Company Quick10K Filing
Cato
Price17.29 EPS3
Shares24 P/E7
MCap411 P/FCF8
Net Debt-23 EBIT67
TEV388 TEV/EBIT6
TTM 2019-11-02, in MM, except price, ratios
10-Q 2020-05-02 Filed 2020-06-04
10-K 2020-02-01 Filed 2020-03-27
10-Q 2019-11-02 Filed 2019-11-26
10-Q 2019-08-03 Filed 2019-08-30
10-Q 2019-05-04 Filed 2019-05-30
10-K 2019-02-02 Filed 2019-03-27
10-Q 2018-11-03 Filed 2018-11-30
10-Q 2018-08-04 Filed 2018-08-30
10-Q 2018-05-05 Filed 2018-05-31
10-K 2018-02-03 Filed 2018-03-27
10-Q 2017-10-28 Filed 2017-11-21
10-Q 2017-07-29 Filed 2017-08-25
10-Q 2017-04-29 Filed 2017-05-24
10-K 2017-01-28 Filed 2017-03-23
10-Q 2016-10-29 Filed 2016-11-22
10-Q 2016-07-30 Filed 2016-08-26
10-Q 2016-04-30 Filed 2016-06-03
10-K 2016-01-30 Filed 2016-03-24
10-Q 2015-10-31 Filed 2015-11-24
10-Q 2015-08-01 Filed 2015-08-28
10-Q 2015-05-02 Filed 2015-05-28
10-K 2015-01-31 Filed 2015-03-30
10-Q 2014-11-01 Filed 2014-12-02
10-Q 2014-08-02 Filed 2014-08-29
10-Q 2014-05-03 Filed 2014-06-03
10-K 2014-02-01 Filed 2014-04-02
10-Q 2013-08-03 Filed 2013-08-30
10-Q 2013-05-04 Filed 2013-05-31
10-K 2013-02-02 Filed 2013-04-02
10-Q 2012-10-27 Filed 2012-12-05
10-Q 2012-07-28 Filed 2012-09-05
10-Q 2012-04-28 Filed 2012-06-06
10-K 2012-03-27 Filed 2012-03-27
10-Q 2011-10-29 Filed 2011-12-07
10-Q 2011-09-07 Filed 2011-09-08
10-Q 2011-06-08 Filed 2011-06-08
10-K 2011-03-29 Filed 2011-03-30
10-Q 2010-12-08 Filed 2010-12-08
10-Q 2010-09-08 Filed 2010-09-08
10-Q 2010-06-09 Filed 2010-06-09
10-K 2010-01-30 Filed 2010-03-30
8-K 2020-05-22
8-K 2020-05-21
8-K 2020-05-21
8-K 2020-04-28
8-K 2020-04-06
8-K 2020-03-19
8-K 2019-11-22
8-K 2019-08-03
8-K 2019-05-04
8-K 2019-02-02
8-K 2019-02-02
8-K 2018-11-03
8-K 2018-08-04
8-K 2018-05-05
8-K 2018-03-03
8-K 2018-02-03
8-K 2018-02-03

CATO 10Q Quarterly Report

Part I Financial Information
Item 1. Financial Statements
Note 1 - General:
Note 2 - Earnings per Share:
Note 3 - Accumulated Other Comprehensive Income:
Note 4 - Financing Arrangements:
Note 5 - Reportable Segment Information:
Note 6 - Stock Based Compensation:
Note 7 - Fair Value Measurements:
Note 8 - Recent Accounting Pronouncements:
Note 9 - Income Taxes:
Note 10 - Commitments and Contingencies:
Note 11 - Revenue Recognition:
Note 12 - Leases:
Item 3. Quantitative and Qualitative Disclosures About Market Risk:
Item 4. Controls and Procedures:
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Part II Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Part II Other Information
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
Part II Other Information
EX-3.1 exhibit31.htm
EX-3.2 exhibit32.htm
EX-31.1 exhibit311.htm
EX-31.2 exhibit312.htm
EX-32.1 exhibit321.htm
EX-32.2 exhibit322.htm
EX-10.11 exhibit1011.htm

Cato Earnings 2020-05-02

Balance SheetIncome StatementCash Flow
0.70.60.40.30.10.02012201420172020
Assets, Equity
0.30.20.10.1-0.0-0.12012201420172020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X]

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended May 2, 2020

OR

[]

 

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

 

For the transition period from ________________to__________________

Commission file number                1-31340

 

THE CATO CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

56-0484485

(State or other jurisdiction of incorporation or organization)

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

 

8100 Denmark Road, Charlotte, North Carolina 28273-5975

(Address of principal executive offices)

(Zip Code)

 

(704)554-8510

(Registrant's telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A - Common Stock, par value $.033 per share

CATO

New York Stock Exchange

 

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

Yes

X

No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes

X

No

 

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

 

Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company

 

 

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

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

Yes

 

No

X

 

As of May 2, 2020, there were 22,252,038 shares of Class A common stock and 1,763,652 shares of Class B common stock outstanding.

 


 

THE CATO CORPORATION

 

FORM 10-Q

 

Quarter Ended May 2, 2020

Table of Contents

 

Page No.

 

PART I – FINANCIAL INFORMATION (UNAUDITED)

 

 

 

 

 

Item 1.

Financial Statements (Unaudited):

 

 

 

 

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

2

 

 

For the Three Months Ended May 2, 2020 and May 4, 2019

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

3

 

 

At May 2, 2020 and February 1, 2020

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

4

 

 

For the Three Months Ended May 2, 2020 and May 4, 2019

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

5

 

 

For the Three Months Ended May 2, 2020 and May 4, 2019

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6 - 20

 

 

For the Three Months Ended May 2, 2020 and May 4, 2019

 

 

 

 

 

 

Item 2.

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

21 - 27

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

 

Item 4.

Controls and Procedures

28

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

 

 

Item 1A.

Risk Factors

29

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

30

 

 

 

 

 

Item 4.

Mine Safety Disclosures

31

 

 

 

 

 

Item 5.

Other Information

31

 

 

 

 

 

Item 6.

Exhibits

31

 

 

 

 

 

Signatures

32

 

 

 

 

 

 

1


 

Table of Contents

 

PART I FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND

COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

 

 

 

 

 

Three Months Ended

 

 

May 2, 2020

 

May 4, 2019

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

REVENUES

 

 

 

 

Retail sales

$

98,813

$

228,066

Other revenue (principally finance charges, late fees and

 

 

 

 

layaway charges)

 

1,919

 

2,285

Total revenues

 

100,732

 

230,351

 

 

 

 

 

COSTS AND EXPENSES, NET

 

 

 

 

Cost of goods sold (exclusive of depreciation shown below)

 

83,597

 

136,083

Selling, general and administrative (exclusive of depreciation

 

 

 

 

shown below)

 

52,511

 

65,990

Depreciation

 

4,006

 

3,843

Interest and other income

 

(1,851)

 

(1,136)

Costs and expenses, net

 

138,263

 

204,780

 

 

 

 

 

Income (loss) before income taxes

 

(37,531)

 

25,571

 

 

 

 

 

Income tax expense (benefit)

 

(9,114)

 

4,316

 

 

 

 

 

Net income (loss)

$

(28,417)

$

21,255

 

 

 

 

 

Basic earnings (loss) per share

$

(1.19)

$

0.87

 

 

 

 

 

Diluted earnings (loss) per share

$

(1.19)

$

0.87

 

 

 

 

 

Comprehensive income:

 

 

 

 

Net income (loss)

$

(28,417)

$

21,255

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

 

 

 

 

of deferred income taxes of ($90) and $126 for May 2, 2020

 

(298)

 

412

and May 4, 2019, respectively

 

 

 

 

Comprehensive income (loss)

$

(28,715)

$

21,667

 

See notes to condensed consolidated financial statements (unaudited).

2


 

Table of Contents

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 2, 2020

 

February 1, 2020

 

 

(Dollars in thousands)

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

$

29,809

 

$

11,824

 

Short-term investments

 

118,020

 

 

200,387

 

Restricted cash

 

2,585

 

 

2,577

 

Restricted short-term investments

 

1,330

 

 

1,319

 

Accounts receivable, net of allowance for doubtful accounts of

 

 

 

 

 

 

$614 and $726 at May 2, 2020 and February 1, 2020, respectively

 

30,462

 

 

26,088

 

Merchandise inventories

 

122,767

 

 

115,365

 

Prepaid expenses and other current assets

 

6,131

 

 

5,237

 

Total Current Assets

 

311,104

 

 

362,797

 

Property and equipment – net

 

84,151

 

 

88,667

 

Noncurrent deferred income taxes

 

8,413

 

 

8,636

 

Other assets

 

22,759

 

 

24,073

 

Right-of-Use assets – net

 

214,527

 

 

200,803

 

Total Assets

$

640,954

 

$

684,976

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

$

74,934

 

$

68,438

 

Accrued expenses

 

38,006

 

 

47,099

 

Accrued bonus and benefits

 

8,888

 

 

18,913

 

Accrued income taxes

 

1,690

 

 

1,703

 

Current lease liability

 

61,019

 

 

63,149

 

Total Current Liabilities

 

184,537

 

 

199,302

 

Other noncurrent liabilities

 

22,754

 

 

21,976

 

Lease liability

 

162,011

 

 

147,184

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

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

 

 

 

 

 

 

authorized, none issued

 

-

 

 

-

 

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

 

 

 

 

 

 

shares authorized; 22,252,038 and 22,535,779 shares issued

 

 

 

 

 

 

at May 2, 2020 and February 1, 2020, respectively

 

750

 

 

761

 

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

 

 

 

 

 

 

15,000,000 shares authorized; 1,763,652 and

 

 

 

 

 

 

1,763,652 shares issued at May 2, 2020 and February 1, 2020, respectively

 

59

 

 

59

 

Additional paid-in capital

 

111,693

 

 

110,813

 

Retained earnings

 

158,025

 

 

203,458

 

Accumulated other comprehensive income

 

1,125

 

 

1,423

 

Total Stockholders' Equity

 

271,652

 

 

316,514

 

Total Liabilities and Stockholders’ Equity

$

640,954

 

$

684,976

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements (unaudited).

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Table of Contents

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

May 2, 2020

May 4, 2019

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

 

Net income (loss)

 

$

(28,417)

 

$

21,255

 

Adjustments to reconcile net income to net cash provided

 

 

 

 

 

 

 

by operating activities:

 

 

 

 

 

 

 

Depreciation

 

 

4,006

 

 

3,843

 

Provision for doubtful accounts

 

 

28

 

 

178

 

Purchase premium and premium amortization of investments

 

 

(18)

 

 

58

 

Share-based compensation

 

 

650

 

 

691

 

Deferred income taxes

 

 

313

 

 

-

 

Loss on disposal of property and equipment

 

 

66

 

 

182

 

Impairment of store assets

 

 

5,270

 

 

-

 

Changes in operating assets and liabilities which provided

 

 

 

 

 

 

 

(used) cash:

 

 

 

 

 

 

 

Accounts receivable

 

 

(4,402)

 

 

(1,926)

 

Merchandise inventories

 

 

(7,402)

 

 

8,370

 

Prepaid and other assets

 

 

(255)

 

 

8,643

 

Operating lease right-of-use assets and liabilities

 

 

(1,027)

 

 

-

 

Accrued income taxes

 

 

(13)

 

 

2,629

 

Accounts payable, accrued expenses and other liabilities

 

 

(40,134)

 

 

(29,255)

 

Net cash provided (used) by operating activities

 

 

(71,335)

 

 

14,668

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

Expenditures for property and equipment

 

 

(5,311)

 

 

(995)

 

Purchase of short-term investments

 

 

(8,275)

 

 

(44,709)

 

Sales of short-term investments

 

 

90,435

 

 

53,639

 

Purchase of other assets

 

 

-

 

 

(22)

 

Sales of other assets

 

 

94

 

 

4

 

Net cash provided (used) by investing activities

 

 

76,943

 

 

7,917

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

Dividends paid

 

 

(7,990)

 

 

(8,118)

 

Repurchase of common stock

 

 

(9,875)

 

 

(2,834)

 

Proceeds from line of credit

 

 

34,000

 

 

-

 

Payments on line of credit

 

 

(4,000)

 

 

-

 

Proceeds from employee stock purchase plan

 

 

250

 

 

261

 

Net cash provided (used) by financing activities

 

 

12,385

 

 

(10,691)

 

 

 

 

 

 

 

 

 

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

 

 

17,993

 

 

11,894

 

 

 

 

 

 

 

 

 

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

 

 

14,401

 

 

25,209

 

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

 

$

32,394

 

$

37,103

 

 

 

 

 

 

 

 

 

Non-cash activity:

 

 

 

 

 

 

 

Accrued other assets and property and equipment

 

$

1,936

 

$

256

 

 

See notes to condensed consolidated financial statements (unaudited).

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Table of Contents

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

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 1, 2020

$

761

$

59

$

110,813

$

203,458

$

1,423

$

316,514

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

-

 

-

 

-

 

(28,417)

 

-

 

(28,417)

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

 

 

 

 

 

 

 

 

 

 

 

 

income tax benefit of ($90)

 

-

 

-

 

-

 

-

 

(298)

 

(298)

Dividends paid ($0.33 per share)

 

-

 

-

 

-

 

(7,990)

 

-

 

(7,990)

Class A common stock sold through employee stock purchase

 

 

 

 

 

 

 

 

 

 

 

 

plan — 26,957 shares

 

1

 

-

 

293

 

-

 

-

 

294

Class B common stock sold through stock option plans —

 

 

 

 

 

 

 

 

 

 

 

 

- shares

 

-

 

-

 

-

 

-

 

-

 

-

Class A common stock issued through restricted stock grant plans —

 

 

 

 

 

 

 

 

 

 

 

 

307,354 shares

 

10

 

-

 

587

 

8

 

-

 

605

Repurchase and retirement of treasury shares – 618,056 shares

 

(22)

 

-

 

-

 

(9,034)

 

-

 

(9,056)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — May 2, 2020

$

750

$

59

$

111,693

$

158,025

$

1,125

$

271,652

 

 

 

 

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 2, 2019

$

767

$

59

$

105,580

$

210,507

$

(77)

$

316,836

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

-

 

-

 

-

 

21,255

 

-

 

21,255

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

 

 

 

 

 

 

 

 

 

 

 

 

income tax liability of $126

 

-

 

-

 

-

 

-

 

412

 

412

Dividends paid ($0.33 per share)

 

-

 

-

 

-

 

(8,118)

 

-

 

(8,118)

Class A common stock sold through employee stock purchase

 

 

 

 

 

 

 

 

 

 

 

 

plan — 20,676 shares

 

1

 

-

 

307

 

-

 

-

 

308

Class B common stock sold through stock option plans —

 

 

 

 

 

 

 

 

 

 

 

 

- shares

 

-

 

-

 

-

 

-

 

-

 

-

Class A common stock issued through restricted stock grant plans —

 

 

 

 

 

 

 

 

 

 

 

 

355,609 shares

 

11

 

-

 

624

 

10

 

-

 

645

Repurchase and retirement of treasury shares – 208,041 shares

 

(7)

 

-

 

-

 

(2,827)

 

-

 

(2,834)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — May 4, 2019

$

772

$

59

$

106,511

$

220,827

$

335

$

328,504

 

See notes to condensed consolidated financial statements (unaudited).

5


Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

 

 

 

NOTE 1 - GENERAL:

 

The condensed consolidated financial statements as of May 2, 2020 and for the thirteen-week periods ended May 2, 2020 and May 4, 2019 have been prepared from the accounting records of The Cato Corporation and its wholly-owned subsidiaries (the “Company”), and all amounts shown are unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements have been included. All such adjustments are of a normal, recurring nature unless otherwise noted. The results of the interim period may not be indicative of the results expected for the entire year.

 

The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020. Amounts as of February 1, 2020 have been derived from the audited balance sheet, but do not include all disclosures required by accounting principles generally accepted in the United States of America.

 

COVID-19 Update

 

The spread of COVID-19 has resulted in state and local orders mandating store closures to mitigate the spread of the virus. Responses by customers, government and the private sector have and will likely continue to adversely impact our business operations for the remainder of 2020 and possibly beyond. The extent to which the COVID-19 pandemic ultimately impacts the Company’s business, financial condition, results of operations, cash flows, and liquidity may differ from management’s current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak, 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.

 

Beginning March 19, 2020, the Company temporarily closed all Cato, Its Fashion, Its Fashion Metro and Versona stores. In addition, the Company suspended its quarterly dividend, significantly reduced capital expenditures and reduced its SG&A expense through the reduction of non-payroll expenses, as well as, furloughing associates and in certain instances eliminating positions primarily at the corporate office. Beginning on May 1, 2020, the Company began to re-open stores based on the pertinent state and local orders. There is significant uncertainty around the duration, breadth and severity of continued business disruptions related to COVID-19, as well as its impact on the U.S. economy, consumer willingness to visit malls and shopping centers, and associate staffing for our stores. At this time, it is uncertain as to the effect of national, state or local action or legislation that attempts to address the economic effects of COVID-19 on our customers, suppliers or the Company.

 

While the Company currently anticipates that our results for the remainder of 2020 will be adversely impacted, the extent to which COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain, including new information that may emerge concerning the severity of COVID-19, potential economic impacts to customers and suppliers, and the actions taken to contain it or mitigate its impact.

 

Accounting Policies - Impairment of Long-Lived Assets:

 

The Company invests in leaseholds, right-of use assets and equipment primarily in connection with the opening and remodeling of stores and in computer software and hardware. The Company periodically reviews its store locations and estimates the recoverability of its long-lived assets, which primarily relate

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Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

 

 

 

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 projected cash flows, which include future sales growth projections. The Company assesses the fair value of each lease by considering market rents and any lease terms that may adjust market rents under certain conditions such as the loss of an anchor tenant or a leased space in a shopping center not meeting certain criteria. Further, in determining when to close a store, the Company considers real estate development in the area and perceived local market conditions, which can be difficult to predict and may be subject to change. As a result of store closures, the Company determined a triggering event occurred resulting in an impairment analysis being performed. An asset impairment charge of $5.3 million was recorded in the first quarter of 2020.

 

Recently Adopted Accounting Policies

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, 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 will have a minimal impact on the financial statements.

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Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

 

 

 

NOTE 2 - EARNINGS PER SHARE:

 

Accounting Standard Codification (“ASC”) 260 – Earnings Per Share requires dual presentation of basic and diluted Earnings Per Share (“EPS”) on the face of all income statements for all entities with complex capital structures. The Company has presented one basic EPS and one diluted EPS amount for all common shares in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income. While the Company’s certificate of incorporation provides the right for the Board of Directors to declare dividends on Class A shares without declaration of commensurate dividends on Class B shares, the Company has historically paid the same dividends to both Class A and Class B shareholders and the Board of Directors has resolved to continue this practice. Accordingly, the Company’s allocation of income for purposes of the EPS computation is the same for Class A and Class B shares and the EPS amounts reported herein are applicable to both Class A and Class B shares.

 

Basic EPS is computed as net income less earnings allocated to non-vested equity awards divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options and the Employee Stock Purchase Plan.

 

 

 

 

 

Three Months Ended

 

 

 

 

 

May 2, 2020

 

 

May 4, 2019

 

 

 

 

(Dollars in thousands)

 

Numerator

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

(28,417)

 

$

21,255

 

 

Earnings (loss) allocated to non-vested equity awards

 

 

1,135

 

 

(660)

 

 

Net earnings (loss) available to common stockholders

 

$

(27,282)

 

$

20,595

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

22,959,887

 

 

23,756,695

 

 

Diluted weighted average common shares outstanding

 

 

22,959,887

 

 

23,756,695

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

(1.19)

 

$

0.87

 

 

Diluted earnings (loss) per share

 

$

(1.19)

 

$

0.87

 

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Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

 

 

 

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

 

The following tables set forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the three months ended May 2, 2020:

 

 

 

Changes in Accumulated Other

 

 

 

 

 

Comprehensive Income (a)

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

 

 

and (Losses) on

 

 

 

 

 

 

 

 

 

Available-for-Sale

 

 

 

 

 

 

 

 

 

Securities

 

 

 

 

 

 

Beginning Balance at February 1, 2020

 

$

1,423

 

 

 

 

 

 

Other comprehensive income before

 

 

 

 

 

 

 

 

 

reclassification

 

 

(802)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from accumulated

 

 

 

 

 

 

 

 

 

other comprehensive income (b)

 

 

504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net current-period other comprehensive income

 

 

(298)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance at May 2, 2020

 

$

1,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

(b) Includes $655 impact of accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities. The tax impact of this reclassification was $151.

 

 

 

The following tables set forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the three months ended May 4, 2019:

 

 

 

Changes in Accumulated Other

 

 

 

 

 

Comprehensive Income (a)

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

 

 

and (Losses) on

 

 

 

 

 

 

 

 

 

Available-for-Sale

 

 

 

 

 

 

 

 

 

Securities

 

 

 

 

 

 

Beginning Balance at February 2, 2019

 

$

(77)

 

 

 

 

 

 

Other comprehensive income before

 

 

 

 

 

 

 

 

 

reclassification

 

 

403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from accumulated

 

 

 

 

 

 

 

 

 

other comprehensive income (b)

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net current-period other comprehensive income

 

 

412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance at May 4, 2019

 

$

335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

(b) Includes $12 impact of accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities. The tax impact of this reclassification was $3.

 

 

9


Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

 

 

 

NOTE 4 – FINANCING ARRANGEMENTS:

 

As of May 2, 2020, the Company had an unsecured revolving credit agreement allowing the Company to borrow $35.0 million less the balance of any letters of credit as discussed below. 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 May 2, 2020. There were $30.0 million in outstanding borrowings under this credit facility at May 2, 2020 and no outstanding borrowings at February 1, 2020. As of May 2, 2020, the $30.0 million of outstanding borrowings is recorded in Accounts payable in the Condensed Consolidated Balance Sheets. The weighted average interest rate under the credit facility was 1.76% at May 2, 2020.

 

On June 2, 2020, the Company signed an amendment extending the revolving credit agreement through May 2023. This new amendment, among other items, temporarily lowers the liquidity amount the Company is required to maintain. In addition, a fixed charge ratio covenant is applicable beginning in the fourth quarter of 2021. As of June 4, 2020, the Company had paid down $7.0 million of its outstanding line of credit, reducing the outstanding borrowings to $23.0 million.

 

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

 

NOTE 5 – REPORTABLE SEGMENT INFORMATION:

 

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

 

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

 

The Company operates its women’s fashion specialty retail stores in 31 states as of May 2, 2020, principally in the southeastern United States. The Company offers its own credit card to its customers and all credit authorizations, payment processing and collection efforts are performed by a separate subsidiary of the Company.

10


Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

 

 

 

NOTE 5 – REPORTABLE SEGMENT INFORMATION (CONTINUED):

 

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

 

Three Months Ended

 

 

 

May 2, 2020

Retail

Credit

Total

 

 

 

 

Revenues

$99,890

$842

$100,732

Depreciation

4,006

-

4,006

Interest and other income

(1,851)

-

(1,851)

Income before taxes

(37,923)

392

(37,531)

Capital expenditures

5,311

-

5,311

 

 

 

 

Three Months Ended

 

 

 

May 4, 2019

Retail

Credit

Total

 

 

 

 

Revenues

$229,441

$910

$230,351

Depreciation

3,843

-

3,843

Interest and other income

(1,136)

-

(1,136)

Income before taxes

25,178

393

25,571

Capital expenditures

995

-

995

 

 

 

 

 

Retail

Credit

Total

 

 

 

 

Total assets as of May 2, 2020

$594,931

$46,023

$640,954

Total assets as of February 1, 2020

636,503

48,473

684,976

 

The Company evaluates segment performance based on income before taxes. The Company does not allocate certain corporate expenses or income taxes to the credit segment.

 

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

 

 

Three Months Ended

 

 

May 2, 2020

 

 

May 4, 2019

 

 

 

 

 

 

Payroll

$

152

 

$

150

Postage

 

111

 

 

124

Other expenses

 

187

 

 

243

 

 

 

 

 

 

Total expenses

$

450

 

$

517

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Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MAY 2, 2020 AND MAY 4, 2019

 

 

 

NOTE 6 – STOCK BASED COMPENSATION:

 

As of May 2, 2020, the Company had two long-term compensation plans pursuant to which stock-based compensation was outstanding or could be granted. The 2018 Incentive Compensation Plan and 2013 Incentive Compensation Plan are for the granting of various forms of equity-based awards, including restricted stock and stock options for grant, to officers, directors and key employees. Effective May 24, 2018, shares for grant were no longer available under the 2013 Incentive Compensation Plan.

 

The following table presents the number of options and shares of restricted stock initially authorized and available for grant under each of the plans as of May 2, 2020:

 

 

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:

 

 

 

 

 

May 2, 2020

-

 

3,885,313

 

3,885,313

 

In accordance with ASC 718, the fair value of current restricted stock awards is estimated on the date of grant based on the market price of the Company’s stock and is amortized to compensation expense on a straight-line basis over the related vesting periods. As of May 2, 2020 and February 1, 2020, there was $14,216,000 and $