off-price retailers and internet-based retailers. Although we believe we
compete favorably with respect to the principal competitive factors described above, many of our direct
and indirect competitors are well-established national, regional or local chains, and some have
substantially greater financial, marketing and other resources. The Company expects its stores in larger
cities and metropolitan areas to face more intense competition.
Seasonality
expects to continue to experience seasonal fluctuations in its revenues, operating income and net income.
Results of a period shorter than a full year may not be indicative of results expected for the entire year.
Furthermore, the seasonal nature of our business may affect comparisons between periods. See Note 13
of Notes to the Consolidated Financial Statements for information regarding our quarterly results of
operations for the last two fiscal years.
Regulation
international laws and regulations in a variety of areas, including but not limited to, trade, licensing and
permit requirements, import and export matters, privacy and data protection, credit regulation,
environmental matters, recordkeeping and information management, tariffs, taxes, intellectual property
and anti-corruption. Though compliance with these laws and regulations has not had a material effect on
the capital expenditures, results of operations or competitive position of the Company in fiscal 2020, the
Company faces ongoing risks related to its efforts to comply with these laws and regulations and risks
related to noncompliance, as discussed generally below throughout the “Risk Factors” section and in
particular under “Risk Factors – Risks Relating to Accounting and Legal Matters – Our business
operations subject us to legal compliance and litigation risks, as well as regulations and regulatory
enforcement priorities, which could result in increased costs or liabilities, divert our management’s
attention or otherwise adversely affect our business, results of operations and financial condition.”
Human Capital
associates. The Company also employs additional part -time associates during the peak retailing seasons.
The Company’s full-time team associates are engaged in various executive, operating, and administrative
functions in the Home Office and distribution center and the remainder are engaged in store operations.
The Company is not a party to any collective bargaining agreements and considers its associate relations
to be good. The Company offers a broad range of Company paid benefits to its associates including
medical and dental plans, paid vacation, a 401(k) plan, Employee Stock Purchase Plan, Employee Stock
Ownership Plan, disability insurance, associate assistance programs, life insurance and an associate
discount. The level of benefits and eligibility vary depending on the associate’s full-time or part-time
status, da te of hire, length of service and level of pay. The Company promotes diversity, provides
opportunities for advancement, and treats all of its associates with dignity and respect. The Company
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constantly strives to improve its training programs to develop associates. Over 80% of store and field
management are promoted from within, allowing the Company to internally staff its store base. The
Company has training programs at each level of store operations. The Company also performs ongoing
reviews of its safety protocols, including extensive efforts undertaken during the COVID-19 pandemic to
ensure the health and safety of its associates by performing frequent cleanings, ensuring social distancing
and providing masks for all of its stores.
Item 1A.
Risk Factors:
the following risk factors, in addition to the other information contained in this report, including the
disclosures under “Forward-looking Information” above in evaluating our Company and any potential
investment in our common stock. If any of the following risks or uncertainties occur or persist, our
business, financial condition and ope rating results could be materially and adversely affected, the trading
price of our common stock could decline and you could lose all or a part of your investment in our
common stock. The risks and uncertainties described in this section are not the only ones facing us.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial may
also materially and adversely affect our business operating results and financial condition.
Risks Relating to the COVID-19 Pandemic:
The outbreak and persistence of the COVID-19 pandemic has and will adversely affect our business,
financial condition and results of operations.
operating results through fiscal 2020, and we expect that it will continue to do so in fiscal 2021 and
possibly beyond. Adverse financial impacts associated with the outbreak include, but are not limited to,
(i) lower net sales in markets affected by the actual or potential outbreak, whether due to state and local
orders to close stores, reductions in store traffic and customer demand, labor shortages, or all of these
factors, (ii) lower net sales caused by the delay of inventory production and fulfillment, (iii) and
incremental costs associated with efforts to mitigate the effects of the outbreak, including increased
freight and logistics costs and other expenses.
closures and other measures to mitigate the spread of the virus. In addition, public health officials have
issued precautions and guidance intended to reduce the spread of the virus, including particular cautions
about congregating in large groups or heavily populated areas, such as malls and shopping centers. We
temporarily closed all Cato, It’s Fashion, It’s Fashion Metro and Versona stores on March 19, 2020.
Beginning on May 1, 2020, we began to re-open stores based on the pertinent state and local orders. As of
June 15, 2020, all stores were re-opened, but our stores have been and continue to operate at reduced hours.
Periodic increases in infection rates in communities where our stores are located may prompt further
governmental measures or public health guidance to reduce public activity and gatherings in order to mitigate
the spread of the virus, and may also continue to adversely affect consumer confidence. There continues to
be significant uncertainty regarding the breadth , severity and duration of business disruptions related to
COVID-19, as well as its impact on the global and U.S. economy, consumer willingness to visit malls and
shopping centers, and its impact on appropriate associate staffing levels for our stores. The status and
effects of national, state or local action, initiatives, legislation, guidelines or programs that attempt to
mitigate the spread of COVID-19 or address its economic effects on our customers, suppliers or the
Company also remain fluid.
adversely impacted, the extent to which COVID-19 impacts the Company’s results will depend on the
course of future developments, which are highly uncertain, including the relative speed and success of, as
well as public confidence in, mitigation measures such as the current effort to vaccinate substantial
11
portions of the U.S. and global population, emerging information regarding variants of the virus or new
viruses and their potential impact on current mitigation efforts, public attitudes toward continued
compliance with containment and mitigation measures, and possible new information and understanding
that could alter the course and duration of current measures to combat the spread of the virus.
customers and others that could adversely affect our business, including but not limited to a consumer
shift to greater reliance on online versus in-person shopping, which could reduce traffic to our stores and
more broadly to the strip shopping centers and malls in which most of our stores are located and
disadvantage us relative to competitors who are better established in e-commerce sales, and reductions in
face-to-face work, travel and socializing occasions, which may lead customers to less frequently desire or
perceive the need to update their wardrobes.
report and other filings we make from time to time with the SEC.
also have a material adverse effect on the Company’s business, financial condition and operating results.
Risks Relating to Our Business:
Unusual weather, natural disasters, public health threats or similar events may adversely affect our sales or
operations.
Extreme changes in weather, natural disasters, public health threats or similar events can influence
customer trends and shopping habits. For example, heavy rainfall or other extreme weather conditions ,
including but not limited to winter weather over a prolonged period, might make it difficult for our
customers to travel to our stores and thereby reduce our sales and profitability. Our business is also
susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm
temperatures during the winter season or cool weather during the summer season could render a portion
of our inventory incompatible with those unseasonable conditions. Reduced sales from extreme or
prolonged unseasonable weather conditions would adversely affect our business. The occurrence or
threat of extreme weather, natural disasters, power outages, terrorist acts, outbreaks of flu or other
communicable diseases (such as the global COVID-19 pandemic) or other catastrophic events could
reduce customer traffic in our stores and likewise disrupt our ability to conduct operations, which could
materially and adversely affect us.
Because we source a significant portion of our merchandise directly and indirectly from overseas, we are
subject to risks associated with international operations and risks that affect the prevailing social, economic,
political, public health and other conditions in the areas from which we source merchandise; changes,
disruptions, cost changes or other problems affecting the Company’s merchandise supply chain could
materially and adversely affect the Company’s business, results of operations and financial condition.
A significant amount of our merchandise is manufactured overseas, principally in Southeast Asia. We
directly import some of this merchandise and indirectly import the remaining merchandise from domestic
vendors who acquire the merchandise from foreign sources. Further, our third-party vendors are
dependent on materials primarily sourced from China. As a result, political unrest, labor disputes,
terrorism, public health threats, including but not limited to communicable diseases (such as the global
COVID-19 pandemic), financial or other forms of instability or other events resulting in the disruption of
trade from countries affecting our supply chain, increased security requirements for imported
merchandise, or the imposition of, or changes in, laws, regulations or changes in duties, quotas, tariffs,
taxes or governmental policies regarding these matters or other factors affecting the availability or cost of
imports, could cause significant delays or interruptions in the supply of our merchandise or increase our
costs. We are also subject to supply chain disruptions affecting ocean freight, including lack of ocean
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container ship capacity, lack of equipment such as containers, port congestion and other conditions
impacting ocean freight. We also are subject to domestic supply chain disruptions, including lack of
domestic intermodal transportation (trucks and drivers), domestic port congestion and other conditions
that ma y impact domestic supply chain. These supply chain risks may result in both higher costs to
transport our merchandise and delayed merchandise arrivals to our stores, which may adversely affect our
ability to sell this merchandise and increase markdowns of it. Our costs are also affected by currency
fluctuations, and changes in the value of the dollar relative to foreign currencies may increase our cost of
goods sold. Any of these factors could have a material adverse effect on our business and results of
operations. In addition, increased energy and transportation costs have caused us significant cost
increases from time to time, and future adverse changes in these costs or the disruption of the means by
which merchandise is transported to us could cause additional cost increases or interruptions of our
supply chain which could be significant. Further, we are subject to increased costs or potential disruptions
impacting any port or trade route through which our products move or we may be subject to increased
costs and delays if forced to route freight through different ports than the ones through which our
products typically move. If we are forced to source merchandise from other countries or other domestic
vendors with foreign sources in different countries, those goods may be more expensive or of a different
or inferior quality from the ones we now sell.
The inability of third-party vendors to produce goods on time and to the Company’s specification may
adversely affect the Company’s business, results of operations and financial condition.
numerous risks that our vendors will fail to perform as we expect. For example, the deterioration in any
of our key vendors’ financial condition, their failure to ship merchandise in a timely manner that meets
our specifications, or other failures to follow our vendor guidelines or comply with applicable laws and
regulations, including compliant labor, environmental practices and product safety, could expose us to
operational, quality, competitive, reputational and legal risks. If we are not able to timely or adequately
replace the merchandise we currently source with merchandise produced elsewhere, or if our vendors fail
to perform as we expect, our business, results of operations and financial condition could be adversely
affected. Activities conducted by us or on our behalf outside the United States further subject us to
numerous U.S. and international regulations and compliance risks, as discussed below under “Risk
Factors – Risks Relating to Accounting and Legal Matters - Our business operations subject us to legal
compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could
result in increased costs or liabilities, divert our management’s attention or otherwise adversely affect our
business, results of operations and financial condition.”
Our ability to attract consumers and grow our revenues is dependent on the success of our store location
strategy and our ability to successfully open new stores as planned.
Our sales are dependent in part on the location of our stores in shopping centers and malls where we
believe our consumers and potential consumers shop. In addition, our ability to grow our revenues has
been substantially dependent on our ability to secure space for and open new stores in attractive locations.
Shopping centers and malls where we currently operate existing stores or seek to open new stores may be
adversely affected by, among other things, general economic downturns or those particularly affecting the
commercial real estate industry, the closing of anchor stores, changes in tenant mix and changes in
customer shopping preferences, including but not limited to an increase in preference for online versus in-
person shopping. To take advantage of consumer traffic and the shopping preferences of our consumers,
we need to maintain and acquire stores in desirable locations where competition for suitable store
locations is intense. A decline in customer popularity of the strip shopping centers where we generally
locate our stores or in availability of space in desirable centers and locations, or an increase in the cost of
such desired space, could limit our ability to open new stores, adversely affect consumer traffic and
reduce our sales and net earnings or increase our operating costs.
13
control. These factors include, but are not limited to, our ability to identify suitable store locations,
negotiate acceptable lease terms, secure necessary governmental permits and approvals and hire and train
appropriate store personnel. In addition, our continued expansion into new regions of the country where
we have not done business before may present new challenges in competition, distribution and
merchandising as we enter these new markets. Our failure to successfully and timely execute our plans for
opening new stores or the failure of these stores to perform up to our expectations could adversely affect
our business, results of operations and financial condition.
If we are unable to anticipate, identify and respond to rapidly changing fashion trends and customer
demands in a timely manner, our business and results of operations could materially suffer.
Customer tastes and fashion trends, particularly for women’s apparel, are volatile, tend to change
rapidly and cannot be predicted with certainty. Our success depends in part upon our ability to
consistently anticipate, design and respond to changing merchandise trends and consumer preferences in a
timely manner. Accordingly, any failure by us to anticipate, identify, design and respond to changing
fashion trends could adversely affect c onsumer acceptance of our merchandise, which in turn could
adversely affect our business, results of operations and our image with our customers. If we miscalculate
either the market for our merchandise or our customers’ tastes or purchasing habits, we may be required
to sell a significant amount of unsold inventory at below-average markups over cost, or below cost, which
would adversely affect our margins and results of operations.
Fluctuating comparable sales or our inability to effectively manage inventory may negatively impact our
gross margin and our overall results of operations.
sales include fashion trends, customer preferences, calendar and holiday shifts, competition, weather,
actual or potential public health threats and economic conditions. In addition, merchandise must be
ordered well in advance of the applicable selling season and before trends are confirmed by sales. If we
are not able to accurately predict customers’ preferences for our fashion items, we may have too much
inventory, which may cause excessive markdowns. If we are unable to accurately predict demand for our
merchandise, we may end up with inventory shortages, resulting in missed sales. A decrease in
comparable sales or our inability to effectively manage inventory may adversely affect our gross margin
and results of operations.
Existing and increased competition in the women’s retail apparel industry may negatively impact our
business, results of operations, financial condition and market share.
The women’s retail apparel industry is highly competitive. We compete primarily with discount
stores, mass merchandisers, department stores, off -price retailers, specialty stores and internet- based
retailers, many of which have substantially greater financial, marketing and other resources than we have.
Many of our competitors offer frequent promotions and reduce their selling prices. In some cases, our
competitors are expanding into markets in which we have a significant market presence. In addition, our
competitors also compete for the same retail store space. As a result of this competition, we may
experience pricing pressures, increased marketing expenditures, increased costs to open new stores, as
well as loss of market share, which could materially and adversely affect our business, results of
operations and financial condition.
The operation of our sourcing offices in Asia may present increased legal and operational risks.
regulatory practices and requirements in Asia is limited. If our sourcing offices are unable to successfully
oversee merchandise production to ensure that product is produced on time and within the Company’s
specifications, our business, brand, reputation, costs, results of operations and financial condition could be
materially and adversely affected. Further, the activities conducted by our sourcing offices outside the
14
United States subject us to foreign operational risks, as well as U.S. and international regulations and
compliance risks, as discussed elsewhere in this “Risk Factors” section, in particular below under “Risk
Factors – Risks Relating to Accounting and Legal Matters - Our business operations subject us to legal
compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could
result in increased costs or liabilities, divert our management’s attention or otherwise adversely affect our
business, results of operations and financial condition.”
Any actual or perceived deterioration in the conditions that drive consumer confidence and spending may
materially and adversely affect consumer demand for our apparel and accessories and our results of
operations.
Consumer spending habits, including spending for our apparel and accessories, are affected by, among
other things, prevailing social, economic, political and public health conditions and uncertainties (such as
matters under debate in the U.S. from time to time regarding budgetary, spending and tax policies and the
impact of the global COVID-19 pandemic), levels of employment, fuel, energy and food costs, salaries
and wage rates and other sources of income, tax rates, home values, consumer net worth, the availability
of consumer credit, consumer confidence and consumer perceptions of adverse changes in or trends
affecting any of these conditions. Any perception that these conditions may be worsening or continuing
to trend negatively may significantly weaken many of these drivers of consumer spending habits. Adverse
perceptions of these conditions or uncertainties regarding them also generally cause consumers to defer
purchases of discretionary items, such as our merchandise, or to purchase cheaper alternatives to our
merchandise, all of which may also adversely affect our net sales and results of operations. In addition,
numerous events, whether or not related to actual economic conditions, such as downturns in the stock
markets, acts of war or terrorism, political unrest or natural disasters, outbreaks of disease or similar
events, may also dampen consumer confidence, and accordingly, lead to reduced consumer spending.
Any of these events could have a material adverse effect on our business, results of operations and
financial condition.
Fluctuations in the price, availability and quality of inventory may result in higher cost of goods, which the
Company may not be able to pass on to its customers.
Vendors are increasingly passing on higher production costs, which may impact our ability to
maintain or grow our margins. The price and availability of raw materials may be impacted by demand,
regulation, weather and crop yields, currency value fluctuations, as well as other factors. Additionally,
manufacturers have and may continue to have increases in other manufacturing costs, such as
transportation, labor and benefit costs. These increases in production costs result in higher merchandise
costs to the Company. Due to the Company’s limited flexibility in price point, the Company may not be
able to pass on those cost increases to the consumer, which could have a material adverse effect on our
results of operations and financial condition.
If the Company is unable to successfully integrate new businesses into its existing business, the Company’s
financial condition and results of operations will be adversely affected.
The Company’s long-term business strategy includes opportunistic growth through the development
of new store concepts. This growth may require significant capital expenditures and management
attention. The Company may not realize any of the anticipated benefits of a new business and integration
costs may exceed anticipated amounts. We have incurred substantial financial commitments and fixed
costs related to our retail stores that we will not be able to recover if our stores are not successful and that
could potentially result in impairment charges. If we cannot successfully execute our growth strategies,
our financial condition and results of operations may be adversely impacted.
Failure to attract, train, and retain skilled personnel could adversely affect our business and our financial
condition.
15
associates and managers. Because our continued store growth will require the hiring and training of new
associates, we must continually attract, hire and train new store associates to meet our staffing needs. A
significant increase in the turnover rate among our store sales associates and managers would increase our
recruiting and training costs, as well as possibly cause a decrease in our store operating efficiency and
productivity. We compete for qualified store associates, as well as experienced management personnel,
with other companies in our industry or other industries, many of whom have greater financial resources
than we do.
Company for the support of our existing business and future expansion. The success of executing our
business strategy depends in large part on retaining key management. We compete for key management
personnel with other retailers, and our inability to attract and retain qualified personnel could limit our
ability to continue to grow.
skilled personnel in the future, we may not be able to service our customers effectively or execute our
business strategy, which could adversely affect our business, operating results and financial condition.
Risks Relating to Our Information Technology and Related Systems:
A failure or disruption relating to our information technology systems could adversely affect our business.
We rely on our existing information technology systems for merchandise operations, including
merchandise planning, replenishment, pricing, ordering, markdowns and product life cycle management.
In addition to merchandise operations, we utilize our information technology systems for our distribution
processes, as well as our financial systems, including accounts payable, general ledger, accounts
receivable, sales, banking, inventory and fixed assets. Despite the precautions we take, our information
systems are or may be vulnerable to disruption or failure from numerous events, including but not limited
to, natural disasters, severe weather conditions, power outages, technical malfunctions, cyber-attacks, acts
of war or terrorism, similar catastrophic events or other causes beyond our control or that we fail to
anticipate. Any disruption or failure in the operation of our information technology systems, our failure to
continue to upgrade or improve such systems, or the cost associated with maintaining, repairing or
improving these systems, could adversely affect our business, results of operations and financial
condition. Modifications and/or upgrades to our current information technology systems may also disrupt
our operations.
A disruption or shutdown of our centralized distribution center or transportation network could materially
and adversely affect our business and results of operations.
and distributed through our network of third-party freight carriers. The merchandise we purchase is
shipped directly to our distribution center, where it is prepared for shipment to the appropriate stores and
subsequently delivered to the stores by our third-party freight carriers. If the distribution center or our
third-party freight carriers were to be shut down or lose significant capacity for any reason, including but
not limited to, any of the causes described above under “A failure or disruption relating to our information
technology systems could adversely affect our business,” our operations would likely be seriously
disrupted. Such problems could occur as the result of any loss, destruction or impairment of our ability to
use our distribution center, as well as any broader problem generally affecting the ability to ship goods
into our distribution center or deliver goods to our stores. As a result, we could incur significantly higher
costs and longer lead times associated with distributing our products to our stores during the time it takes
for us to reopen or replace the distribution center and/or our transportation network. Any such occurrence
could adversely affect our business, results of operations and financial condition.
16
A security breach that results in unauthorized access to or disclosure of employee, Company or customer
information could adversely affect our costs, reputation and results of operations, and efforts to mitigate
these risks may continue to increase our costs.
breach, mishandling, human or programming error or other event that results in the misappropriation, loss
or other unauthorized disclosure of employee, Company or customer information, including but not
limited to credit card data or other personally identifiable information, could severely damage the
Company's reputation, expose it to remediation and other costs and the risks of legal proceedings, disrupt
its operations and otherwise adversely affect the Company's business and financial condition. The
security of certain of this information also depends on the ability of third-party service providers, such as
those we use to process credit and debit card payments as described below under “We are subject to
payment-related risks,” to properly handle and protect such information. Our information systems and
those of our third-party service providers are subject to ongoing and persistent cybersecurity threats from
those seeking unauthorized access through means which are continually evolving and may be difficult to
anticipate or detect for long periods of time. Despite measures the Company takes to protect confidential
information against unauthorized access or disclosure, which are ongoing and may continue to increase
our costs, there is no assurance that such measures will prevent the compromise of such information. If
any such compromise or unauthorized access to or disclosure of this information were to occur, it could
have a material adverse effect on the Company's reputation, business, operating results, financial
condition and cash flows.
We are subject to payment -related risks.
credit cards, debit cards, gift cards and physical and electronic bank checks. For existing and future
payment methods we offer to our customers, we may become subject to additional regulations and
compliance requirements (including obligations to implement enhanced authentication processes that
could result in increased costs and reduce the ease of use of certain payment methods), as well as fraud.
For certain payment methods, including credit and debi t cards, we pay interchange and other fees, which
may increase over time, raising our operating costs and lowering profitability. We rely on third-party
service providers for payment processing services, including the processing of credit and debit cards. In
each case, it could disrupt our business if these third-party service providers become unwilling or unable
to provide these services to us. We are also subject to payment card association operating rules, including
data security rules, certification requirements and rules governing electronic funds transfers, which could
change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with
these rules or requirements, or if our data security systems are breached or com promised, we may be
liable for card-issuing banks’ costs, subject to fines and higher transaction fees. In addition, we may lose
our ability to accept credit and debit card payments from our customers and process electronic funds
transfers or facilitate other types of payments, and our business and operating results could be adversely
affected.
The Company’s failure to successfully operate its e-commerce websites or fulfill customer expectations could
adversely impact customer satisfaction, our reputation and our business.
Although the Company's e-commerce platform provides another channel to drive incremental sales,
provide existing customers the on- line shopping experience and introduce the Company to a new
customer base, it also exposes us to numerous risks. We are subject to potential failures in the efficient
and uninterrupted operation of our websites, customer contact center or our distribution center, including
system failures caused by telecommunication system providers, order volumes that exceed our present
system capabilities, electrical outages, mechanical problems and human error. Our e-commerce platform
may also expose us to greater potential for security or data breaches involving the unauthorized access to
or disclosure of customer information, as discussed above under “A security breach that results in
unauthorized disclosure of employee, Company or customer information could adversely affect our costs,
17
reputation and results of operations, and efforts to mitigate these risks may continue to increase our
costs.” We are also subject to risk related to delays or failures in the performance of third parties, such as
shipping companies, including delays associated with labor strikes or slowdowns or adverse weather
conditions. If the Company does not successfully meet the challenges of operating e-commerce websites
or fulfilling customer expectations, the Company's business and sales could be adversely affected.
Risks Relating to Accounting and Legal Matters:
Changes to accounting rules and regulations may adversely affect our reported results of operations and
financial condition.
In an effort to provide greater comparability of financial reporting in an increasing global
environment, accounting regulatory authorities have been in discussions for many years regarding efforts
to either converge U.S. Generally Accepted Accounting Principles with International Financial Reporting
Standards (“IFRS”), have U.S. companies provide supplemental IFRS-based information or continue to
work toward a single set of globally accepted accounting standards. If implemented, these potential
changes in accounting rules or regulations could significantly impact our future reported results of
operations and financial position. Changes in accounting rules or regulations and varying interpretations
of existing accounting rules and regulations have significantly affected our reported financial statements
and those of other participants in the retail industry in the past and may continue to do so in the future.
2019 required the Company to capitalize operating leases in its financial statements. These changes
required us to record a significant amount of lease-related assets and liabilities on our balance sheet,
resulting in an increase of 40% to each of our total assets and total liabilities on our balance sheet, and
required us to make other changes to the recording and classification of lease-related expenses on our
statements of income and cash flows. These changes could lead to the perception by investors that we are
highly leveraged and also change the calculation of numerous financial metrics and measures of our
performance and financial condition. These and future changes to accounting rules or regulations may
adversely affect our reported results of operations and financial position or perceptions of our
performance and financial condition.
Adverse litigation matters may adversely affect our business and our financial condition.
From time to time the Company is involved in litigation and other claims against our business.
Primarily these arise from our normal course of business but are subject to risks and uncertainties, and
could require significant management time. The Company’s periodic evaluation of litigation- related
matters may change our assessment in light of the discovery of facts with respect to legal actions pending
against us, not presently known to us or by determination of judges, juries or other finders of fact. We
may also be subjected to legal matters not yet known to us. Adverse decisions or settlements of disputes
may negatively impact our business, reputation and financial condition.
Our business operations subject us to legal compliance and litigation risks, as well as regulations and
regulatory enforcement priorities, which could result in increased costs or liabilities, divert our
management’s attention or otherwise adversely affect our business, results of operations and financial
condition.
Our operations are subject to federal, state and local laws, rules and regulations, as well as U.S. and
foreign laws and regulations relating to our activities in foreign countries from which we source our
merchandise and operate our sourcing offices. Our business is also subject to regulatory and litigation
risk in all of these jurisdictions, including foreign jurisdictions that may lack well-established or reliable
legal systems for resolving legal disputes. Compliance risks and litigation claims have arisen and may
continue to arise in the ordinary course of our business and include, among other issues, intellectual
property issues, employment issues, commercial disputes, product-oriented matters, tax, customer
18
relations and personal injury claims. International activities subject us to numerous U.S. and international
regulations, including but not limited to, restrictions on trade, license and permit requirements, import and
export license requirements, privacy and data protection laws, environmental laws, records and
information management regulations, tariffs and taxes and anti- corruption laws, such as the Foreign
Corrupt Practices Act, violations of which by employees or persons acting on the Company’s behalf may
result in significant investigation costs, severe criminal or civil sanctions and reputational harm. These
and other liabilities to which we may be subject could negatively affect our business, operating results
and financial condition. These matters frequently raise complex factual and legal issues, which are subject
to risks and uncertainties and could divert significant management time. The Company may also be
subject to regulatory review and audits, which results may have the potential to materially and adversely
affect our business, results of operations and financial condition. In addition, governing laws, rules and
regulations, and interpretations of existing laws are subject to change from time to time. Compliance and
litigation matters could result in unexpected expenses and liability, as well as have an adverse effect on
our operations and our reputation.
could increase our costs of compliance, technology and business operations. The interpretation of existing
or new laws to existing technology and practices can be uncertain and may lead to additional compliance
risk and cost.
If we fail to protect our trademarks and other intellectual property rights or infringe the intellectual property
rights of others, our business, brand image, growth strategy, results of operations and financial condition
could be adversely affected.
We believe that our “Cato”, “It’s Fashion”, “It’s Fashion Metro” and “Versona” trademarks are
integral to our store designs, brand recognition and our ability to successfully build consumer loyalty.
Although we have registered these trademarks with the U.S. Patent and Trademark Office (“PTO”) and
have also registered, or applied for registration of, additional trademarks with the PTO that we believe are
important to our business, we cannot give assurance that these registrations will prevent imitation of our
trademarks, merchandising concepts, store designs or private label merchandise or the infringement of our
other intellectual property rights by others. Infringement of our names, concepts, store designs or
merchandise generally, or particularly in a manner that projects lesser quality or carries a negative
connotation of our image could adversely affect our business, financial condition and results of
operations.
private label merchandise by claiming that our merchandise violates their trademarks or other proprietary
rights. In the event of such a conflict, we could be subject to lawsuits or other actions, the ultimate
resolution of which we cannot predict; however, such a controversy could adversely affect our business,
financial condition and results of operations.
Maintaining and improving our internal control over financial reporting and other requirements necessary
to operate as a public company may strain our resources, and any material failure in these controls may
negatively impact our business, the price of our common stock and market confidence in our reported
financial information.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of
1934, the Sarbanes -Oxley Act of 2002, the rules of the SEC and New York Stock Exchange and certain
aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and
related rule-making that has been and may continue to be implemented over the next several years under
the mandates of the Dodd-Frank Act. The requirements of these rules and regulations have increased, and
may continue to increase, our compliance costs and place significant strain on our pe rsonnel, systems and
resources. To satisfy the SEC’s rules implementing the requirements of Section 404 of the Sarbanes-
Oxley Act of 2002, we must continue to document, test, monitor and enhance our internal control over
19
financial reporting, which is a costly and time-consuming effort that must be re-evaluated frequently. We
cannot give assurance that our disclosure controls and procedures and our internal control over financial
reporting, as defined by applicable SEC rules, will be adequate in the future. Any failure to maintain the
effectiveness of internal control over financial reporting or to comply with the other various laws and
regulations to which we are and will continue to be subject, or to which we may become subject in the
future, as a public company could have an adverse material impact on our business, our financial
condition and the price of our common stock. In addition, our efforts to comply with these existing and
new requirements could significantly increase our compliance costs.
Risks Relating to Our Investments and Liquidity:
We may experience market conditions or other events that could adversely impact the valuation and liquidity
of, and our ability to access, our short-term investments, cash and cash equivalents and our revolving line of
credit.
Our short -term investments and cash equivalents are primarily comprised of investments in federal,
state, municipal and corporate debt securities. The value of those securities may be adversely impacted
by factors relating to these securities, similar securities or the broader credit markets in general. Many of
these factors are beyond our control, and include but are not limited to changes to credit ratings, rates of
default, collateral value, discount rates, and strength and quality of market credit and liquidity, potential
disruptions in the capital markets and changes in the underlying economic, financial and other conditions
that drive these factors. As federal, state and municipal entities struggle with declining tax revenues and
budget deficits, we cannot be assured of our ability to timely access these investments if the market for
these issues declines. Similarly, the default by issuers of the debt securities we hold or similar securities
could impair the liquidity of our investments. The development or persistence of any of these conditions
could adversely affect our financial condition, results of operations and ability to execute our business
strategy. In addition, we have significant amounts of cash and cash equivalents at financial institutions
that are in excess of the federally insured limits. An economic downturn or development of adverse
conditions affecting the financial sector and stability of financial institutions could cause us to experience
losses on our deposits.
market terms, may be impacted by the factors discussed in the preceding paragraph, as well as continued
compliance with covenants under our revolving credit agreement. The development or persistence of any
of these adverse factors or failure to comply with covenants on which our borrowing is conditioned may
adversely affect our financial condition, results of operation s and our ability to execute our business
strategy.
Risks Relating to the Market Value of Our Common Stock:
Our operating results are subject to seasonal and quarterly fluctuations, which could adversely affect the
As a result, our stores typically generate a higher percentage of our annual net sales and profitability in
the first and second quarters of our fiscal year compared to other quarters. Accordingly, our operating
results for any one fiscal period are not necessarily indicative of results to be expected from any future
period, and such seasonal and quarterly fluctuations could adversely affect the marke t price of our
common stock.
The interests of a principal shareholder may limit the ability of other shareholders to influence the direction
of the Company and otherwise affect our corporate governance.
20
controlled approximately 48.1% of the voting power of our common stock. As a result, Mr. Cato may be
able to control or significantly influence substantially all matters requiring approval by the shareholders,
including the election of directors and the approval of mergers and other business combinations or other
significant Company transactions. Mr. Cato may have interests that differ from those of other
shareholders, and may vote in a way with which other shareholders disagree or perceive as adverse to
their interests. In addition, the concentration of voting power held by Mr. Cato could have the effect of
preventing, discouraging or deferring a change in c ontrol of the Company, which could depress the
market price of our common stock. In the future, if Mr. Cato acquires beneficial control of more than 50%
of the voting power of our common stock (including as a result of continued Company stock repurchases
from time to time under our stock repurchase program that would reduce our outstanding shares), we
would qualify for exemption as a “controlled company” from compliance with certain New York Stock
Exchange corporate governance rules, including the requirements that we have a majority of independent
directors on our Board, an independent compensation committee and an independent corporate
governance and nominating committee. If we became eligible and elected to utilize these “controlled
company” exceptions, our other shareholders could lose the benefit of these corporate governance
requirements and the market value of our common stock could be adversely affected.
Conditions in the stock market generally, or particularly relating to our industry, Company or common
stock, may materially and adversely affect the market price of our common stock and make its trading price
more volatile.
significant volatility. A variety of factors may cause the price of our common stock to fluctuate, perhaps
substantially, including, but not limited to, those discussed elsewhere in this report, as well as the
following: low trading volume; general market fluctuations resulting from factors not directly related to
our operations or the inherent value of our common stock; announcements of developments related to our
business; fluctuations in our reported operating results; general conditions or trends affecting or perceived
to affect the fashion and retail industry; conditions or trends affecting or perceived to affect the domestic
or global economy or the domestic or global credit or capital markets; changes in financial estimates or
the scope of coverage given to our Company by securities analysts; n egative commentary regarding our
Company and corresponding short -selling market behavior; adverse customer relations developments;
significant changes in our senior management team; and legal proceedings. Over the past several years
the stock market in general, and the market for shares of equity securities of many retailers in particular,
have experienced extreme price fluctuations that have at times been unrelated to the operating
performance of those companies. Such fluctuations and market volatility based on these or other factors
may materially and adversely affect the market price of our common stock.
Item 1B.
Unresolved Staff Comments:
Item 2.
Properties:
approximately 552,000 square feet located on a 15-acre tract in Charlotte, North Carolina. The
Company’s automated merchandise handling and distribution activities occupy approximately 418,000
square feet of this building and its general offices and corporate training center are located in the
remaining 134,000 square feet. A building of approximately 24,000 square feet located on a 2- acre tract
adjacent to the Company’s existing location is used for receiving and distribution of store and office
operating supplies. The Company also owns approximately 185 acres of land in York County, South
Carolina as a potential new site for our distribution center.
21
Item 3.
Legal Proceedings
:
course of business. The Company currently is not a party to any pending litigation that it believes is
likely to have a material adverse effect on the Company’s financial position, results of operations or cash
flows. See Note 16, “Commitments and Contingencies,” for more information.
22
Item 3A.
Executive Officers of the Registrant:
Name
Age
Position
John P. D. Cato............................
Chairman, President and Chief Executive Officer
John R. Howe ..............................
Executive Vice President, Chief Financial Officer
Gordon Smith ..............................
Executive Vice President, Chief Real Estate and
Store Development Officer
John P. D. Cato
has been employed as an officer of the Company since 1981 and has been a
director of the Company since 1986. Since January 2004, he has served as Chairman, President and Chief
Executive Officer. From May 1999 to January 2004, he served as President, Vice Chairman of the Board
and Chief Executive Officer. From June 1997 to May 1999, he served as President, Vice Chairman of the
Board and Chief Operating Officer. From August 1996 to June 1997, he served as Vice Chairman of the
Board and Chief Operating Officer. From 1989 to 1996, he managed the Company’s off-price concept,
serving as Executive Vice President and as President and General Manager of the It’s Fashion concept
from 1993 to August 1996. Mr. Cato is a former director of Harris Teeter Supermarkets, Inc., formerly
Ruddick Corporation.
John R. Howe
served as Executive Vice President, Chief Financial Officer. From June 2007 until September 2008, he
served as Senior Vice President, Controller. From 1999 to 2007, he served as Vice President, Assistant
Controller. From 1997 to 1999, he served as Assistant Vice President, Budgets and Planning. From 1995
to 1997, he served as Director, Budgets and Planning. From 1990 to 1995, he served as Assistant Tax
Manager. From 1986 to 1990, Mr. Howe held various positions within the finance area.
Gordon Smith
Executive Vice President, Chief Real Estate and Store Development Officer. From February 2008 until
July 2011 Mr. Smith served as Senior Vice President, Real Estate. From October 1989 to February 2008,
Mr. Smith served as Assistant Vice President, Corporate Real Estate.
Item 4.
Mine Safety Disclosures:
23
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities:
Market & Dividend Information
the symbol CATO.
Stock was 5,000 and there were 2 record holders of the Company’s Class B Common Stock.
24
Stock Performance Graph
return on the Company’s Common Stock (which includes Class A Stock and Class B Stock) for each of
the Company’s last five fiscal years with (i) the Dow Jones U.S. Retailers, Apparel Index and (ii) the
Russell 2000 Index.
THE CATO CORPORATION
STOCK PERFOMANCE TABLE
(BASE 100 – IN DOLLARS)
LAST TRADING DAY
OF THE FISCAL YEAR
THE CATO
CORPORATION
DOW JONES U.S.
RETAILERS, APPL
INDEX
RUSSELL 2000
INDEX
1/29/2016
100
100
100
1/27/2017
65
99
134
2/2/2018
33
112
156
2/1/2019
45
122
151
1/31/2020
53
136
165
1/29/2021
38
145
215
commencement of the Company’s 2016 fiscal year, and that all dividends were reinvested.
25
Issuer Purchases of Equity Securities
ended January 30, 2021:
Total Number of
Maximum Number
Shares Purchased as
(or Approximate Dollar
Total Number
Value) of Shares that may
Average Price
Announced Plans or
yet be Purchased Under
Period
Purchased
Paid per Share (1)
the Plans or Programs (2)
November 2020
320,707
$
7.09
320,707
December 2020
-
-
-
January 2021
-
-
-
Total
320,707
$
7.09
320,707
1,871,149
(1)
Prices include trading costs.
(2)
During the fourth quarter ended January 30, 2021, the Company repurchased and retired 320,707
shares under this program for approximately $2,274,611 or an average market price of $7.09 per
share. On November 19, 2020, the Board of Directors authorized an increase in the Company’s share
repurchase program of 1.5 million shares. As of the fourth quarter ended January 30, 2021, the
Company had 1,871,149 shares remaining in open authorizations. There is no specified expiration
date for the Company’s repurchase program.
26
Item 6.
Selected Financial Data
:
from the Company’s audited financial statements. The financial statements and Independent Registered
Public Accounting Firm’s integrated audit reports for the most recent fiscal years are contained elsewhere
in this report. All data set forth below are qualified by reference to, and should be read in conjunction
with, the Company’s Consolidated Financial Statements (including the Notes thereto) and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing
elsewhere in this annual report.
Fiscal Year (1)
2020
2019
2018
2017
2016
(Dollars in thousands, except per share data and selected operating data)
STATEMENT OF OPERATIONS DATA:
Retail sales
$567,516
$816,184
$821,113
$841,997
$947,370
Other revenue
7,595
9,151
8,551
7,984
9,199
Total revenues
575,111
825,335
829,664
849,981
956,569
Cost of goods sold (exclusive of depreciation
433,187
508,906
522,535
553,058
601,985
Selling, general and administrative (exclusive
206,492
263,773
262,510
266,304
289,619
Selling, general and administrative percent of
36.4%
32.3%
32.0%
31.6%
30.6%
Depreciation
$14,681
$15,485
$16,463
$19,643
$22,716
Interest expense
187
29
96
114
176
Interest and other income
6,630
6,065
4,991
5,111
7,041
Income (loss) before income taxes
(72,806)
43,207
33,051
15,973
49,114
Income tax expense (benefit)
(25,323)
7,310
2,590
7,433
1,902
Net income (loss)
(47,483)
35,897
30,461
8,540
47,212
Basic earnings (loss) per share
(2.01)
1.46
1.23
0.34
1.72
Diluted earnings (loss) per share
(2.01)
1.46
1.23
0.34
1.72
Cash dividends paid per share
0.33
1.32
1.32
1.32
1.29
SELECTED OPERATING DATA:
Stores open at end of year
1,330
1,281
1,311
1,351
1,371
Average sales per store (2)
$370,420
$575,000
$596,000
$604,880
$681,000
Average sales per square foot of selling space
89
136
133
135
151
BALANCE SHEET DATA (at period end):
Cash, cash equivalents, short-term
$147,438
$214,788
$207,920
$200,100
$252,158
Working capital (3)(4)
108,616
163,495
229,502
233,399
271,896
Total assets (4)
591,452
684,976
497,906
516,076
606,324
Total stockholders’ equity
246,498
316,514
316,836
326,353
383,903
___________
(1) The fiscal year 2017 contained 53 weeks versus 52 weeks for all other years shown.
(2) Calculated using actual sales volume for stores open for the full year and an estimated annual sales volume for new stores opened
during the year.
(3) Calculated using Total Current Assets offset by Total Current Liabilities.
(4) In 2019, we adopted ASC 842, which required us to recognize lease assets and lease liabilities for most leases. Years before 2019
have not been adjusted for this new accounting standard.
27
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations:
including the accompanying Notes appearing in Part II, Item 8 of this report on Form 10-K. This section
of the Form 10-K generally discusses fiscal 2020 and fiscal 2019 and year-to-year comparisons between
fiscal 2020 and fiscal 2019. Discussions of fiscal 2018 items and year-to-year comparisons between
fiscal 2019 and fiscal 2018 that are not included in this Form 10-K can be found in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the
Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020.
COVID-19 Update
operating results through fiscal 2020, and we expect that it will continue to do so in fiscal 2021 and
possibly beyond. Adverse financial impacts associated with the outbreak include, but are not limited to,
(i) lower net sales in markets affected by the actual or potential outbreak, whether due to state and local
orders to close stores, reductions in store traffic and customer demand, labor shortages, or all of these
factors, (ii) lower net sales caused by the delay of inventory production and fulfillment, (iii) and
incremental costs associated with efforts to mitigate the effects of the outbreak, including increased
freight and logistics costs and other expenses.
continue to adversely impact our business operations. In the first quarter of fiscal 2020, the pandemic
resulted in state and local orders mandating store closures and other measures to mitigate the spread of the
virus. Though the Company’s stores were reopened in the second quarter of fiscal 2020, they continue to
operate at reduced hours. Periodic increases in infection rates in communities where our stores are
located may prompt further governmental measures or public health guidance to reduce public activity
and gatherings in order to mitigate the spread of the virus, and may also continue to adversely affect
consumer confidence. There continues to be significant uncertainty regarding the breadth, severity and
duration of business disruptions related to COVID-19, as well as its impact on the global and U.S.
economy, consumer willingness to visit malls and shopping centers, and its impact on appropriate
associate staffing levels for our stores.
cash flows since the onset of the pandemic by liquidating short-term investments and drawing and
repaying under its revolving credit facility. The Company has also implemented various cost-cutting
measures to conserve cash, such as suspending dividend payments, reducing non-committed capital
expenditures (only half of planned new stores were opened during 2020) and reducing corporate field and
store overhead.
challenges created by the pandemic. In recognition of these efforts and to aid with retention, on March
24, 2021 the Compensation Committee approved a discretionary bonus of $1.6 million ($1.3 million net
of taxes) to key associates as discussed in more detail in “Other Information” in Part II, Item 9B.
condition, results of operations, cash flows, and liquidity may differ from management’s current estimates
due to inherent uncertainties regarding the duration and further spread of the outbreak, its severity, actions
taken to contain the virus or treat its impact, and how quickly and to what extent normal economic and
operating conditions can resume.
28
2021 and possibly beyond, the duration and severity of these effects will depend on the course of future
developments, which are highly uncertain, including the relative speed and success of, as well as public
confidence in, mitigation measures such as the current effort to vaccinate substantial portions of the U.S.
and global population, emerging information regarding variants of the virus or new viruses and their
potential impact on current mitigation efforts, public attitudes toward continued compliance with
containment and mitigation measures, and possible new information and understanding that could alter
the course and duration of current measures to combat the spread of the virus.
Results of Operations
years indicated:
Fiscal Year Ended
January 30,
2021
February 1,
2020
February 2,
2019
Retail sales …………………………………………………………..
100.0
%
100.0
%
100.0
%
Other revenue…………………………………………………………
1.3
1.1
1.0
Total revenues ……………………………………………………….
101.3
101.1
101.0
Cost of goods sold …………………………………………………..
76.3
62.4
63.6
Selling, general and administrative………………………………….
36.4
32.3
32.0
Depreciation …………………………………………………………
2.6
1.9
2.0
Interest and other income ……………………………………………
1.2
0.7
0.6
Income (loss) before income taxes ……………………………
(12.8)
5.3
4.0
Net income (loss) ……………………………………………………
(8.4)
%
4.4
%
3.7
%
Fiscal 2020 Compared to Fiscal 2019
The decrease in retail sales in fiscal 2020 was primarily due to a 32% decrease in same-store sales, partially
offset by sales from new store openings. Same-store sales includes stores that have been open more than 15
months. Stores that have been relocated or expanded are also included in the same-store sales calculation after
they have been open more than 15 months. In fiscal 2020 and fiscal 2019, e-commerce sales were less than
5% of total sales and same -store sales. The method of calculating same-store sales varies across the retail
industry. As a result, our same -store sales calculation may not be comparable to similarly titled measures
reported by other companies. Total revenues, comprised of retail sales and other revenue (principally finance
charges and late fees on customer accounts receivable, gift card breakage, shipping charges for e-commerce
purchases and layaway fees),
decreased by 30.3% to $575.1 million in fiscal 2020 compared to $825.3 million
in fiscal 2019. The Company operated 1,330 stores at January 30, 2021 compared to 1,281 stores operated at
February 1, 2020.
decrease resulted primarily due to decreases in finance and layaway charges, partially offset by an increase in
e-commerce shipping revenues.
compared to fiscal 2019 credit revenue of $3.6 million or 0.4% of total revenue. The decrease in credit
revenue was primarily due to reductions in finance and late charge income as a result of lower accounts
receivable balances. Credit revenue is comprised of 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 $1.5 million in fiscal 2020 compared to $1.8 million in fiscal 2019. See
Note 14 of Notes to Consolidated Financial Statements for a schedule of credit-related expenses. Total credit
29
segment income before taxes decreased $0.6 million to $1.2 million in fiscal 2020 from $1.8 million in fiscal
2019.
or 62.4% of retail sales , in fiscal 2019. The increase in cost of goods sold as a percentage of sales resulted
primarily
from an increase in markdown sales due to liquidating spring and summer merchandise, goods
marked out of stock, and deleveraging occupancy, distribution and buying costs
. Cost of goods sold includes
merchandise costs, net of discounts and allowances, buying costs, distribution costs, occupancy costs, freight
and inventory shrinkage. Net merchandise costs and in-bound freight are capitalized as inventory costs. Buying
and distribution costs include payroll, payroll-related costs and operating expenses for the buying departments
and distribution center. Occupancy expenses include rent, real estate taxes, insurance, common area
maintenance, utilities and maintenance for stores and distribution facilities. Total gross margin dollars (retail
sales less cost of goods sold and excluding depreciation) decreased by 56.3% to $134.3 million in fiscal 2020
from $307.3 million in fiscal 2019. Gross margin as presented may not be comparable to that of other
companies.
payroll, related payroll taxes and benefits, insurance, supplies, advertising, bank and credit card processing
fees were $206.7 million in fiscal 2020 compared to $263.8 million in fiscal 2019, a decrease of 21.7%. As a
percent of retail sales, SG&A was 36.4% compared to 32.3% in the prior year. The dollar decrease in SG&A
expense was primarily
attributable to lower store expenses due to stores being closed, phased store re-opening
in the second quarter, reduced store operating hours, lower corporate expenses and the elimination of
incentive compensation, resulting from the failure to meet targets under the Company’s annual incentive
compensation plan, partially offset by higher store impairment charges.
Depreciation expense decreased from fiscal 2019 due to fully depreciated older stores and previous
impairments of leasehold improvements and fixtures, partially offset by store development and information
technology expenditures.
The increase is primarily due to a gain on the sale of land held for investment, partially offset by a decrease in
short-term investments.
expense of $7.3 million, or 0.9% of retail sales in fiscal 2019. The income tax benefit was primarily due to the
federal net operating loss carryback provisions of the Coronavirus Aid, Relief and Economic Security Act
(“CARES Act”) and release of reserve s for uncertain tax positions due to expiration of statute of limitations,
partially offset by valuation allowances against state net operating tax losses, less income tax credits and an
upward adjustment in the reserves for uncertain tax positions specifi c to state income taxes in the first quarter
of 2020. The effective tax rate was 34.8% (Benefit) in fiscal 2020 compared to 16.9% (Expense) in fiscal
2019. See Note 12 to the Consolidated Financial Statements, “Income Taxes,” for further details.
Off-Balance Sheet Arrangements
Critical Accounting Policies and Estimates
The Compa ny’s accounting policies are more fully described in Note 1 to Consolidated Financial
Statements. As disclosed in Note 1 of Notes to Consolidated Financial Statements, 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
30
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 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.
Allowance for Customer Credit Losses
The Company evaluates the collectability of customer accounts receivable and records an allowance
for customer credit losses based on the accounts receivable aging and estimates of actual write-offs. The
allowance is reviewed for adequacy and adjusted, as necessary, on a quarterly basis. The Company also
provides for estimated uncollectible late fees charged based on historical write-offs. The Company’s
financial results can be impacted by changes in customer loss write-off experience and the aging of the
accounts receivable portfolio.
realizable value. Physical inventories are conducted throughout the year to calculate actual shrinkage and
inventory on hand. Estimates based on actual shrinkage results are used to estimate inventory shrinkage,
which is accrued for the period between the last physical inventory and the financial reporting date. The
Company regularly reviews its inventory levels to identify slow moving merchandise and uses
markdowns to clear slow moving inventory.
In 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard
Codification (“ASC”) 842 -
Leases
, with amendments issued in 2018. The guidance requires lessees to
recognize most leases on the balance sheet but does not change the manner in which expenses are
recorded in the income statement. For lessors, the guidance modifies the classification criteria and the
accounting for sales-type and direct financing leases.
The modified retrospective approach the Company selected provides a method of transition allowing
recognition of existing leases as o f the beginning of the period of adoption (i.e., February 3, 2019), and
which does not require the adjustment of comparative periods. See Note 11 for further information.
The package of practical expedients allows the Company to not reassess previous accounting conclusions
regarding whether existing arrangements are or contain leases, the classification of existing leases, and the
treatment of initial direct costs. The Company did not elect the hindsight transition practical expedient
allowed for by the new standard, which allows entities to use hindsight when determining lease term and
impairment of right-of-use assets.
The Company invests in leaseholds, right- of use assets and equipment primarily in connection with
the opening and remodeling of stores and in computer software and hardware. The Company periodically
reviews its store locations and estimates the recoverability of its long-lived assets, which primarily relate
to Fixtures and equipment, Leasehold improvements, Right-of-use assets net of Lease liabilities and
Information technology equipment and software. An impairment charge is recorded for the amount by
31
which the carrying value exceeds the estimated fair value when the Company determines that projected
cash flows associated with those long-lived assets will not be sufficient to recover the carrying value. This
determination is based on a number of factors, including the store’s historical operating results and
projected cash flows, which include future sales growth rates, margin rates and expense projections. The
Company assesses the fair value of each lease by considering market rents and any lease terms that may
adjust market rents under certain conditions, such as the loss of an anchor tenant or a leased space in a
shopping center not meeting certain criteria. Further, in determining when to close a store, the Company
considers real estate development in the area and perceived local market conditions, which can be
difficult to predict and may be subject to change.
costs. These costs are significant primarily due to the large number of the Company’s retail locations and
associates. The Company’s self-insurance liabilities are based on the total estimated costs of claims filed
and estimates of claims incurred but not reported, less amounts paid against such claims, and are not
discounted. Management reviews current and historical claims data in developing its estimates. The
Company also uses information provided by outside actuaries with respect to healthcare, workers’
compensation and general liability claims. If the underlying facts and circumstances of the claims change
or the historical experience upon which insurance provisions are recorded is not indicative of future
trends, then the Company may be required to make adjustments to the provision for insurance costs that
could be material to the Company’s reported financial condition and results of operations. Historically,
actual results have not significantly deviated from estimates.
The Company records liabilities for uncertain tax positions primarily related to state income taxes as
of the balance sheet date. These liabilities reflect the Company’s best estimate of its ultimate income tax
liability based on the tax codes, regulations, and pronouncements of the jurisdictions in which we do
business. Estimating our ultimate tax liability involves significant judgments regarding the application of
complex tax reg ulations across many jurisdictions. Despite the Company’s belief that the estimates and
judgments are reasonable, differences between the estimated and actual tax liabilities can and do exist
from time to time. These differences may arise from settlements of tax audits, expiration of the statute of
limitations, or the evolution and application of the various jurisdictional tax codes and regulations. Any
differences will be recorded in the period in which they become known and could have a material effect
on the results of operations in the period the adjustment is recorded.
Liquidity, Capital Resources 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 capital expenditures for fiscal 2021 and for the
foreseeable future.
duration and economic impact, the Company suspended its quarterly dividend, significantly reduced
planned capital expenditures and decreased its store hours, reduced non -payroll e xpenses, as well as,
furloughed associates and in certain instances eliminated positions primarily at the corporate office. The
Company’s pre -pandemic liquidity position has enabled it to offset the downturn in operating cash flows
since the onset of the pandemic by liquidating short-term investments and drawing and repaying under its
revolving credit facility. The Company will continue to focus on preserving liquidity while minimizing
capital expenditures in 2021. Additionally, the Company’s $35.0 million revolving facility allows the
Company flexibility in managing its short- term investments, as was the case in the first quarter of 2020
32
when the credit markets seized during the early phases of the COVID-19 pandemic.
provided in fiscal 2019 and $60.2 provided in fiscal 2018. Cash used by operating activities during 2020
was primarily attributable to a net loss adjusted for depreciation, share-based compensation, impairment
and changes in working capital. The decrease o f $84.1 million for fiscal 2020 compared to fiscal 2019 is
primarily due to a net operating loss versus net operating income, an increase in accounts receivable primarily
related to income taxes and an increase in prepaid expenses, partially offset by lower merchandise inventories
and store impairment charges.
and $229.5 million at February 1, 2020 and February 2, 2019, respectively. The decrease in working
capital is primarily due to reduction in short-term investments and lower inventories, partially offset by
higher accounts receivables and lower accrued liabilities.
borrowings of up to $35.0 million less the balance of any revocable letters of credit discussed below. The
revolving credit agreement is committed until May 2023. The credit agreement contains various financial
covenants and limitations, including the maintenance of specific financial ratios with which the Company
was in compliance as of January 30, 2021. There were no borrowings outstanding under this credit facility
as of the fiscal year ended January 30, 2021 or the fiscal year ended February 1, 2020.
January 30, 2021, February 1, 2020 and February 2, 2019.
2020, 2019 and 2018, respectively. The expenditures for fiscal 2020 were primarily for additional
investments in 76 new stores, distribution center and information technology. In fiscal 2021, the Company
is planning to invest approximately $3.0 million in capital expenditures.
million used for fiscal 2019 and $71.1 million used in fiscal 2018. In fiscal 2020, the cash provided was
primarily attributable to the increase in net sales of short-term investments, partially offset by expenditures
for property and equipment.
$41.6 million for fiscal 2019 and $45.2 million for fiscal 2018. The decrease was primarily due to lower
dividend payments, partially offset by higher share repurchase amounts.
that are measured at fair value.
taxable governmental debt securities held in managed accounts with underlying ratings of A or better at
January 30, 2021. The state, municipal and corporate bonds and asset-backed securities have contractual
maturities which range from two days to 7.5 years. The U.S. Treasury Notes and Certificates of Deposit
have contractual maturities which range from three months to 2.5 years. These securities are classified as
available-for-sale and are recorded as Short -term investments, Restricted cash, Restricted short-term
investments and Other assets on the accompanying Consolidated Balance Sheets. These assets are carried at
fair value with unrealized gains and losses reported net of taxes in Accumulated other comprehensive
income. The asset-backed securities are bonds comprised of auto loans and bank credit cards that carry AAA
33
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.
recorded within Other assets in the Consolidated Balance Sheets. At February 1, 2020, the Company had
$0.7 million of corporate equities, which are recorded within Other assets in the Consolidated Balance
Sheets.
investment securities include corporate and municipal bonds for which quoted prices may not be available on
active exchanges for identical instruments. Their fair value is principally based on market values determined
by management with assistance of a third-party pricing service. Since quoted prices in active markets for
identical assets are not available, these prices are determined by the pricing service using observable market
information such as quotes from less active markets and/or quoted prices of securities with similar
characteristics, among other factors.
Deferred compensation plan assets consist primarily of life insurance policies. These life insurance
policies are valued based on the cash surrender value of the insurance contract, which is determined based
on such factors as the fair value of the underlying assets and discounted cash flow and are therefore
classified within Level 3 of the valuation hierarchy. The Level 3 liability associated with the life
insurance policies represents a deferred compensat ion obligation, the value of which is tracked via
underlying insurance funds’ net asset values, as recorded in Other noncurrent liabilities in the
Consolidated Balance Sheets. These funds are designed to mirror the return of existing mutual funds and
money market funds that are observable and actively traded.
to make future payments under noncancellable contractual obligations (in thousands):
Payments Due During One Year Fiscal Period Ending
Contractual Obligations
(1)
Total
2021
2022
2023
2024
2025
Thereafter
Operating leases
$
227,525
$
70,007
$
48,639
$
35,717
$
22,542
$
13,815
$
36,805
Total Contractual Obligations
$
227,525
$
70,007
$
48,639
$
35,717
$
22,542
$
13,815
$
36,805
____________
(1) In addition to the amounts shown in the table above, $5.9 million of unrecognized tax benefits have been recorded as liabilities in accordance
with ASC 740 and we are uncertain if or when such amounts may be settled. See Note 12, Income Taxes, of the Consolidated Financial
Statements for additional information.
Recent Accounting Pronouncements
See Note 1, Summary of Significant Accounting Policies, Recently Adopted Accounting Policies and
Recently Issued Accounting Pronouncements.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk:
financing, investing and cash management activities, but the Company does not believe such exposure is
material.
34
Item 8.
Financial Statements and Supplementary Data:
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Page
Report of Independent Registered Public Accounting Firm ................................................................ ..
35
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the fiscal
37
Consolidated Balance Sheets at January 30, 2021 and February 1, 2020 .............................................
38
Consolidated Statements of Cash Flows for the fiscal years ended January 30, 2021, February 1, 2020
39
Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 30, 2021,
40
Notes to Consolidated Financial Statements ................................................................ ..........................
41
Schedule II — Valuation and Qualifying Accounts for the fiscal years ended January 30, 2021,
70
35
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of The Cato Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of The Cato Corporation and its subsidiaries (the
“Company”) as of January 30, 2021 and February 1, 2020 and the related consolidated statements of income (loss) and
comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended
January 30, 2021, including the related notes and financial statement schedule listed in the accompanying index
(collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control
over financial reporting as of January 30, 2021, based on criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of January 30, 2021 and February 1, 2020, and the results of its operations and its cash flows
for each of the three years in the period ended January 30, 2021 in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of January 30, 2021, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it
accounts for leases as of February 3, 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained
in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
36
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts
or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on
the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment of Long-Lived Assets - Store Location Asset Groupings
As described in Notes 1 and 6 to the consolidated financial statements, the Company’s consolidated property and
equipment, net balance was $72.6 million, of which the store locations were a portion, and consolidated operating lease
right-of-use assets, net balance was $199.8 million as of January 30, 2021. The Company invests in leaseholds, right-of-
use assets and equipment, primarily in connection with the opening and remodeling of stores, and in computer software
and hardware. The Company periodically reviews its store locations and estimates the recoverability of its long-lived
assets, which primarily relate to fixtures and equipment, leasehold improvements, right-of-use assets net of lease
liabilities, and information technology equipment and software. An impairment charge is recorded for the amount by
which the carrying value exceeds the estimated fair value when management determines that projected cash flows
associated with those long-lived assets will not be sufficient to recover the carrying value. This determination is based on a
number of factors, including the store’s historical operating results and projected cash flows, which include future sales
growth rates, margin rates, and expense projections. The Company assesses the fair value of each lease by considering
market rents and any lease terms that may adjust market rents under certain conditions such as the loss of an anchor tenant
or a leased space in a shopping center not meeting certain criteria. An impairment charge for store assets of $11.4 million
was recorded during the year ended January 30, 2021.
The principal considerations for our determination that performing procedures relating to the impairment of long-lived
assets – store location asset groupings is a critical audit matter are (i) the significant judgment by management when
determining the fair value measurement of the store location asset groupings, which led to (ii) a high degree of auditor
judgment, subjectivity, and effort in performing procedures and evaluating management’s projected cash flow assumptions
related to future sales growth rates, margin rates, and expense projections.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls
relating to management’s long- lived assets – store location recoverability test and determination of the fair value of the
asset group. These procedures also included, among others (i) testing the completeness and accuracy of underlying data
used in the projected cash flows and store location asset groupings, (ii) evaluating the reasonableness of management’s
assumptions related to future sales growth rates, margin rates, and expense projections by considering current and
historical performance of the store location asset groupings and whether the assumptions were consistent with evidence
obtained in other areas of the audit, (iii) evaluating the appropriateness of the projected cash flow model, and (iv)
evaluating management’s assessment of the fair value of the leased assets included in the store location asset groupings.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 29, 2021
We have served as the Company’s auditor since 2003.
37
THE CATO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
Fiscal Year Ended
January 30, 2021
February 1, 2020
February 2, 2019
(Dollars in thousands, except per share data)
REVENUES
$
567,516
$
816,184
$
821,113
7,595
9,151
8,551
575,111
825,335
829,664
COSTS AND EXPENSES, NET
433,187
508,906
522,535
206,492
263,773
262,510
14,681
15,485
16,463
187
29
96
(6,630)
(6,065)
(4,991)
647,917
782,128
796,613
Income (loss) before income taxes
(72,806)
43,207
33,051
Income tax expense (benefit)
(25,323)
7,310
2,590
Net income (loss)
$
(47,483)
$
35,897
$
30,461
Basic earnings (loss) per share
$
(2.01)
$
1.46
$
1.23
Diluted earnings (loss) per share
$
(2.01)
$
1.46
$
1.23
Dividends per share
$
0.33
$
1.32
$
1.32
Comprehensive income:
Net income (loss)
$
(47,483)
$
35,897
$
30,461
Unrealized gain (loss) on available-for-sale
79
), $
453
, and $
77
(268)
1,500
244
Comprehensive income (loss)
$
(47,751)
$
37,397
$
30,705
See notes to consolidated financial statements.
38
THE CATO CORPORATION
CONSOLIDATED BALANCE SHEETS
January 30, 2021
February 1, 2020
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents
$
17,510
$
11,824
Short-term investments
126,416
200,387
Restricted cash
3,512
2,577
Restricted short-term investments
406
1,319
Accounts receivable, net of allowance for customer credit losses of $
605
726
52,743
26,088
Merchandise inventories
84,123
115,365
Prepaid expenses and other current assets
5,840
5,237
290,550
362,797
Property and equipment – net
72,550
88,667
Deferred income taxes
5,685
8,636
Other assets
22,850
24,073
Right-of-Use assets - net
199,817
200,803
$
591,452
$
684,976
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$
73,769
$
68,438
Accrued expenses
40,790
47,099
Accrued bonus and benefits
1,916
18,913
Accrued income taxes
2,038
1,703
Current lease liability
63,421
63,149
181,934
199,302
Other noncurrent liabilities
19,705
21,976
Lease liability
143,315
147,184
Commitments and contingencies
-
-
Stockholders' Equity:
Preferred stock, $
100
100,000
-
-
Class A common stock, $
0.033
50,000,000
20,839,795
22,535,779
703
761
Convertible Class B common stock, $
0.033
15,000,000
1,763,652
1,763,652
59
59
Additional paid-in capital
115,278
110,813
Retained earnings
129,303
203,458
Accumulated other comprehensive income
1,155
1,423
246,498
316,514
$
591,452
$
684,976
See notes to consolidated financial statements.
39
THE CATO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
January 30, 2021
February 1, 2020
February 2, 2019
(Dollars in thousands)
Operating Activities:
Net income (loss)
$
(47,483)
$
35,897
$
30,461
Adjustments to reconcile net income to net cash provided
14,681
15,485
16,463
306
524
470
(691)
(694)
576
(2,298)
-
-
4,092
4,669
4,939
3,030
2,120
1,285
461
837
1,089
13,702
470
1,548
(26,935)
1,525
(579)
31,242
4,220
1,950
(1,596)
5,072
10,384
(2,611)
(9,803)
-
335
1,703
(680)
(16,945)
(8,629)
(7,662)
Net cash provided by (used in) operating activities
(30,710)
53,396
60,244
Investing Activities:
Expenditures for property and equipment
(13,956)
(8,306)
(4,354)
Purchase of short-term investments
(74,041)
(218,345)
(157,515)
Sales of short-term investments
149,298
205,375
91,023
Purchase of other assets
-
(1,353)
(298)
Sales of other assets
3,205
(4)
7
Net cash provided by (used in) investing activities
64,506
(22,633)
(71,137)
Financing Activities:
Dividends paid
(7,912)
(32,592)
(32,577)
Repurchase of common stock
(19,654)
(9,605)
(13,344)
Proceeds from line of credit
34,000
-
-
Payments to line of credit
(34,000)
-
-
Proceeds from employee stock purchase plan
391
626
570
Proceeds from stock options exercised
-
-
189
Net cash used in financing activities
(27,175)
(41,571)
(45,162)
Net increase (decrease) in cash, cash equivalents, and restricted cash
6,621
(10,808)
(56,055)
Cash, cash equivalents, and restricted cash at beginning of period
14,401
25,209
81,264
Cash, cash equivalents, and restricted cash at end of period
$
21,022
$
14,401
$
25,209
Non-cash activity:
Accrued plant and equipment
$
343
$
2,828
$
326
Accrued treasury stock
-
818
-
See notes to consolidated financial statements.
40
THE CATO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Convertible
Accumulated
Class A
Class B
Additional
Other
Total
Common
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — February 3, 2018
$
774
$
58
$
99,948
$
225,894
$
(321)
$
326,353
Comprehensive income:
-
-
-
30,461
-
30,461
77
-
-
-
-
244
244
Dividends paid ($
1.32
-
-
-
(32,577)
-
(32,577)
Class A common stock sold through employee stock purchase
44,770
2
-
669
-
-
671
Class B common stock sold through stock option plans —
8,051
-
1
194
-
-
195
Class A common stock issued through restricted stock grant plans —
341,744
11
-
4,769
54
-
4,834
Repurchase and retirement of treasury shares –
593,404
(20)
-
-
(13,325)
-
(13,345)
Balance — February 2, 2019
$
767
$
59
$
105,580
$
210,507
$
(77)
$
316,836
Comprehensive income:
-
-
-
35,897
-
35,897
453
-
-
-
-
1,500
1,500
Dividends paid ($
1.32
-
-
-
(32,592)
-
(32,592)
Class A common stock sold through employee stock purchase
48,626
1
-
735
-
-
736
Class B common stock sold through stock option plans —
-
-
-
-
-
-
Class A common stock issued through restricted stock grant plans —
321,484
14
-
4,498
48
-
4,560
Repurchase and retirement of treasury shares –
622,480
(21)
-
-
(10,402)
-
(10,423)
Balance — February 1, 2020
$
761
$
59
$
110,813
$
203,458
$
1,423
$
316,514
Comprehensive income:
-
-
-
(47,483)
-
(47,483)
79
)
-
-
-
-
(268)
(268)
Dividends paid ($
0.33
-
-
-
(7,912)
-
(7,912)
Class A common stock sold through employee stock purchase
48,191
1
-
459
-
-
460
Class B common stock sold through stock option plans —
-
-
-
-
-
-
Class A common stock issued through restricted stock grant plans —
231,194
8
-
4,006
8
-
4,022
Repurchase and retirement of treasury shares –
1,975,373
(67)
-
-
(18,768)
-
(18,835)
Balance — January 30, 2021
$
703
$
59
$
115,278
$
129,303
$
1,155
$
246,498
See notes to consolidated financial statements.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
41
1. Summary of Significant Accounting Policies:
Principles of Consolidation:
The Consolidated Financial Statements include the accounts of The Cato
Corporation and its wholly-owned subsidiaries (the “Company”). All significant intercompany accounts
and transactions have been eliminated.
Description of Business and Fiscal
Year:
operation of a fashion specialty stores segment (“Retail Segment”) and a credit card segment (“Credit
Segment”). The apparel specialty stores operate under the names “Cato,” “Cato Fashions,” “Cato Plus,”
“It’s Fashion,” “It’s Fashion Metro” and “Versona,” including e-commerce websites. The stores are
located primarily in strip shopping centers principally in the southeastern United States. The Company’s
fiscal year ends on the Saturday nearest January 31 of the subsequent year.
Use of Estimates:
accounting principles generally accepted in the United States (“GAAP”) requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant accounting estimates reflected in the Company’s financial statements include the allowance
for 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.
Cash and Cash Equivalents:
Cash and cash equivalents consist of highly liquid investments with
original maturities of three months or less.
Short-Term Investments:
as short-term investments. See Note 3 for the Company’s estimated fair value of, and other information
regarding, its short- term investments.
The Company’s short-term investments are all classified as
available-for-sale. As they are available for current operations, they are classified on the Consolidated
Balance Sheets as Current Assets. Available -for-sale securities are carried at fair value, with unrealized
gains and temporary losses, net of income taxes, reported as a component of Accumulated other
comprehensive income. Other than temporary declines in the fair value of investments are recorded as a
reduction in the cost of the investments in the accompanying Consolidated Balance Sheets and a
reduction of Interest and other income in the accompanying Consolidated Statements of Income and
Comprehensive Income. The cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. The amortization of premiums, accretion of discounts and realized
gains and losses are included in Interest and other income.
Restricted Cash and Restricted Short-term Investments:
The Company had $
3.9
3.9
million in escrow at January 30, 2021 and February 1, 2020, respectively, as security and collateral for
administration of the Company’s self-insured workers’ compensation and general liability coverage,
which is reported as Restricted cash and Restricted short- term investments on the Consolidated Balance
Sheets.
Supplemental Cash Flow Information:
Income tax payments, net of refunds received, for the fiscal
years ended January 30, 2021, February 1, 2020 and February 2, 2019 were a payment of $
6,825,000
, a
payment of $
4,681,000
407,000
, respectively.
Inventories:
Merchandise inventories are stated at the net realizable value as determined by the
weighted-average cost method.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
42
Property and Equipment:
Property and equipment are recorded at cost, including land. Maintenance
and repairs are expensed to operations as incurred; renewals and betterments are capitalized. Depreciation
is determined on the straight-line method over the estimated useful lives of the related assets excluding
leasehold improvements. Leasehold improvements are amortized over the shorter of the estimated useful
life or lease term. For leases with renewal periods at the Company’s option, the Company generally uses
the original lease term plus reasonably assured renewal option periods (generally one five-year option
period) to determine estimated useful lives. Typical estimated useful lives are as follows:
`
Estimated
Classification
Useful Lives
Land improvements
10 years
Buildings
30-40 years
Leasehold improvements
5-10 years
Fixtures and equipment
3-10 years
Information technology equipment and software
3-10 years
Aircraft
20 years
Impairment of Long-Lived Assets:
equipment primarily in connection with the opening and remodeling of stores and in computer software and
hardware. The Company periodically reviews its store locations and estimates the recoverability of its long-
lived assets, which primarily relate to Fixtures and equipment, Leasehold improvements, Right-of -use assets
net of Lease liabilities and Information technology equipment and software. An impairment charge is
recorded for the amount by which the carrying value exceeds the estimated fair value when the Company
determines that projected cash flows associated with those long- lived assets will not be sufficient to recover
the carrying value. This determination is based on a number of factors, including the store’s historical
operating results and future projected cash flows, which include future sales growth rates, margin rates and
expense projections. The Company assesses the fair value of each lease by considering market rents and any
lease terms that may adjust market rents under certain conditions, such as the loss of an anchor tenant or a
leased space in a shopping center not meeting certain criteria. Further, in determining when to close a store,
the Company considers real estate development in the area and perceived local market conditions, which can
be difficult to predict and may be subject to change. Asset impairment charges of $
13,702,000
, $
146,000
$
1,548,000
charges included $11.4 million of store asset impairments and $2.3 million worth of fixtures planned for new
stores.
Other Assets:
Other assets are comprised of long-term assets, primarily insurance contracts related to
deferred compensation assets and land held for investment purposes.
`
Fiscal Year Ended
January 30,
2021
February 1,
2020
(Dollars in thousands)
Other Assets
$
11,264
$
10,517
1,264
1,301
522
1,555
9,334
10,234
466
466
Total Other Assets
$
22,850
$
24,073
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
43
Leases:
In 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard
Codification (“ASC”) 842 -
Leases
, with amendments issued in 2018. The guidance requires lessees to
recognize most leases on the balance sheet but does not change the manner in which expenses are
recorded in the income statement. For lessors, the guidance modifies the classification criteria an d the
accounting for sales-type and direct financing leases.
statements and related disclosures, including the increase in the assets and liabilities on its balance sheet
and the impact on its current lease portfolio from a lessee perspective. The Company completed its
comprehensive review of its lease portfolio, which includes mostly store leases impacted by the new
guidance. The Company reviewed its internal controls over leases and, as a result, the Company enhanced
these controls; however, these changes are not considered material. In addition, the Company
implemented a new software platform, and corresponding controls, for administering its leases and
facilitating compliance with the new guidance.
The package of practical expedients allows the Company to not reassess previous accounting conclusions
regarding whether existing arrangements are or contain leases, the classification of existing leases, and the
treatment of initial direct costs. The Company did not elect the hindsight transition practical expedient
allowed for by the new standard, which allows entities to use hindsight when determini ng lease term and
impairment of right-of-use assets.
The modified retrospective approach the Company selected provides a method of transition allowing
recognition of existing leases as of the beginning of the period of adoption (i.e., February 3, 2019), and
which does not require the adjustment of comparative periods. See Note 11 for further information.
Leases
2018. The Company leases all of its retail stores. Most lease agreements contain construction allowances
and rent escalations. For purposes of recognizing incentives and minimum rental expenses on a straight-
line basis over the terms of the leases, including renewal periods considered reasonably assured, the
Company begins amortization as of the initial possession date which is when the Company enters the
space and begins to make improvements in preparation for intended use.
Revenue Recognition:
The Company recognizes sales at the point of purchase when the customer
takes possession of the merchandise and pays for the purchase, generally with cash or credit. Sales from
purchases made with Cato credit, gift cards and layaway sales from stores are also recorded when the
customer takes possession of the merchandise. E-commerce sales are recorded when the risk of loss is
transferred to the customer. Gift cards are recorded as deferred revenue until they are redeemed or
forfeited. Layaway sales are recorded as deferred revenue until the customer takes possession or forfeits
the merchandise. Gift cards do not have expiration dates. A provision is made for estimated merchandise
returns based on sales volumes and the Company’s experience; actual returns have not varied materially
from historical amounts. A provision is made for estimated write-offs associated with sales made with the
Company’s proprietary credit card. Amounts related to shipping and handling billed to customers in a
sales transaction are classified as Other revenue and the costs related to shipping product to customers
(billed and accrued) are classified as Cost of goods sold.
Revenue from Contracts with Customers (Topic 606)
in fiscal 2020, 2019 and 2018, the Company recognized $
891,000
, $
921,000
591,000
, respectively,
of income on unredeemed gift cards (“gift card breakage”) as a component of Other Revenue on the
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). Under Topic 606, the
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
44
Company recognizes gift card breakage using an expected breakage percentage based on redeemed gift
cards. See Note 2 for further information on miscellaneous income.
the Company’s wholly-owned subsidiaries. None of the credit card receivables are secured. The
Company estimated customer credit losses of $
435,000
700,000
January 30, 2021 and February 1, 2020, respectively, on sales purchased on the Company’s proprietary
credit card of $
15.2
26.6
February 1, 2020, respectively.
customers (in thousands):
`
Balance as of
January 30, 2021
February 1, 2020
Proprietary Credit Card Receivables, net
$
9,606
$
15,241
Gift Card Liability
$
8,155
$
7,658
Cost of Goods Sold:
Cost of goods sold includes merchandise costs, net of discounts and allowances,
buying costs, distribution costs, occupancy costs, freight, and inventory shrinkage. Net merchandise costs
and in- bound freight are capitalized as inventory costs. Buying and distribution costs include payroll,
payroll-related costs and operating expenses for our buying departments and distribution center.
Occupancy expenses include rent, real estate taxes, insurance, common area maintenance, utilities and
maintenance for stores and distribution facilities. Buying, distribution, occupancy and internal transfer
costs are treated as period costs and are not capitalized as part of inventory. The direct costs associated
with shipping goods to customers are recorded as a component of Cost of goods sold.
Advertising:
Advertising costs are expensed in the period in which they are incurred. Advertising
expense was approximately $
4,385,000
, $
5,600,000
5,546,000
2021, February 1, 2020 and February 2, 2019, respectively.
Stock Repurchase Program:
For the fiscal year ended January 30, 2021, the Company had
1,871,149
Company’s repurchase program. Share repurchases are recorded in Retained earnings, net of par value.
Through March 29, 2021, the Company repurchased 83,256 shares for $971,866, to offset dilution from
its equity compensation plan.
Earnings Per Share:
ASC 260 -
Earnings Per Share
diluted EPS on the face of all income statements for all entities with complex capital structures. The
Company has presented one basic EPS and one diluted EPS amount for all common shares in the
accompanying Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). While the
Company’s certificate of incorporation provides the right for the Board of Directors to declare dividends
on Class A shares without declaration of commensurate dividends on Class B shares, the Company has
historically paid the same dividends to both Class A and Class B shareholders and the Board of Directors
has resolved to continue this practice. Accordingly, the Company’s allocation of income for purposes of
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.
the weighted average number of common shares outstanding for the period. Diluted EPS reflects the
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
45
potential dilution that could occur from common shares issuable through stock options and the Employee
Stock Purchase Plan.
30, 2021, February 1, 2020 and February 2, 2019:
`
Fiscal Year Ended
January 30, 2021
February 1, 2020
February 2, 2019
Numerator
(Dollars in thousands)
Net earnings (loss)
$
(47,483)
$
35,897
$
30,461
(Earnings) loss allocated to non-vested equity awards
2,096
(1,280)
(862)
Net earnings (loss) available to common stockholders
$
(45,387)
$
34,617
$
29,599
Denominator
Basic weighted average common shares outstanding
22,536,090
23,738,443
23,995,170
Diluted weighted average common shares outstanding
22,536,090
23,738,443
23,995,170
Net income (loss) per common share
Basic earnings (loss) per share
$
(2.01)
$
1.46
$
1.23
Diluted earnings (loss) per share
$
(2.01)
$
1.46
$
1.23
Vendor Allowances:
The Company receives certain allowances from vendors primarily related to
purchase discounts and markdown and damage allowances. All allowances are reflected in Cost of goods
sold as earned when the related products are sold. Cash consideration received from a vendor is
presumed to be a reduction of the purchase cost of merchandise and is reflected as a reduction of
inventory. The Company does not receive cooperative advertising allowances.
Income Taxes:
The Company files a consolidated federal income tax return. Income taxes are
provided based on the asset and liability method of accounting, whereby deferred income taxes are
provided for temporary differences between the financial reporting basis and the tax basis of the
Company’s assets and liabilities.
Income Taxes
these positions may be challenged and the results are uncertain. The Company adjusts these liabilities in
light of changing facts and circumstances. Potential accrued interest and penalties related to
unrecognized tax benefits within operations are recognized as a component of Income before income
taxes.
that assessment, the Company will determine if a valuation allowance should be recorded.
taxed income (“GILTI”). The Company has elected to account for GILTI tax in the period in which it is
incurred, which is included as a component of its current year provision for income taxes.
Store Opening Costs:
Costs relating to the opening of new stores or the relocating or
expanding of existing stores are expensed as incurred. A portion of construction, design, and site
selection costs are capitalized to new, relocated and remodeled stores.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
46
Insurance:
The Company is self-insured with respect to employee health care, workers’ compensation
and general liability. The Company’s self -insurance liabilities are based on the total estimated cost of
claims filed and estimates of claims incurred but not reported, less amounts paid against such claims, and
are not discounted. Management reviews current and historical claims data in developing its estimates.
The Company has stop-loss insurance coverage for individual claims in excess of $
325,000
healthcare, $
350,000
250,000
Fair Value of Financial Instruments:
as cash and cash equivalents, short-term investments, restricted cash and short-term investments,
approximate their fair values due to their short terms to maturity and/or their variable interest rates.
Stock Based Compensation:
stock and other forms of equity compensation in accordance with ASC 718 -
Compensation – Stock
Compensation.
includes: 1) amortization related to the remaining unvested portion of all stock awards based on the grant
date fair value and 2) adjustments for the effects of actual forfeitures versus initial estimated forfeitures.
Recently Adopted Accounting Policies
Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments
, which requires companies to measure and
recognize expected credit losses for financial assets held at amortized costs based on expected losses
rather than incurred losses. The new accounting rules were effective for the Company in the first quarter
of 2020 and had a minimal impact on the financial statements.
Recently Issued Accounting Pronouncements
Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes
. The new accounting rules reduce complexity by removing specific
exceptions to general principles related to intraperiod tax allocations, ownership changes in foreign
investments, and interim period income tax accounting for year-to-date losses that exceed anticipated
losses. The new accounting rules also simplify accounting for franchise taxes that are partially based on
income, transactions with a government that result in a step- up in the tax basis of goodwill, separate
financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim
periods. The new accounting rules will be effective for the Company in the first quarter of 2021. The
Company is currently in the process of evaluating the impact of adop tion of the new accounting rules on
the Company’s financial position, results of operations, cash flows and disclosures.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
47
2. Interest and Other Income:
The components of Interest and other income are shown below (in thousands):
January 30, 2021
February 1, 2020
February 2, 2019
Dividend income
$
(5)
$
(42)
$
(34)
Interest income
(2,697)
(4,954)
(3,893)
Miscellaneous income
(627)
(709)
(1,109)
Net loss (gain) on investment sales
(3,301)
(360)
45
Interest and other income
$
(6,630)
$
(6,065)
$
(4,991)
within Interest and other income on the Consolidated Statements of Income (Loss) and Comprehensive
Income (Loss).
3. Short-Term Investments:
governmental debt securities held in managed accounts. These securities are classified as available- for-
sale as they are highly liquid and are recorded on the Consolidated Balance Sheets at estimated fair value,
with unrealized gains and temporary losses reported net of taxes in Accumulated other comprehensive
income.
January 30, 2021 and February 1, 2020 (in thousands):
`
January 30, 2021
February 1, 2020
Debt securities
Debt securities
issued by the U.S
issued by the U.S
Government, its various
Government, its various
States, municipalities
Corporate
States, municipalities
Corporate
and agencies
debt
and agencies
debt
of each
securities
Total
of each
securities
Total
Cost basis
$
40,701
$
85,045
$
125,746
$
73,116
$
127,096
$
200,212
Unrealized gains
422
654
1,076
308
1,086
1,394
Unrealized (loss)
-
-
-
-
-
-
Estimated fair value
$
41,123
$
85,699
$
126,822
$
73,424
$
128,182
$
201,606
Accumulated other comprehensive income on the Consolidated Balance Sheets reflects the
accumulated unrealized net gains in short-term investments in addition to unrealized gains from equity
investments and restricted cash investments. The table below reflects gross accumulated unrealized gains
in these investments at January 30, 2021 and February 1, 2020 (in thousands):
`
January 30, 2021
February 1, 2020
Deferred
Unrealized
Deferred
Unrealized
Unrealized
Tax Benefit/
Net Gain/
Unrealized
Tax Benefit/
Net Gain/
Security Type
Gain/(Loss)
(Expense)
(Loss)
Gain/(Loss)
(Expense)
(Loss)
Short-Term Investments
$
1,076
$
(250)
$
826
$
1,394
$
(323)
$
1,071
Equity Investments
429
(100)
329
458
(106)
352
Total
$
1,505
$
(350)
$
1,155
$
1,852
$
(429)
$
1,423
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
48
4. Fair Value Measurements:
at fair value as of January 30, 2021 and February 1, 2020 (in thousands):
`
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
January 30, 2021
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
$
23,254
$
-
$
23,254
$
-
67,566
-
67,566
-
17,869
-
17,869
-
11,263
-
-
11,263
16,064
-
16,064
-
703
703
-
-
2,069
-
2,069
-
Total Assets
$
138,788
$
703
$
126,822
$
11,263
Liabilities:
(10,316)
-
-
(10,316)
Total Liabilities
$
(10,316)
$
-
$
-
$
(10,316)
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
February 1, 2020
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
$
36,014
$
-
$
36,014
$
-
90,798
-
90,798
-
37,410
-
37,410
-
10,517
-
-
10,517
37,384
-
37,384
-
732
732
-
-
100
100
-
-
Total Assets
$
212,955
$
832
$
201,606
$
10,517
Liabilities:
(10,391)
-
-
(10,391)
Total Liabilities
$
(10,391)
$
-
$
-
$
(10,391)
taxable governmental debt securities held in managed accounts with underlying ratings of A or better at
January 30, 2021. The state, municipal and corporate bonds and asset-backed securities have contractual
maturities which range from two days to 7.5 years. The U.S. Treasury Notes and Certificates of Deposit
have contractual maturities which range from three months to 2.5 years. These securities are classified as
available-for-sale and are recorded as Short -term investments, Restricted cash, Restricted short-term
investments and Other assets on the accompanying Consolidated Balance Sheets. These assets are carried at
fair value with unrealized gains and losses reported net of taxes in Accumulated other comprehensive
income. The asset-backed securities are bonds comprised of auto loans and bank credit cards that carry AAA
ratings. The auto loan asset-backed securities are backed by static pools of auto loans that were originated and
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
49
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.
recorded within Other assets in the Consolidated Balance Sheets. At February 1, 2020, the Company had
$0.7 million of corporate equities, which are recorded within Other assets in the Consolidated Balance
Sheets.
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.
policies are valued based on the cash surrender value of the insurance contract, which is determined based
on such factors as the fair value of the underlying assets and discounted cash flow and are therefore
classified within Level 3 of the valuation hierarchy. The Level 3 liability associated with the life
insurance policies represents a deferred compensation obligation, the value of which is tracked via
underlying insurance funds’ net asset values, as recorded in Other noncurrent liabilities in the
Consolidated Balance Sheets. These funds are designed to mirror the return of existing mutual funds and
money market funds that are observable and actively traded.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
50
The following tables summarize the change in fair value of the Company’s financial assets and liabilities
measured using Level 3 inputs as of January 30, 2021 and
February 1, 2020
`
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash
Surrender Value
Beginning Balance at February 1, 2020
$
10,517
746
Ending Balance at January 30, 2021
$
11,263
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred
Compensation
Beginning Balance at February 1, 2020
$
(10,391)
1,062
(987)
Ending Balance at January 30, 2021
$
(10,316)
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash
Surrender Value
Beginning Balance at February 2, 2019
$
9,093
748
676
Ending Balance at February 1, 2020
$
10,517
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred
Compensation
Beginning Balance at February 2, 2019
$
(8,908)
(554)
(929)
Ending Balance at February 1, 2020
$
(10,391)
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
51
5.
Accounts Receivable:
Accounts receivable consist of the following (in thousands):
January 30, 2021
February 1, 2020
Customer accounts — principally deferred payment accounts
$
10,210
$
15,966
Income tax receivable
33,898
580
Miscellaneous receivables
4,596
4,338
Bank card receivables
4,644
5,930
Total
53,348
26,814
Less allowance for customer credit losses
605
726
Accounts receivable — net
$
52,743
$
26,088
Finance charge and late charge revenue on customer deferred payment accounts totaled $
2,658,000
,
$
3,605,000
3,814,000
years ended January 30, 2021, February 1, 2020 and February 2,
2019, respectively, and charges against the allowance for customer credit losses were approximately
$
306,000
, $
524,000
470,000
February 2, 2019, respectively. Expenses relating to the allowance for customer credit losses are
classified as a component of Selling, general and administrative expense in the accompanying
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).
6.
Property and Equipment:
Property and equipment consist of the following (in thousands):
January 30, 2021
February 1, 2020
Land and improvements
$
13,595
$
13,548
Buildings
35,335
35,814
Leasehold improvements
80,874
89,349
Fixtures and equipment
198,513
205,789
Information technology equipment and software
35,303
59,202
Construction in progress
-
2,334
Total
363,620
406,036
Less accumulated depreciation
291,070
317,369
Property and equipment — net
$
72,550
$
88,667
investments in new technology.
7.
Accrued Expenses:
Accrued expenses consist of the following (in thousands):
January 30,
2021
February 1,
2020
Accrued employment and related items
$
6,122
$
7,756
Property and other taxes
16,574
18,515
Accrued self-insurance
10,994
10,551
Fixed assets
343
2,828
Other
6,757
7,449
Total
$
40,790
$
47,099
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
52
8. Financing Arrangements:
As of January 30, 2021, the Company had an unsecured revolving credit agreement to borrow $
35.0
million less the balance of any revocable credits discussed below. The revolving credit agreement is
committed until May 2023. The credit agreement contains various financial covenants and limitations,
including the maintenance of specific financial ratios with which the Company was in compliance as of
January 30, 2021. There were no borrowings outstanding under this credit facility as of January 30, 2021,
February 1, 2020 or February 2, 2019. At January 30, 2021, the weighted average interest rate under the
credit facility was zero due to no borrowings outstanding at the end of the year.
At January 30, 2021, February 1, 2020 and February 2, 2019, the Company had no outstanding revocable
letters of credit relating to purchase commitments.
9. Stockholders’ Equity:
Class B Common Stock are entitled to ten votes per share. Each share of Class B Common Stock may be
converted at any time into one share of Class A Common Stock. Subject to the rights of the holders of any
shares of Preferred Stock that may be outstanding at the time, in the event of liquidation, dissolution or
winding up of the Company, holders of Class A Common Stock are entitled to receive a preferential
distribution of $1.00 per share of the net assets of the Company. Cash dividends on the Class B Common
Stock cannot be paid unless cash dividends of at least an equal amount are paid on the Class A Common
Stock.
transferred only to certain “Permitted Transferees” consisting generally of the lineal descendants of
holders of Class B Common Stock, trusts for their benefit, corporations and partnerships controlled by
them and the Company’s employee benefit plans. Any transfer of Class B Common Stock in violation of
these restrictions, including a transfer to the Company, results in the automatic conversion of the
transferred shares of Class B Common Stock held by the transferee into an equal number of shares of
Class A Common Stock.
10. Employee Benefit Plans:
associates who meet minimum age and service requirements. The 401(k) plan allows participants to
contribute up to
75
% of their annual compensation up to the maximum elective deferral, designated by
the IRS. The Company is obligated to make a minimum contribution to cover plan administrative
expenses. Further Company contributions are at the discretion of the Board of Directors. The Company’s
contributions for the years ended January 30, 2021, February 1, 2020 and February 2, 2019 were
approximately $
0
, $
1,499,000
1,442,000
, respectively.
covers substantially all associates who meet minimum age and service requirements. The amount of the
Company’s discretionary contribution to the ESOP is determined annually by the Compensation
Committee of the Board of Directors and can be made in Company Class A Common stock or cash.
During fiscal 2020, the Company contributed cash and the plan purchased stock on the open market for
the ESOP award earned for fiscal 2019. Due to a net operating loss in fiscal 2020, the Committee did not
approve a contribution to the ESOP for the year ended January 30, 2021. The Company’s contribution
was $
7,198,000
1,229,000
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
53
large number of the Company’s retail locations and associates. The Company’s self-insurance liabilities
are based on the total estimated costs of claims filed and estimates of claims incurred but not reported,
less amounts paid against such claims. Management reviews current and historical claims data in
developing its estimates. If the underlying facts and circumstances of the claims change or the historical
trend is not indicative of future trends, then the Company may be required to record additional expense or
a reduction to expense which could be material to the Company’s reported financial condition and results
of operations. The Company funds healthcare contributions to a third-party provider.
11. Leases:
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 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.
incremental borrowing rate based on the information available at commencement date of the lease in
determining the present value of lease payments.
`
Twelve Months Ended
January 30, 2021
February 1, 2020
Operating lease cost (a)
$
69,601
$
59,987
Variable lease cost (b)
$
1,555
$
2,088
ASC 840 prepaid rent expense (c)
$
-
$
6,093
(a) Includes right-of-use asset amortization of ($
4.6
) million and ($
4.9
) million for the twelve months
ended January 30, 2021 and February 1, 2020, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.
(c) Related to ASC 840 rent expense due to prepaid rent on the balance sheet as of February 3, 2019.
Supplemental cash flow information and non-cash activity related to the Company’s operating leases
are as follows (in thousands):
Operating cash flow information:
Twelve Months Ended
January 30, 2021
February 1, 2020
Cash paid for amounts included in the measurement of lease liabilities
$
62,559
$
55,544
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations, net of rent violations
$
58,978
$
63,847
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
54
Weighted-average remaining lease term and discount rate for the Company’s operating leases are as
follows:
`
As of
January 30, 2021
February 1, 2020
Weighted-average remaining lease term
2.9
3.2
Weighted-average discount rate
4.06%
4.47%
Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows (in
thousands):
Fiscal Year
2021
$
70,007
2022
48,639
2023
35,717
2024
22,542
2025
13,815
Thereafter
36,805
Total lease payments
227,525
Less: Imputed interest
20,789
Present value of lease liabilities
$
206,736
12. Income Taxes:
liabilities, are established in accordance with ASC 740 when, despite the fact that the tax return positions
are supportable, the Company believes these positions may be challenged and the results are uncertain.
The Company adjusts these liabilities in light of changing facts and circumstances. As of January 30,
2021, the Company had gross unrecognized tax benefits totaling approximately $5.9 million, of which
approximately $
7.7
Company had approximately $
2.8
3.3
3.2
related to uncertain tax positions as of January 30, 2021, February 1, 2020 and February 2, 2019,
respectively. The Company recognizes interest and penalties related to the resolution of uncertain tax
positions as a component of income tax expense. The Company recognized $
424,000
, $
574,000
$
1,023,000
Income (Loss) for the years ended January 30, 2021, February 1, 2020 and February 2, 2019, respectively.
The Company is no longer subject to U.S. federal income tax examinations for y ears before 2017. In
state and local tax jurisdictions, the Company has limited exposure before 2010. During the next 12
months, various state and local taxing authorities’ statutes of limitations will expire and certain state
examinations may close, which could result in a potential reduction of unrecognized tax benefits for
which a range cannot be determined.
(in thousands):
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
55
`
January 30,
2021
February 1,
2020
February 2,
2019
Fiscal Year Ended
Balances, beginning
$
7,942
$
8,485
$
9,531
286
375
420
Reduction for tax positions of prior years for:
614
2
(419)
(2,896)
(920)
(1,047)
Balances, ending
$
5,946
$
7,942
$
8,485
The provision for income taxes consists of the following (in thousands):
`
January 30,
2021
February 1,
2020
February 2,
2019
Fiscal Year Ended
Current income taxes:
$
(31,927)
$
3,321
$
281
1,842
96
(359)
1,731
1,763
1,371
(28,354)
5,180
1,293
Deferred income taxes:
1,905
574
2,064
1,129
1,556
(767)
(3)
-
-
3,031
2,130
1,297
Total income tax expense (benefit)
$
(25,323)
$
7,310
$
2,590
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
56
Significant components of the Company’s deferred tax assets and liabilities as of January 30, 2021 and
February 1, 2020 are as follows (in thousands):
`
January 30,
2021
February 1,
2020
Deferred tax assets:
Allowance for customer credit losses
$
131
$
156
Inventory valuation
1,004
1,105
Non-deductible accrued liabilities
1,613
1,286
Other taxes
1,184
1,126
Federal benefit of uncertain tax positions
1,001
1,065
Equity compensation expense
4,097
4,322
Net operating losses
4,531
1,574
Charitable contribution carryover
394
774
State tax credits
1,115
1,160
Lease liabilities
47,428
44,170
Other
2,204
1,324
Total deferred tax assets before valuation allowance
64,702
58,062
Valuation allowance
(5,256)
(1,124)
Total deferred tax assets after valuation allowance
59,446
56,938
Deferred tax liabilities:
Property and equipment
1,480
545
Accrued self-insurance reserves
466
492
Right-of-Use assets
51,350
46,724
Other
465
541
Total deferred tax liabilities
53,761
48,302
Net deferred tax assets
$
5,685
$
8,636
As of January 30, 2021, the Company had $1.1 million of state tax credits to offset future state income tax
expense, which are set to expire by fiscal 2023. Based on the available evidence, the Company has recorded
a valuation allowance of $1.1 million.
Company assessed the likelihood that deferred tax assets related to state net operating loss carryforwards will
be realized in light of the adverse impact on the Company’s financial statements and operations due to
COVID-19. Based on this assessment, the Company concluded that it is more likely than not the Company
will not be able to realize net operating losses and, accordingly, has recorded a valuation allowance of $4.2
million for the portion it expects to not be realized.
undistributed earnings indefinitely. Future unremitted earnings when distributed are expected to be either
distributions of GILTI-previously taxed income or eligible for a 100% dividends received deduction. The
withholding tax rate on any unremitted earnings is zero and state income taxes on such earnings are
considered immaterial. Therefore, the Company has not provided deferred U.S. income taxes on
approximately $22.5 million of earnings from non-U.S. subsidiaries.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
57
The reconciliation of the Company’s effective income tax rate with the statutory rate is as follows:
`
January 30,
2021
February 1,
2020
February 2,
2019
Fiscal Year Ended
Federal income tax rate
21.0
%
21.0
%
21.0
%
State income taxes
4.0
1.7
1.1
CARES ACT - Carryback differential
18.3
-
-
Global intangible low-taxed income
(5.3)
5.9
6.2
Foreign tax credit
-
(3.7)
(4.0)
Foreign rate differential
1.2
(2.5)
(2.6)
Offshore claim
2.5
(5.2)
(5.7)
Work opportunity credit
0.2
(3.2)
(3.4)
Addback on wage related credits
-
0.7
0.7
Tax exempt interest
-
(0.2)
(2.4)
Charitable contribution of inventory
(0.2)
-
-
Uncertain tax positions
3.3
(1.0)
(1.5)
Deferred rate change
(0.1)
-
(2.0)
Valuation allowance
(5.7)
2.6
-
Other
(4.4)
0.8
0.4
Effective income tax rate (1)
34.8
%
16.9
%
7.8
%
(1) The income tax rate for year ended January 30, 2021 represents an income tax benefit, while the
rate for the years ended February 1, 2020 and February 2, 2019 represent income tax expenses.
The annual effective tax rate for the current fiscal year is impacted by the ability to carryback federal
net operating losses due to the
Coronavirus Aid, Relief and Economic Security Act (“CARES Act”)
, partially
offset by changes in management’s judgment regarding the ability to realize deferred tax assets, primarily
state income net operating losses generated in the current fiscal year. The Company has factored the
realizability of these deferred tax assets generated as a result of projected current year losses into its
estimated annual effective rate for the current year. To the extent that actual results and/or events differ
from the predicted results, the Company may continue to see effects on the estimated annual effective tax
rate in future periods.
recorded $32.6 million of estimated refunds calculated through the fourth quarter of 2020 in Accounts
receivable in the Consolidated Balance Sheets.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
58
13. Quarterly Financial Data (Unaudited):
`
Fiscal 2020
First
Second
Third
Fourth
Total revenues
$
100,732
$
168,170
$
150,791
$
155,418
Gross profit (exclusive of depreciation)
17,135
35,434
41,387
47,968
Net income (loss)
(28,417)
(7,170)
(3,622)
(8,274)
Basic earnings (loss) per share
$
(1.19)
$
(0.30)
$
(0.15)
$
(0.37)
Diluted earnings (loss) per share
$
(1.19)
$
(0.30)
$
(0.15)
$
(0.37)
Fiscal 2019
First
Second
Third
Fourth
Total revenues
$
230,351
$
212,581
$
191,523
$
190,880
Gross profit (exclusive of depreciation)
94,268
82,209
72,899
67,053
Net income (loss)
21,255
11,866
5,985
(3,209)
Basic earnings (loss) per share
$
0.87
$
0.48
$
0.24
$
(0.13)
Diluted earnings (loss) per share
$
0.87
$
0.48
$
0.24
$
(0.13)
14. Reportable Segment Information:
The Company has determined that it has four operating segments, as defined under ASC 280-10,
including Cato, It’s Fashion, Versona and Credit. As outlined in ASC 280 -10, the Company has two
reportable segments: Retail and Credit. The Company has aggregated its three retail operating segments,
including e-commerce, based on the aggregation criteria outlined in ASC 280-10, which states that two or
more operating segments may be aggregated into a single reportable segment if aggregation is consistent with
the objective and basic principles of ASC 280 -10, which require the segments have similar economic
characteristics, products, production processes, clients and methods of distribution.
The Company’s retail operating segments have similar economic characteristics and similar operating,
financial and competitive risks. They are similar in terms of product offered, as they all offer women’s
apparel, shoes and accessories. Merchandise inventory of the Company’s retail operating segments is
sourced from the same countries and some of the same vendors, using similar production processes.
Merchandise for the Company’s retail operating segments is distributed to retail stores in a similar manner
through the Company’s single distribution center and is subsequently distributed to clients in a similar
manner.
The Company offers its own credit card to its customers and all credit authorizations, payment
processing, and collection efforts are performed by a separate subsidiary of the Company.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
59
The following schedule summarizes certain segment information (in thousands):
`
Fiscal 2020
Retail
Credit
Total
Revenues
$
572,453
$
2,658
$
575,111
Depreciation
14,680
1
14,681
Interest and other income
6,630
-
6,630
Income (loss) before taxes
(73,972)
1,166
(72,806)
Capital expenditures
13,955
1
13,956
Fiscal 2019
Retail
Credit
Total
Revenues
$
821,730
$
3,605
$
825,335
Depreciation
15,484
1
15,485
Interest and other income
6,065
-
6,065
Income (loss) before taxes
41,386
1,821
43,207
Capital expenditures
8,287
19
8,306
Fiscal 2018
Retail
Credit
Total
Revenues
$
825,850
$
3,814
$
829,664
Depreciation
16,441
22
16,463
Interest and other income
4,991
-
4,991
Income (loss) before taxes
31,149
1,902
33,051
Capital expenditures
4,315
39
4,354
Retail
Credit
Total
Total assets as of January 30, 2021
$
549,349
$
42,103
$
591,452
Total assets as of February 1, 2020
636,503
48,473
684,976
The accounting policies of the segments are the same as those described in the Summary of Significant
Accounting Policies in Note 1. The Company evaluates performance based on profit or loss from operations
before income taxes. The Company does not allocate certain corporate expenses to the credit segment.
The following schedule summarizes the direct expenses of the credit segment which are reflected in
Selling, general and administrative expenses (in thousands):
`
January 30, 2021
February 1, 2020
February 2, 2019
Payroll
541
644
749
Postage
360
488
506
Other expenses
590
651
635
Total expenses
$
1,491
$
1,783
$
1,890
15. Stock Based Compensation:
based compensation was outstanding. The 2018 Incentive Compensation Plan and 2013 Incentive
Compensation Plan are for the granting of various forms of equity-based awards, including restricted stock
and stock options for grant, to officers, directors and key employees. Effective May 24, 2018, shares for grant
were no longer available under the 2013 Incentive Compensation Plan.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
60
and available for grant under each of the plans as of January 30, 2021:
`
2013
2018
Plan
Plan
Total
Options and/or restricted stock initially authorized
1,500,000
4,725,000
6,225,000
Options and/or restricted stock available for grant:
-
4,192,667
4192667
-
3,961,473
3,961,473
In accordance with ASC 718, the fair value of current restricted stock awards is estimated on the date
of grant based on the market price of the Company’s stock and is amortized to compensation expense on a
straight-line basis over a five-year vesting period. As of January 30, 2021, there was $
10,550,000
unrecognized compensation expense related to unvested restricted stock awards, which is expected to be
recognized over a remaining weighted-average vesting period of
2.1
of the shares recognized as compensation expense during the twelve months ended January 30, 2021,
February 1, 2020 and February 2, 2019 was $
4,023,000
, $
4,559,000
4,833,000
, respectively. The
expenses are classified as a component of Selling, general and administrative expenses in the
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).
The following summary shows the changes in the shares of unvested restricted stock outstanding during
the years ended January 30, 2021, February 1, 2020 and February 2, 2019:
`
Weighted Average
Number of
Grant Date Fair
Shares
Value Per Share
Restricted stock awards at February 3, 2018
595,179
$
30.33
Granted
354,385
16.20
Vested
(139,669)
29.87
Forfeited or expired
(38,044)
24.34
Restricted stock awards at February 2, 2019
771,851
$
24.22
Granted
361,170
14.89
Vested
(129,108)
34.44
Forfeited or expired
(61,351)
19.61
Restricted stock awards at February 1, 2020
942,562
$
19.55
Granted
335,317
11.11
Vested
(129,682)
34.01
Forfeited or expired
(124,241)
16.37
Restricted stock awards at January 30, 2021
1,023,956
$
15.33
The Company’s Employee Stock Purchase Plan allows eligible full-time employees to purchase a
limited number of shares of the Company’s Class A Common Stock during each semi- annual offering
period at a 15% discount through payroll deductions. During the twelve month period ended January 30,
2021, the Company sold
48,191
1.43
Employee Stock Purchase Plan. The compensation expense recognized for the 15% discount given under
the Employee Stock Purchase Plan was approximately $
69,000
, $
111,000
101,000
2020, 2019 and 2018, respectively. These expenses are classified as a component of Selling, general and
administrative expenses.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
61
16. Commitments and Contingencies:
business, including litigation regarding the merchandise that we sell, litigation regarding intellectual
property, litigation instituted by persons injured upon premises under our control, litigation with respect
to various employment matters, including alleged discrimination and wage and hour litigation, and
litigation with present or former employees.
of our size with a significant number of employees and significant merchandise sales, such litigation
could result in large monetary awards. Based on information currently available, management does not
believe that any reasonably possible losses arising from current pending litigation will have a material
adverse effect on our Consolidated Financial Statements. However, given the inherent uncertainties
involved in such matters, an adverse outcome in one or more such matters could materially and adversely
affect the Company’s financial condition, results of operations and cash flows in any particular reporting
period. The Company accrues for these matters when the liability is deemed probable and reasonably
estimable.
17. Accumulated Other Comprehensive Income:
The following table sets forth information regarding the reclassification out of Accumulated other
comprehensive income (in thousands) as of January 30, 2021:
`
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for -Sale
Securities
Beginning Balance at February 1, 2020
$
1,423
(1,038)
770
Net current-period other comprehensive income
(loss)
(268)
Ending Balance at January 30, 2021
$
1,155
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive
income (“OCI”).
(b) Includes
$1,003
other income for net gains on available-for-sale securities. The tax impact of this reclassification was $
233
.
Amounts in parentheses indicate a debit/reduction to OCI.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
62
The following table sets forth information regarding the reclassification out of Accumulated other
comprehensive income (in thousands) as of February 1, 2020:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for -Sale
Securities
Beginning Balance at February 2, 2019
$
(77)
1,224
276
Net current-period other comprehensive income (loss)
1,500
Ending Balance at February 1, 2020
$
1,423
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to OCI.
(b) Includes $
359
income for net gains on available-for-sale securities. The tax impact of this reclassification was $
83
. Amounts in
parentheses indicate a debit/reduction to OCI.
63
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure:
Item 9A.
Controls and Procedures:
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Financial Officer, of the effectiveness of our disclosure controls and procedures as of January 30, 2021.
Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that,
as of January 30, 2021, our disclosure controls and procedures, as defined in Rule 13a-15(e), under the
Securities Exchange Act of 1934 (the “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.
Management’s Report on Internal Control Over Financial Reporting
reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of
our management, including our Principal Executive Officer and Principal Financial Officer, we carried
out an evaluation of the effectiveness of our internal control over financial reporting as of January 30,
2021 based on the
(2013)
Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation,
management concluded that our internal control over financial reporting was effective as of January 30,
2021.
effectiveness of our internal control over financial reporting as of January 30, 2021, as stated in its report
which is included herein.
Changes in Internal Control Over Financial Reporting
Rule 13a -15(f)) has occurred during the Company’s fiscal quarter ended January 30, 2021 that has
materially affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Item 9B.
Other Information:
all associates eligible under the Company’s 2018 Incentive Compensation Plan, including the Company’s
named executive officers. The Committee granted the discretionary bonus to help retain key associates
and in recognition of their hard work throughout the unprecedented events of fiscal 2020. The
discretionary bonus will equal 20% of the bonus target previously established unde r the 2018 Incentive
Compensation Plan for eligible associates and the named executive officers. The amount of the bonus for
the named executive officers is shown below:
Name
Title
Discretionary Bonus
John P. D. Cato
Chairman, President and Chief Executive Officer
$391,839
John R Howe
Executive Vice President, Chief Financial Officer
$69,783
Gordon D. Smith
Executive Vice President, Chief Real Estate and Store
Development Officer
$54,921
64
PART III
Item 10.
Directors, Executive Officers and Corporate Governance:
“Corporate Governance Matters” in the Registrant’s Proxy Statement for its 2021 annual stockholders’
meeting (the “2021 Proxy Statement”) is incorporated by reference in response to this Item 10. The
information in response to this Item 10 regarding executive officers of the Company is contained in
Item 3A, Part I hereof under the caption “Executive Officers of the Registrant.”
65
Item 11.
Executive Compensation:
Compensation,” “Corporate Governance Matters-Compensation Committee Interlocks and Insider
Participation” in the Comp any’s 2021 Proxy Statement is incorporated by reference in response to this
Item.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters:
Equity Compensation Plan Information
future awards under all of the Company’s equity compensation plans. The information is as of January 30,
2021.
(a)
Number of Securities to
be Issued upon
Exercise of
Outstanding Options,
Warrants and Rights
(1)
(b)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(1)
(c)
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column
(a)) (2)
Plan Category
Equity compensation plans approved
-
-
3,979,491
Equity compensation plans not
-
-
-
Total
-
-
3,979,491
(1)
There are no outstanding stocking options, warrants or stock appreciation rights.
(2)
Includes the following:
Under the Company’s stock incentive plan, referred to as the 2018
Incentive Compensation Plan, 3,961,473 shares are available for grant. Under this plan, non-
qualified stock options may be granted to key associates.
Under the 2013 Employee Stock Purchase Plan, 18,018 shares are available. Eligible associates
may participate in the purchase of designated shares of the Company’s common stock. The
purchase price of this stock is equal to 85% of the lower of the closing price at the beginning or the
end of each semi-annual stock purchase period.
in the 2021 Proxy Statement is incorporated by reference in response to this Item.
Item 13.
Certain Relationships and Related Transactions, and Director Independence:
“Corporate Governance Matters-Director Independence” and “Meetings and Committees” in the 2021
Proxy Statement is incorporated by reference in response to this Item.
Principal Accountant Fees and Services:
Firm-Audit Fees” and “-Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Service by the Independent Registered Public Accounting Firm” in the 2021 Proxy Statement is
incorporated by reference in response to this Item.
66
PART IV
Item 15.
Exhibits and Financial Statement Schedules:
Page
Report of Independent Registered Public Accounting Firm ....................................................................
35
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the fiscal
37
Consolidated Balance Sheets at January 30, 2021 and February 1, 2020 .................................................
38
Consolidated Statements of Cash Flows for the fiscal years ended January 30, 2021, February 1, 2020
and February 2, 2019 ................................................................................................................................
39
Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 30, 2021,
February 1, 2020 and February 2, 2019 ....................................................................................................
40
Notes to Consolidated Financial Statements .............................................................................................
41
Schedule II — Valuation and Qualifying Accounts .................................................................................
70
presented in the Consolidated Financial Statements or related Notes thereto.
noted, incorporated by reference herein. The Company will supply copies of the following exhibits to any
shareholder upon receipt of a written request addressed to the Corporate Secretary, The Cato Corporation,
8100 Denmark Road, Charlotte, NC 28273 and the payment of $.50 per page to help defray the costs of
handling, copying and postage. In most cases, documents incorporated by reference to exhibits to our
registration statements, reports or proxy statements filed by the Company with the Securities and
Exchange Commission are available to the public over the Internet from the SEC’s web site at
http://www.sec.gov.
67
Exhibit
Number
Description of Exhibit
3.1
3.2
4.1
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11
10.12
21.1**
68
23.1**
31.1**
31.2**
32.1**
32.2**
101.1**
The following materials from Registrant’s Annual Report on form 10-K for the fiscal year
ended January 30, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Income
(Loss) and Comprehensive Income (Loss) for the fiscal years ended January 30, 2021,
February 1, 2020 and February 2, 2019; (ii) Consolidated Balance Sheets at January 30, 2021
and February 1, 2020; (iii) Consolidated Statements of Cash Flows for the fiscal years ended
January 30, 2021, February 1, 2020 and February 2, 2019; (iv) Consolidated Statements of
Stockholders’ Equity for the fiscal years ended January 30, 2021, February 1, 2020 and
February 2, 2019; and (v) Notes to 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**).
* Management contract or compensatory plan required to be filed under Item 15 of this report and Item 601
of Regulation S-K.
** Filed or submitted electronically herewith.
Item 16.
Form 10-K Summary:
69
SIGNATURES
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
The Cato Corporation
By
/s/ JOHN P. D. CATO
By
/s/ JOHN R. HOWE
John P. D. Cato
Chairman, President and
Chief Executive Officer
John R. Howe
Executive Vice President
Chief Financial Officer
By
/s/ JEFFREY R. SHOCK
Jeffrey R. Shock
Senior Vice President
Controller
Date: March 29, 2021
by the following persons on behalf of the Registrant and in the capacities indicated:
/s/ JOHN P. D. CATO
John P. D. Cato
(President and Chief Executive Officer
(Principal Executive Officer) and Director)
/s/ BAILEY W. PATRICK
Bailey W. Patrick
(Director)
/s/ JOHN R. HOWE
John R. Howe
(Executive Vice President
Chief Financial Officer (Principal Financial Officer))
/s/ THOMAS B. HENSON
Thomas B. Henson
/s/ JEFFREY R. SHOCK
Jeffrey R. Shock
(Senior Vice President
Controller (Principal Accounting Officer))
/s/ BRYAN F. KENNEDY III
Bryan F. Kennedy III
(Director)
/s/ THOMAS E. MECKLEY
Thomas E. Meckley
(Director)
/s/ D. HARDING STOWE
D. Harding Stowe
/s/ THERESA J. DREW
Theresa J. Drew
(Director)
/s/ PAMELA L. DAVIES
Pamela L. Davies
(Director)
70
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Allowance
for
Customer
Self Insurance
Credit Losses(a)
Reserves(b)
Balance at February 3, 2018
$
1,148
$
11,623
Additions charged to costs and expenses
897
17,932
Additions (reductions) charged to other accounts
210
(c)
214
Deductions
(1,413)
(d)
(18,803)
Balance at February 2, 2019
$
842
$
10,966
Additions charged to costs and expenses
700
16,687
Additions (reductions) charged to other accounts
188
(c)
(635)
Deductions
(1,004)
(d)
(16,483)
Balance at February 1, 2020
$
726
$
10,535
Additions charged to costs and expenses
435
15,500
Additions (reductions) charged to other accounts
171
(c)
(205)
Deductions
(727)
(d)
(14,855)
Balance at January 30, 2021
$
605
$
10,975
(a) Deducted from trade accounts receivable.
(b) Reserve for Workers' Compensation, General Liability and Healthcare.
(c) Recoveries of amounts previously written off.
(d) Uncollectible accounts written off.
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