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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 August 3, 2019

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 Carolina28273-5975

(Address of principal executive offices)

(Zip Code)

 

(704)554-8510

(Registrant's telephone number, including area code)

 

Not Applicable

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

 

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

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

CATO

New York Stock Exchange

 

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

Yes

X

No

 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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

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. (Check one):

 

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 August 3, 2019, there were 23,002,629 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 August 3, 2019

Table of Contents

 

Page No.

 

PART I – FINANCIAL INFORMATION (UNAUDITED)

 

 

 

 

 

Item 1.

Financial Statements (Unaudited):

 

 

 

 

Condensed Consolidated Statements of Income and Comprehensive Income

3

 

 

For the Three Months and Six Months Ended August 3, 2019 and August 4, 2018

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

4

 

 

At August 3, 2019 and February 2, 2019

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

5

 

 

For the Six Months Ended August 3, 2019 and August 4, 2018

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

6

 

 

For the Six Months Ended August 3, 2019 and August 4, 2018

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7 – 21

 

 

For the Three Months and Six Months Ended August 3, 2019 and August 4, 2018

 

 

 

 

 

 

Item 2.

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

22 – 28

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

 

 

 

 

Item 4.

Controls and Procedures

29

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

30

 

 

 

 

 

Item 1A.

Risk Factors

30

 

 

 

 

 

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

 

2


 

Table of Contents

 

PART I FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND

COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

August 3, 2019

 

August 4, 2018

 

August 3, 2019

 

August 4, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

REVENUES

 

 

 

 

 

 

 

 

 

 

 

Retail sales

$

210,357

 

$

206,848

 

$

438,423

 

$

442,873

Other revenue (principally finance charges, late fees and

 

 

 

 

 

 

 

 

 

 

 

layaway charges)

 

2,224

 

 

2,069

 

 

4,510

 

 

4,344

Total revenues

 

212,581

 

 

208,917

 

 

442,933

 

 

447,217

 

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES, NET

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold (exclusive of depreciation shown below)

 

130,372

 

 

129,801

 

 

266,455

 

 

272,088

Selling, general and administrative (exclusive of depreciation

 

 

 

 

 

 

 

 

 

 

 

shown below)

 

66,066

 

 

68,892

 

 

132,056

 

 

134,851

Depreciation

 

3,836

 

 

4,152

 

 

7,679

 

 

8,376

Interest and other income

 

(1,693)

 

 

(1,431)

 

 

(2,829)

 

 

(2,185)

Cost and expenses, net

 

198,581

 

 

201,414

 

 

403,361

 

 

413,130

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

14,000

 

 

7,503

 

 

39,572

 

 

34,087

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

2,134

 

 

1,021

 

 

6,450

 

 

4,195

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

11,866

 

$

6,482

 

$

33,122

 

$

29,892

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

0.48

 

$

0.26

 

$

1.34

 

$

1.20

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

$

0.48

 

$

0.26

 

$

1.34

 

$

1.20

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net income

$

11,866

 

$

6,482

 

$

33,122

 

$

29,892

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

 

 

 

 

 

 

 

 

 

 

 

deferred income taxes of $262 and $388 for the three and

 

 

 

 

 

 

 

 

 

 

 

six months ended August 3, 2019 and $98 and ($24) for

 

 

 

 

 

 

 

 

 

 

 

the three and six months ended August 4, 2018, respectively

 

859

 

 

314

 

 

1,271

 

 

(78)

Comprehensive income

$

12,725

 

$

6,796

 

$

34,393

 

$

29,814

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements (unaudited).

3


 

Table of Contents

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

August 3, 2019

 

February 2, 2019

 

 

 

 

 

 

ASSETS

(Dollars in thousands)

Current Assets:

 

 

 

 

 

Cash and cash equivalents

$

26,011

 

$

24,603

Short-term investments

 

207,366

 

 

182,711

Restricted cash

 

2,137

 

 

606

Restricted short-term investments

 

1,718

 

 

3,196

Accounts receivable, net of allowance for doubtful accounts of

 

 

 

 

 

$889 and $842 at August 3, 2019 and February 2, 2019, respectively

 

27,479

 

 

28,137

Merchandise inventories

 

99,952

 

 

119,585

Prepaid expenses and other current assets

 

4,651

 

 

11,750

Total Current Assets

 

369,314

 

 

370,588

Property and equipment – net

 

89,567

 

 

94,304

Noncurrent deferred income taxes

 

10,821

 

 

11,209

Other assets

 

22,676

 

 

21,805

Right-of-Use assets – net

 

164,988

 

 

-

Total Assets

$

657,366

 

$

497,906

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable

$

67,718

 

$

84,282

Accrued expenses

 

44,452

 

 

45,658

Accrued bonus and benefits

 

10,360

 

 

11,146

Accrued income taxes

 

1,332

 

 

-

Current lease liability

 

55,747

 

 

-

Total Current Liabilities

 

179,609

 

 

141,086

Other noncurrent liabilities

 

22,822

 

 

39,984

Lease liability

 

120,317

 

 

-

 

 

 

 

 

 

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; issued 23,002,629 shares and 22,838,149 shares

 

 

 

 

 

at August 3, 2019 and February 2, 2019, respectively

 

772

 

 

767

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

 

 

 

 

 

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

 

 

 

 

 

at August 3, 2019 and February 2, 2019, respectively

 

59

 

 

59

Additional paid-in capital

 

108,057

 

 

105,580

Retained earnings

 

224,536

 

 

210,507

Accumulated other comprehensive income/(loss)

 

1,194

 

 

(77)

Total Stockholders' Equity

 

334,618

 

 

316,836

Total Liabilities and Stockholders' Equity

$

657,366

 

$

497,906

See notes to condensed consolidated financial statements (unaudited).

4


 

Table of Contents

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

Six Months Ended

 

 

August 3, 2019

 

August 4, 2018

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

Net income

$

33,122

 

$

29,892

 

Adjustments to reconcile net income to net cash provided

 

 

 

 

 

 

by operating activities:

 

 

 

 

 

 

Depreciation

 

7,679

 

 

8,376

 

Provision for doubtful accounts

 

366

 

 

127

 

Purchase premium and premium amortization of investments

 

(168)

 

 

277

 

Share-based compensation

 

2,196

 

 

2,422

 

Loss on disposal of property and equipment

 

344

 

 

414

 

Changes in operating assets and liabilities which provided

 

 

 

 

 

 

(used) cash:

 

 

 

 

 

 

Accounts receivable

 

292

 

 

(6,844)

 

Merchandise inventories

 

19,633

 

 

17,065

 

Prepaid and other assets

 

22,909

 

 

11,453

 

Accrued income taxes

 

1,332

 

 

1,022

 

Accounts payable, accrued expenses and other liabilities

 

(42,524)

 

 

(7,749)

 

Net cash provided by operating activities

 

45,181

 

 

56,455

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

Expenditures for property and equipment

 

(2,217)

 

 

(1,879)

 

Purchase of short-term investments

 

(106,518)

 

 

(111,245)

 

Sales of short-term investments

 

85,364

 

 

43,328

 

Purchase of other assets

 

(74)

 

 

(107)

 

Sales of other assets

 

9

 

 

4

 

Net cash (used)/provided in investing activities

 

(23,436)

 

 

(69,899)

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

Dividends paid

 

(16,291)

 

 

(16,338)

 

Repurchase of common stock

 

(2,834)

 

 

(10,461)

 

Proceeds from employee stock purchase plan

 

319

 

 

284

 

Proceeds from stock options exercised

 

-

 

 

189

 

Net cash (used) in financing activities

 

(18,806)

 

 

(26,326)

 

 

 

 

 

 

 

 

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

 

2,939

 

 

(39,770)

 

 

 

 

 

 

 

 

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

 

25,209

 

 

81,264

 

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

$

28,148

 

$

41,494

 

 

 

 

 

 

 

 

Non-cash activity:

 

 

 

 

 

 

Accrued other assets and property and equipment

$

1,395

 

$

507

 

Accrued treasury stock

 

-

 

 

949

 

 

See notes to condensed consolidated financial statements (unaudited).

5


 

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 2, 2019

$

767

$

59

$

105,580

$

210,507

$

(77)

$

316,836

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

-

 

-

 

21,256

 

-

 

21,256

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

$

220,828

$

335

$

328,505

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

-

 

-

 

11,866

 

-

 

11,866

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

 

 

 

 

 

 

 

 

 

 

 

 

income tax liability of $262

 

-

 

-

 

-

 

-

 

859

 

859

Dividends paid ($0.33 per share)

 

-

 

-

 

-

 

(8,173)

 

-

 

(8,173)

Class A common stock sold through employee stock purchase

 

 

 

 

 

 

 

 

 

 

 

 

plan — 5,402 shares

 

-

 

-

 

67

 

-

 

-

 

67

Class B common stock sold through stock option plans —

 

 

 

 

 

 

 

 

 

 

 

 

- shares

 

-

 

-

 

-

 

-

 

-

 

-

Class A common stock issued through restricted stock grant plans —

 

 

 

 

 

 

 

 

 

 

 

 

(9,170) shares

 

-

 

-

 

1,479

 

15

 

-

 

1,494

Repurchase and retirement of treasury shares – -shares

 

-

 

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — August 3, 2019

$

772

$

59

$

108,057

$

224,536

$

1,194

$

334,618

 

 

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

-

 

-

 

23,410

 

-

 

23,410

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

 

 

 

 

 

 

 

 

 

 

 

 

income tax benefit of ($122)

 

-

 

-

 

-

 

-

 

(392)

 

(392)

Dividends paid ($0.33 per share)

 

-

 

-

 

-

 

(8,186)

 

-

 

(8,186)

Class A common stock sold through employee stock purchase

 

 

 

 

 

 

 

 

 

 

 

 

plan — 19,763 shares

 

-

 

-

 

267

 

-

 

-

 

267

Class B common stock sold through stock option plans —

 

 

 

 

 

 

 

 

 

 

 

 

- shares

 

-

 

-

 

-

 

-

 

-

 

-

Class A common stock issued through restricted stock grant plans —

 

 

 

 

 

 

 

 

 

 

 

 

342,341 shares

 

11

 

-

 

534

 

8

 

-

 

553

Repurchase and retirement of treasury shares – 52,904 shares

 

(2)

 

-

 

-

 

(758)

 

-

 

(760)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — May 5, 2018

$

783

$

58

$

100,749

$

240,368

$

(713)

$

341,245

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

-

 

-

 

6,482

 

-

 

6,482

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

 

 

 

 

 

 

 

 

 

 

 

 

income tax liability of $98

 

-

 

-

 

-

 

-

 

314

 

314

Dividends paid ($0.33 per share)

 

-

 

-

 

-

 

(8,152)

 

-

 

(8,152)

Class A common stock sold through employee stock purchase

 

 

 

 

 

 

 

 

 

 

 

 

plan — 2,791 shares

 

1

 

-

 

70

 

-

 

-

 

71

Class B common stock sold through stock option plans —

 

 

 

 

 

 

 

 

 

 

 

 

8,051 shares

 

-

 

-

 

190

 

-

 

-

 

190

Class A common stock issued through restricted stock grant plans —

 

 

 

 

 

 

 

 

 

 

 

 

13,224 shares

 

-

 

-

 

1,797

 

18

 

-

 

1,815

Repurchase and retirement of treasury shares – 423,200 shares

 

(14)

 

-

 

-

 

(10,635)

 

-

 

(10,649)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — August 4, 2018

$

770

$

58

$

102,806

$

228,081

$

(399)

$

331,316

See notes to condensed consolidated financial statements (unaudited).

6


Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 3, 2019 AND AUGUST 4, 2018

 

 

 

 

NOTE 1 - GENERAL:

 

The condensed consolidated financial statements have been prepared from the accounting records of The Cato Corporation and its wholly-owned subsidiaries (the “Company”), and all amounts shown as of and for the periods ended August 3, 2019 and August 4, 2018 are unaudited. In the opinion of management, all adjustments considered necessary for a fair statement 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 2, 2019. Amounts as of February 2, 2019 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.

 

 

On August 29, 2019, the Board of Directors maintained the quarterly dividend at $0.33 per share.

 

Recently Adopted Accounting Policies

 

In 2016, the 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 Company utilized a comprehensive approach to assess the impact of this guidance on its financial 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 Company elected the transition package of practical expedients that is permitted by the standard. 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 adopted ASC 842 utilizing the modified retrospective approach as of February 3, 2019. 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. The adoption had a material impact on the Company’s financial statements, resulting in an increase of 40% to each of its total assets and total liabilities on its balance sheet, but had no impact to retained earnings as of the beginning of 2019. See Note 12 for further information.

 

7


Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 3, 2019 AND AUGUST 4, 2018

 

 

 

 

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

 

 

Six Months Ended

 

 

 

 

August 3, 2019

 

 

August 4, 2018

 

 

August 3, 2019

 

 

August 4, 2018

 

 

(Dollars in thousands)

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

11,866

 

$

6,482

 

$

33,122

 

$

29,892

 

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

 

 

(451)

 

 

(192)

 

 

(1,148)

 

 

(816)

 

Net earnings available to common stockholders

 

$

11,415

 

$

6,290

 

$

31,974

 

$

29,076

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

23,789,070

 

 

24,131,481

 

 

23,772,883

 

 

24,166,539

 

Diluted weighted average common shares outstanding

 

 

23,789,070

 

 

24,131,481

 

 

23,772,883

 

 

24,166,539

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.48

 

$

0.26

 

$

1.34

 

$

1.20

 

Diluted earnings per share

 

$

0.48

 

$

0.26

 

$

1.34

 

$

1.20

8


Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 3, 2019 AND AUGUST 4, 2018

 

 

 

 

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

 

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the three months ended August 3, 2019:

 

 

 

Changes in Accumulated Other

 

 

 

Comprehensive Income (a)

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

and (Losses) on

 

 

 

 

 

 

 

Available-for-Sale

 

 

 

 

 

 

 

Securities

 

 

 

 

Beginning Balance at May 4, 2019

 

$

335

 

 

 

 

Other comprehensive income before

 

 

 

 

 

 

 

reclassification

 

 

829

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from accumulated

 

 

 

 

 

 

 

other comprehensive income (b)

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

Net current-period other comprehensive income

 

 

859

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance at August 3, 2019

 

$

1,194

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(b) Includes $39 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 $9.

 

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the six months ended August 3, 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

 

 

1,232

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from accumulated

 

 

 

 

 

 

 

other comprehensive income (b)

 

 

39

 

 

 

 

 

 

 

 

 

 

 

 

Net current-period other comprehensive income

 

 

1,271

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance at August 3, 2019

 

$

1,194

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(b) Includes $51 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 $12.

9


Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 3, 2019 AND AUGUST 4, 2018

 

 

 

 

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME (CONTINUED):

 

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the three months ended August 4, 2018:

 

 

 

Changes in Accumulated Other

 

 

 

Comprehensive Income (a)

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

and (Losses) on

 

 

 

 

 

 

 

Available-for-Sale

 

 

 

 

 

 

 

Securities

 

 

 

 

Beginning Balance at May 5, 2018

 

$

(713)

 

 

 

 

Other comprehensive income before

 

 

 

 

 

 

 

reclassifications

 

 

260

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from accumulated

 

 

 

 

 

 

 

other comprehensive income (b)

 

 

54

 

 

 

 

 

 

 

 

 

 

 

 

Net current-period other comprehensive income

 

 

314

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance at August 4, 2018

 

$

(399)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(b) Includes $71 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 $17.

 

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the six months ended August 4, 2018:

 

 

 

Changes in Accumulated Other

 

 

 

Comprehensive Income (a)

 

 

 

 

 

Unrealized Gains

 

 

 

 

 

 

 

and (Losses) on

 

 

 

 

 

 

 

Available-for-Sale

 

 

 

 

 

 

 

Securities

 

 

 

 

Beginning Balance at February 3, 2018

 

$

(321)

 

 

 

 

Other comprehensive income before

 

 

 

 

 

 

 

reclassifications

 

 

(131)

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from accumulated

 

 

 

 

 

 

 

other comprehensive income (b)

 

 

53

 

 

 

 

 

 

 

 

 

 

 

 

Net current-period other comprehensive income

 

 

(78)

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance at August 4, 2018

 

$

(399)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(b) Includes $70 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 $17.

10


Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 3, 2019 AND AUGUST 4, 2018

 

 

 

 

NOTE 4 – FINANCING ARRANGEMENTS:

 

As of August 3, 2019, the Company had an unsecured revolving credit agreement to borrow $35.0 million less the balance of any revocable letters of credit as discussed below. On May 24, 2019, the Company extended its revolving credit agreement through May 2022. 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 August 3, 2019. There were no borrowings outstanding under this credit facility during the periods ended August 3, 2019 or February 2, 2019. The weighted average interest rate under the credit facility was zero at August 3, 2019 due to no borrowings outstanding.

 

At August 3, 2019 and February 2, 2019, the Company had no outstanding revocable letters of credit relating to purchase commitments.

 

 

 

NOTE 5 – REPORTABLE SEGMENT INFORMATION:

 

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

 

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

 

The Company operates its women’s fashion specialty retail stores in 31 states as of August 3, 2019, 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.

 

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Table of Contents

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 3, 2019 AND AUGUST 4, 2018

 

 

 

 

NOTE 5 – REPORTABLE SEGMENT INFORMATION (CONTINUED):

 

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

 

Three Months Ended

 

 

 

 

Six Months Ended

 

 

 

August 3, 2019

Retail

Credit

Total

 

August 3, 2019

Retail

Credit

Total

 

 

 

 

 

 

 

 

 

Revenues

$211,672

$909

$212,581

 

Revenues

$441,114

$1,819

$442,933

Depreciation

3,836

-

3,836

 

Depreciation

7,679

-

7,679

Interest and other income

(