2014
Annual
Report
A Message to
our Shareholders
from John P. D. Cato // Chairman, President & Chief Executive Officer
In 2014, Cato delivered positive comparable store growth, with same-store sales increasing 4% over
the previous year. In addition, net income increased 11% to $60.5 million and earnings per diluted share
increased 16% to $2.15. We believe these positive results were due primarily to improved economic
conditions for our customers coupled with a strong merchandise assortment and continued expense
control. Cato returned over $75 million to shareholders through quarterly dividends of $33.8 million and the
repurchase of 1.5 million shares for $42.1 million. We have existing authorization to repurchase an additional
2 million shares.
We remain committed to growing our overall business by achieving positive same-store sales, growing
our e-commerce business and continuing new store development. We continue to refine our merchandise
offering and remain committed to delivering value to our customers.
Specifically, we have launched two new initiatives: building an internal design organization and opening our
own sourcing offices in Asia. These efforts will allow us to improve the design, sourcing and quality of our
products, while delivering more exclusive fashions at a great value.
Our Cato e-commerce website continues to grow, and we launched an e-commerce website for our Versona
concept this spring. All functions of Cato and Versona e-commerce are performed in-house (fulfillment,
photo studio, customer call center and website management), and we are meeting revenue and profit goals.
Our balance sheet remains strong with over $256 million in cash and short term investments and no debt.
As has long been our practice, we utilize our cash to fund new concepts and store development, meet
infrastructure needs and provide additional value to long-term shareholders through dividends and
share repurchases.
We expect 2015 to be another challenging year. We will continue to focus on improving and growing our
company. I am proud of our associates’ performance as they continue to serve our customers well and
make enhancements that provide long-term benefits for our business. On behalf of the entire Cato team
and the Board, we thank you for your investment in our Company.
Financial Highlights
fiscal year
for the year ended
Retail sales
Total revenue
2014
2013
2012*
2011
2010
$ 977,867
986,914
$ 910,500
$ 933,782
$ 920,622
$ 913,079
920,033
944,048
931,458
924,685
Comparable store sales increase (decrease)
4%
(3)%
(4)%
(1)%
3%
Income before income taxes
Income tax expense
Net income
Net income as a percentage of retail sales
Cash dividends paid per share
Basic earnings per share
Diluted earnings per share
91,473
30,971
60,502
84,286
29,964
98,971
37,303
$
54,322
$
61,668
100,271
35,437
64,834
92,772
33,921
58,851
6.2%
6.0%
6.6%
7.0%
6.4%
1.200
2.15
2.15
$
$
$
.200
$
2.980
$
.875
$
1.86
$
1.86
$
2.11
$
2.11
$
2.21
$
2.21
$
.720
2.00
2.00
$
$
$
$
Number of stores
Number of stores opened
Number of stores closed
Net increase in number of stores
at year end
C ash, cash equivalents, short-term
investments and restricted cash
Working capital
Current ratio
Total assets
Total Stockholders’ equity
1,346
33
7
26
1,320
1,310
1,288
1,282
32
22
10
34
12
22
38
32
6
37
26
11
$ 260,610
260,550
2.3
608,278
380,198
$ 245,256
$ 194,646
$ 245,989
$ 234,851
269,617
230,612
272,139
251,523
2.5
596,918
391,109
2.4
532,646
345,234
2.7
551,089
366,679
2.5
532,759
334,014
Dollars in thousands, except per share data and selected operating data.
*The fiscal year ended February 2, 2013 contained 53 weeks versus 52 weeks for all other fiscal years shown.
Delivering
Fashion & Value
Year After Year
The Cato Corporation, headquartered in Charlotte, North
Carolina, currently operates three different concepts:
Cato, It’s Fashion and Versona. At the end of 2014, the
Company operated 1,083 Cato stores, 209 It’s Fashion
and It’s Fashion Metro stores, and 54 Versona stores. Each
concept targets a different customer base, occupies a
unique niche, and provides growth opportunities. Across all
concepts, the Company focuses on providing fashion and
accessories at exceptional values.
Cato provides on trend fashion in junior/misses and
plus sizes with great quality and fit at value prices every
day. The concept offers a broad assortment of exclusive
merchandise under its Cato label, available in stores and
on its e-commerce website, catofashions.com. Cato stores
average approximately 4,500 square feet.
It’s Fashion serves a younger customer with junior-inspired
fashions at low prices every day. It’s Fashion Metro is an
expanded version of It’s Fashion, offering trendy fashions
for the entire family at low prices every day. It’s Fashion
stores average approximately 3,400 square feet while
It’s Fashion Metro stores are generally 8,000 to 10,000
square feet.
Versona is an exclusive women’s boutique offering unique
apparel and accessories at exceptional prices. Versona
is located in better centers and targets a more affluent
customer than our other two concepts. Versona stores are
generally 6,000 to 7,000 square feet. Versona launched its
e-commerce website this spring, shopversona.com.
TOTAL NUMBER OF STORES PER STATE AT YEAR END
TX
NC
GA
SC
AL
LA
MS
TN
FL
187
131
116
88
87
84
83
72
65
VA
60
AR
58
KY
OK
47
46
MO
37
OH
32
IN
IL
23
20
MI
16
KS
14
IA
13
WV
12
NM
11
AZ
7
MD
7
NE
7
PA
7
DE
5
CO
NY
NJ
SD
NV
3
3
2
2
1
Management
Executive Group
john p. d. cato
Chairman, President and
Chief Executive Officer
john r. howe
Executive Vice President,
Chief Financial Officer
sally j. almason
Executive Vice President, Merchandising –
Cato and Versona Concepts
michael t. greer
Executive Vice President,
Director of Stores
gordon d. smith
Executive Vice President,
Chief Real Estate and
Store Development Officer
Board of Directors
john p. d. cato
Chairman, President and
Chief Executive Officer
thomas b. henson 1,3
Chief Executive Officer
American Spirit Media, LLC
bryan f. kennedy, iii 1,3
President
Park Sterling Bank
thomas e. meckley 3
Consultant
Agility Recovery Solutions
Retired Partner
Ernst & Young LLP
bailey w. patrick 1,2
Managing Partner
MPV Properties, LLC
d. harding stowe 1,2
Chairman and
Chief Executive Officer
New South Pizza
edward i. weisiger, jr. 1,2
President and
Chief Executive Officer
Carolina Tractor & Equipment Company
1 Member of the Corporate Governance and
Nominating Committee
2 Member of the Compensation Committee
3 Member of the Audit Committee
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2015
or
‘ 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
State of Incorporation
8100 Denmark Road
Charlotte, North Carolina 28273-5975
Address of Principal Executive Offices
56-0484485
I.R.S. Employer Identification Number
704/554-8510
Registrant’s Telephone Number
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Name of Exchange on Which Registered
Class A Common Stock
Preferred Share Purchase Rights
New York Stock Exchange
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. Yes Í
No ‘
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Exchange Act. Yes ‘
No Í
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
the past
90 days. Yes Í No ‘
to such filing requirements for
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes Í
No ‘
Indicate by check mark, if disclosure of delinquent filers pursuant to Item 405 of the Regulation S-K is not
contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or
to
information statements
this Form 10-K. ‘
this Form 10-K or any amendment
incorporated by reference in Part
III of
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Í
Accelerated filer ‘
Non-accelerated filer ‘
Smaller reporting company ‘
Indicate by check mark whether
Rule 12b-2). Yes ‘
No Í
(Do not check if a smaller reporting company)
the registrant
is a shell company (as defined in Exchange Act
The aggregate market value of the Registrant’s Class A Common Stock held by non-affiliates of the Registrant as
of August 2, 2014, the last business day of the Company’s most recent second quarter, was $796,035,939 based on the
last reported sale price per share on the New York Stock Exchange on that date.
As of January 31, 2015, there were 26,174,684 shares of Class A common stock and 1,743,525 shares of Class B
common stock outstanding.
Portions of the proxy statement relating to the 2015 annual meeting of shareholders are incorporated by reference
DOCUMENTS INCORPORATED BY REFERENCE
into the following part of this annual report:
Part III — Items 10, 11, 12, 13 and 14
THE CATO CORPORATION
FORM 10-K
TABLE OF CONTENTS
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3A. Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12.
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14.
Page
3 – 7
7 – 15
15
15
15
16
16
17 – 19
20
21 – 27
27
28 – 52
53
53
53
53
54
54
54
54
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55 – 64
PART IV
1
Forward-looking Information
The following information should be read along with the Consolidated Financial Statements, including the
accompanying Notes appearing in this report. Any of the following are “forward-looking” statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended: (1) statements in this Annual Report on Form 10-K 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
“Business,” “Properties,” “Legal Proceedings,” “Controls and Procedures” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”; (4) statements relating to our operations or activities
for our fiscal year ending January 30, 2016 (“fiscal 2015”) and beyond, including, but not limited to, statements
regarding expected amounts of capital expenditures and store openings, relocations, remodels and closures; and
(5) statements relating to our future contingencies. When possible, we have attempted to identify forward-
looking statements by using words such as “expects,” “anticipates,” “approximates,” “believes,” “estimates,”
“hopes,” “intends,” “may,” “plans,” “should” and variations 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, levels of unemployment,
fuel, energy and food costs, wage rates, tax rates, home values, consumer net worth and the availability of credit;
uncertainties regarding the impact of any governmental responses to the foregoing conditions; competitive
factors and pricing pressures; our ability to predict and respond to rapidly changing fashion trends and consumer
demands; adverse weather or similar conditions that may affect our sales or operations; inventory risks due to
shifts in market demand; 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 31, 2015 (“fiscal 2014”), 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.
As used herein, the terms “we,” “our,” “us” (or when the context requires otherwise and similar terms), the
“Company” or “Cato” include The Cato Corporation and its subsidiaries, 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.catocorp.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 any amendments or waivers thereto; and any
other corporate governance materials contemplated by SEC or New York Stock Exchange regulations. The
information contained on our website, www.catocorp.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.
2
Item 1. Business:
General
PART I
The Company, founded in 1946, operated 1,346 fashion specialty stores at January 31, 2015, in 32 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, plus sizes and girls sizes 7 to 16. 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 offers quality fashion jewelry,
accessories and key apparel items at exceptional values every day. The Company’s stores range in size from
2,000 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 8% of retail sales in fiscal 2014.
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.
Business
The Company’s primary objective is to be the leading fashion specialty retailer for fashion and value 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. The Company’s stores offer a wide assortment of on-trend apparel and
accessory items in primarily junior/missy, plus sizes, girls sizes 7 to 16, mens and kids sizes newborn to 7 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. The Company offers quality merchandise that is generally priced below comparable
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. Store managers and sales associates are trained to provide prompt and courteous
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.
Merchandising
Merchandising
The Company seeks to offer a broad selection of high quality and exceptional value apparel and 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.
3
The Company’s merchandise lines include dressy, career, and casual sportswear, dresses, coats, shoes,
lingerie, costume jewelry, handbags, men’s wear and lines for kids and newborns. The Company primarily offers
exclusive merchandise with fashion and quality comparable to mall specialty stores at low prices, every day.
The Company believes that the collaboration of its merchandising team with an expanded 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.
As a part of its merchandising strategy, members of the Company’s merchandising staff 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.
Purchasing, Allocation and Distribution
Although the Company purchases merchandise from approximately 600 suppliers, most of its merchandise
is purchased from approximately 100 primary vendors. In fiscal 2014, purchases from the Company’s largest
vendor accounted for approximately 5% 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 purchases a majority of its
merchandise from domestic importers and vendors, which typically minimizes the time necessary to purchase
and obtain shipments. This enables the Company to react to merchandise trends in a more timely fashion. The
Company sources its remaining merchandise directly from manufacturers overseas. The Company opened its
own overseas sourcing operations in the fall of 2014 and plans to replace the Company’s current sourcing agent
with its new overseas sourcing operation beginning in 2015. Although a significant portion of the Company’s
merchandise is manufactured overseas, the Company does not expect that any economic, political 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, 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.”
An important component of the Company’s strategy is the allocation of merchandise to individual stores
based on an analysis of sales trends by merchandise category, customer profiles and climatic 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.
All merchandise is shipped directly to the Company’s distribution center in Charlotte, North Carolina,
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 generally. See “Risk Factors – Risks Relating To Our Business – A
disruption or shutdown of our centralized distribution center or transportation network could materially and
adversely affect our business and results of operations.”
4
Advertising
The Company uses television, in-store signage, graphics, a Company website, an e-commerce website and
social media as its primary advertising media. The Company’s total advertising expenditures were approximately
0.6%, 0.7% and 0.7% of retail sales for fiscal years 2014, 2013 and 2012, respectively.
Store Operations
The Company’s store operations management team consists of one director of stores, five territorial
managers, 17 regional managers and 147 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. Store managers receive a salary and all other store personnel
are paid on an hourly basis. Store managers, assistant managers and sales associates are eligible for monthly and
semi-annual bonuses based on achieving targeted goals for their store’s sales increases and shrinkage control.
The Company 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 an expanding store
base. The Company has training programs at each level of store operations. New store managers are trained in
training stores managed by experienced associates who have achieved superior results in meeting the Company’s
goals for store sales, payroll expense and shrinkage control. The type and extent of district manager training
varies depending on whether the district manager is promoted from within or recruited from outside the
Company.
Store Locations
Most of the Company’s stores are located in the southeastern United States in a variety of markets ranging
from small towns to large metropolitan areas with trade area populations of 20,000 or more. Stores average
approximately 4,500 square feet in size.
All of the Company’s stores are leased. Approximately 97% are located in strip shopping centers and 3% in
enclosed shopping malls. The Company typically locates stores in strip shopping centers anchored by a national
discounter, primarily Wal-Mart Supercenters, or market-dominant grocery stores. The Company’s strip center
locations provide ample parking and shopping convenience for its customers.
The Company’s store development activities consist of opening new stores in new and existing markets and
relocating selected existing stores to more desirable locations in the same market area. The following table sets
forth information with respect to the Company’s development activities since fiscal 2010:
Store Development
Fiscal Year
Number of Stores
Beginning of
Year
Number
Opened
Number
Closed
Number of Stores
End of Year
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,271
1,282
1,288
1,310
1,320
37
38
34
32
33
26
32
12
22
7
1,282
1,288
1,310
1,320
1,346
The Company expects to open 45 new stores during fiscal 2015. The Company anticipates closing up to 13
stores by year end.
5
The Company periodically reviews its store base to determine whether any particular store should be closed
based on its sales trends and profitability. The Company intends to continue this review process to identify
underperforming stores.
Credit and Layaway
Credit Card Program
The Company offers its own credit card, which accounted for 3.9%, 4.3% and 4.5% of retail sales in fiscal
2014, 2013 and 2012, respectively. The Company’s net bad debt expense was 4.5%, 3.9% and 4.3% of credit
sales in fiscal 2014, 2013 and 2012, 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.
Layaway Plan
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
customer picks up the merchandise or upon default of the layaway purchase. Recognition of restocking fees
occurs in the accounting period when the customer defaults on the layaway purchase. Layaway sales represented
approximately 4.5%, 4.5% and 4.8% of retail sales in fiscal 2014, 2013 and 2012, respectively.
Information Technology Systems
The Company’s information technology systems provide daily financial and merchandising 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.
Sales information is projected by merchandise category and, in some cases, is further projected and 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
The women’s retail apparel industry is highly competitive. The Company believes that the principal
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
the Company competes with mass merchandise chains, discount store chains, major
stores. In addition,
6
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
Due to the seasonal nature of the retail business, the Company has historically experienced and 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
A variety of laws affect the revolving credit card program offered by the Company. The Credit Card
Accountability Responsibility and Disclosure Act of 2009 (“The Act”) amended the Truth in Lending Act to
establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan.
The Act contained provisions addressing matters such as change in terms, notices, limits on fees, rate increases,
payment allocation and account disclosures. The Act requires creditors to provide consumers with account
disclosures that are timely and in a form that is readily understandable. The Federal Fair Credit Reporting Act
also requires certain disclosures to potential customers concerning credit information used as a basis to deny
credit. The Federal Equal Credit Opportunity Act and Regulation B promulgated thereunder prohibit lenders
from discrimination against any credit applicants, establish guidelines for gathering and evaluating credit
information and require written notification when credit is denied. Regulation AA, Unfair or Deceptive Acts or
Practices, establishes consumer complaint procedures and defines unfair or deceptive practices in extending
credit to consumers. The Federal Trade Commission has adopted or proposed various trade regulation rules
dealing with unfair credit and collection practices and the preservation of consumers’ claims and defenses. The
Company is also subject to the U.S. Patriot Act and the Bank Secrecy Act, which require the Company to
monitor account holders and account transactions, respectively. Additionally, the Gramm-Leach-Bliley Act
requires the Company to disclose, initially and annually, to its customers, the Company’s privacy policy as it
relates to a customer’s non-public personal information.
Associates
As of January 31, 2015, the Company employed approximately 10,000 full-time and part-time associates.
The Company also employs additional part-time associates during the peak retailing seasons. The Company is
not a party to any collective bargaining agreements and considers its associate relations to be good.
Item 1A. Risk Factors:
An investment in our common stock involves numerous types of risks. You should carefully consider 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, our business, financial condition and
operating 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.
7
Risks Relating To Our Business:
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 and
respond to changing merchandise trends and consumer preferences in a timely manner. Accordingly, any failure
by us to anticipate, identify and respond to changing fashion trends could adversely affect consumer acceptance
of our merchandise, which in turn could adversely affect our business 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.
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. As a result of this competition, including close-out sales and going-
out-of-business sales by other women’s apparel retailers, we may experience pricing pressures, increased
marketing expenditures, as well as loss of market share, which could materially and adversely affect our
business, results of operations and financial condition.
Unusual weather, natural disasters or similar events may adversely affect our sales or operations.
Extreme changes in weather, natural disasters or similar events can influence customer trends and shopping
habits. For example, heavy rainfall or other extreme weather conditions 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 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, 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 East Asia. We directly
import some of this merchandise and indirectly import the remaining merchandise from domestic vendors who
acquire the merchandise from foreign sources. As a result, political, 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 additional regulations or changes in duties, quotas,
tariffs, taxes 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. Our costs are also affected by currency
fluctuations. Any 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. In addition, increased energy and
transportation costs have caused us significant cost increases from time to time, and future adverse changes in
8
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. 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.
Our dependence on third-party vendors to manufacture and supply our merchandise subjects us to 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 “Our business operations subject us to legal compliance and litigation risks that could
result in increased costs or liabilities, divert our management’s attention or otherwise 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.
In October 2014, we established our own sourcing offices. Our experience with legal and 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 office outside the United States further 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 “Our business operations subject us to legal
compliance and litigation risks that could result in increased costs or liabilities, divert our management’s
attention or otherwise adversely affect 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 the 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, 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.
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 economic conditions and uncertainties, political conditions and uncertainties (such as those
currently being debated in the U.S. regarding budgetary, spending and tax policies), levels of employment, fuel,
energy and food costs, salaries and wage rates and other sources of income, tax rates, home values, consumer net
9
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, 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.
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 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 in or failure in the operation of our
information technology systems, or our failure to continue to upgrade or improve such systems could adversely
affect our business. 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.
The distribution of our products is centralized in one distribution center in Charlotte, North Carolina 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 shutdown or lose significant capacity for any reason, including but not limited to, any of the causes described
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.
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 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. Centers 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. 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
10
locations, or an increase in the cost of such desired space, could adversely affect consumer traffic and reduce our
sales and net earnings or increase our operating costs.
Our ability to open and operate new stores depends on many factors, some of which are beyond our control.
These factors include, but are not limited to, our ability to identify suitable store locations, negotiate acceptable
lease terms, 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 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 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.
A security breach that results in unauthorized disclosure of Company, employee or customer information
could adversely affect our costs, reputation and results of operations.
The protection of employee, company and customer data is critical to the Company. Any security 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
the risks of legal proceedings, disrupt its operations and otherwise adversely affect the Company’s business and
financial condition. Despite measures the Company has taken to protect confidential information, there is no
assurance that such measures will prevent the compromise of such information. If any such compromise or
unauthorized 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.
The Company’s failure to successfully operate its e-commerce website 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 website, 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 disclosure of customer information, as
discussed above under “A security breach that results in unauthorized disclosure of Company, employee or
customer information could adversely affect our costs, reputation and results of operations.” 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 an e-commerce website or fulfilling customer expectations, the
Company’s business and sales could be adversely affected.
11
Failure to attract, train, and retain skilled personnel could adversely affect our business and our financial
condition.
Like most retailers, we experience significant associate turnover rates, particularly among store sales
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.
In addition, we depend on key management personnel to oversee the operational divisions of the 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.
If we are unable to retain our key management and store associates or attract, train, or retain other 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.
Our business operations subject us to legal compliance and litigation risks that could result in increased
costs or liabilities, divert our management’s attention or otherwise adversely affect our business, results of
operations and financial condition.
tax, customer relations and personal
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 or may arise in the ordinary course of our business
and include, among other issues, employment issues, commercial disputes, intellectual property issues, product-
oriented matters,
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 and severe criminal or civil sanctions. 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. 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.
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 assure 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.
12
In addition, we cannot assure that others will not try to block the manufacture or sale of our 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.
We may experience market conditions that could adversely impact the valuation and liquidity of, and our
ability to access, our short-term investments and cash and cash equivalents.
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 impacted by factors beyond our
control, such as changes to credit ratings, rates of default, collateral value, discount rates, and strength and
quality of market credit and liquidity. 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 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.
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 will 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, and may continue to, increase our compliance
costs and place significant strain on our personnel, 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 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
requirements, particularly with new requirements under the Dodd-Frank Act that have yet to be implemented,
could significantly increase our compliance costs.
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 are entering into collaborative efforts to converge U.S. Generally Accepted
Accounting Principles with International Financial Reporting Standards. These changes in accounting rules or
regulations may 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.
13
Proposed changes to lease accounting standards may require lessees to capitalize operating leases in their
financial statements in the future. If adopted, this change will have a major impact on the Company as a retailer
with numerous leased locations. Such a change would require Cato to record a significant amount of lease-related
assets and liabilities on our balance sheet and make other changes to the recording and classification of lease-
related expenses on our statements of income and cash flows. This change could lead to the perception by
investors that we are highly leveraged and would change the calculation of numerous financial metrics and
measures of our performance and financial condition. This and other future changes to accounting rules or
regulations may adversely affect our reported results of operations and financial position.
Government enacted health care reform could adversely affect our business and results of operations.
In March 2010, United States government enacted healthcare reform legislation, known as the Patient
Protection and Affordable Care Act. This legislation and related guidance expands the Company’s responsibility
for providing employees with insurance coverage that meets minimum eligibility and coverage requirements or
face, alternatively, beginning in 2015, penalties for failure to offer this coverage. The legislation also includes
provisions that will impact the number of individuals with insurance coverage, the types of coverage and level of
health benefits that will be required and the amount of payment providers performing health care services will
receive. The full effect of this legislation is expected to continue to be phased in over several years, and could
increase healthcare expenses for the Company and have an adverse effect on the Company’s results of
operations. The Company is still assessing its potential impact on healthcare expenses. However, to the extent we
are required to provide health insurance benefits to our employees that are more extensive than the health
insurance benefits we currently provide and to a potentially larger proportion of our employees, or pay penalties
if we elect not to provide these benefits, our expenses will increase. If we are unable to offset these cost increases
by raising our prices or cutting other costs, such increased expenses could materially and adversely affect our
results of operations.
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
market price of our common stock.
Our business varies with general seasonal trends that are characteristic of the retail apparel industry. 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 market 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.
As of March 24, 2015, John P. D. Cato, Chairman, President and Chief Executive Officer, beneficially
controlled approximately 41% 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 control
of the Company, which could depress the market price of our common stock.
Conditions in the stock market generally, or particularly relating to our Company or common stock, may
materially and adversely affect the market price of our common stock and make its trading price more
volatile.
The trading price of our common stock at times has been, and is likely to continue to be, subject to
significant volatility. A variety of factors may cause the price of the common stock to fluctuate, perhaps
14
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 in the fashion and retail industry; conditions 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; negative 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
those
extreme price fluctuations that have at
companies. Such fluctuations and market volatility based on these or other factors may materially and adversely
affect the market price of our common stock.
times been unrelated to the operating performance of
Item 1B. Unresolved Staff Comments:
None.
Item 2. Properties:
The Company’s distribution center and general offices are located in a Company-owned building of
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 326 acres in York County, South Carolina, just south of Charlotte.
Item 3. Legal Proceedings:
From time to time, claims are asserted against the Company arising out of operations in the ordinary 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.
15
Item 3A. Executive Officers of the Registrant:
The executive officers of the Company and their ages as of March 27, 2015 are as follows:
Name
John P. D. Cato . . . . . . . . . . . . . . . . .
John R. Howe . . . . . . . . . . . . . . . . . .
Sally Almason . . . . . . . . . . . . . . . . . .
Michael T. Greer . . . . . . . . . . . . . . . .
Gordon Smith . . . . . . . . . . . . . . . . . .
Age
64
52
61
52
59
Position
Chairman, President and Chief Executive Officer
Executive Vice President, Chief Financial Officer
Executive Vice President, Merchandising Cato and
Versona concepts
Executive Vice President, Director of Stores
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 has been employed by the Company since 1986. Since September 2008, he has 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.
Sally Almason has been employed by the Company since 1995. Since November 2010, she has served as
Executive Vice President, Merchandising Cato and Versona concepts. From 2009 to 2010, she has served as
Executive Vice President, General Merchandise Manager for the Cato concept. From 2004 to 2009, she served as
Senior Vice President, General Merchandise Manager for the Cato concept. From 1995 to 2004, she served as
Vice President, Divisional Merchandise Manager for the Cato concept.
Michael T. Greer has been employed by the Company since 1985. Since May 2006, he has served as
Executive Vice President, Director of Stores of the Company. From November 2004 until May 2006, he served
as Senior Vice President, Director of Stores of the Company. From February 2004 until November 2004, he
served as Senior Vice President, Director of Stores of the Cato concept. From 2002 to 2003 Mr. Greer served as
Vice President, Director of Stores of the It’s Fashion concept. From 1999 to 2001 he served as Territorial Vice
President of Stores of the Cato concept and from 1996 to 1999 he served as Regional Vice President of Stores of
the Cato concept. From 1985 to 1995, Mr. Greer held various store operational positions in the Cato concept.
Gordon Smith has been employed by the Company since 1989. Since July 2011, he has served as 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:
No matters requiring disclosure.
16
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities:
Market & Dividend Information
The Company’s Class A Common Stock trades on the New York Stock Exchange (“NYSE”) under the
symbol CATO. Below is the market range and dividend information for the four quarters of fiscal 2014 and
2013:
2014
Price
High
Low
Dividend
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30.45
32.71
36.15
44.26
$25.77
27.70
31.30
34.84
$0.30
0.30
0.30
0.30
2013
Price
High
Low
Dividend
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27.66
28.72
30.75
34.28
$22.43
23.66
25.16
27.96
$0.05
0.05
0.05
0.05
As of March 27, 2015 the approximate number of record holders of the Company’s Class A Common Stock
was 5,000 and there were 2 record holders of the Company’s Class B Common Stock.
17
Stock Performance Graph
The following graph compares the yearly change in the Company’s cumulative total shareholder 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 Performance Graph
300
250
200
150
100
50
1/29/2010
1/28/2011
1/27/2012
2/1/2013
1/31/2014
1/30/2015
THE CATO CORPORATION
DOW JONES U.S. RETAILERS APPL INDEX
RUSSELL 2000 INDEX
THE CATO CORPORATION
STOCK PERFORMANCE 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
1/29/2010
1/28/2011
1/27/2012
2/1/2013
1/31/2014
1/30/2015
100
123
140
160
164
257
100
124
148
185
210
255
100
131
135
156
198
207
The graph assumes an initial investment of $100 on January 29, 2010, the last trading day prior to the
commencement of the Company’s 2010 fiscal year, and that all dividends were reinvested.
18
Issuer Purchases of Equity Securities
The following table summarizes the Company’s purchases of its common stock for the three months ended
January 31, 2015:
Period
Total Number
of Shares
Purchased
Average Price
Paid per Share (1)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (2)
Maximum Number
(or Approximate Dollar
Value) of Shares
that may yet be
Purchased Under
the Plans or Programs (2)
November 2014 . . . . . . . . . . . . . . . .
December 2014 . . . . . . . . . . . . . . . .
January 2015 . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
$—
—
—
$—
—
—
—
—
2,195,113
(1) Prices include trading costs.
(2) On May 20, 2014, the Board of Directors increased, by 2 million shares, the authorization to purchase
shares. During the fourth quarter ended January 31, 2015, the Company did not repurchase shares under this
program. As of the fourth quarter ended January 31, 2015, the Company had 2,195,113 shares remaining in
open authorizations. There is no specified expiration date for the Company’s repurchase program.
19
Item 6. Selected Financial Data:
Certain selected financial data for the five fiscal years ended January 31, 2015 have been derived from the
Company’s audited financial statements. The financial statements and Independent Registered Public Accounting
Firm’s integrated audit reports for the three 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)
2014
2013
2012
2011
2010
(Dollars in thousands, except per share data and selected operating data)
STATEMENT OF OPERATIONS DATA:
Retail sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold (exclusive of depreciation
$977,867
9,047
986,914
$910,500
9,533
920,033
$933,782
10,266
944,048
$920,622
10,836
931,458
$913,079
11,606
924,685
shown below) . . . . . . . . . . . . . . . . . . . . . . . . . .
600,569
571,246
581,961
574,176
563,262
Selling, general and administrative (exclusive of
depreciation shown below) . . . . . . . . . . . . . . . .
276,234
245,868
244,327
238,982
250,763
Selling, general and administrative percent of
retail sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . .
Cash dividends paid per share . . . . . . . . . . . . . . . .
SELECTED OPERATING DATA:
Stores open at end of year . . . . . . . . . . . . . . . . . . .
Average sales per store (2) . . . . . . . . . . . . . . . . . .
Average sales per square foot of selling space . . .
BALANCE SHEET DATA (at period end):
Cash, cash equivalents, short-term investments
28.3%
27.0%
26.2%
26.0%
27.5%
22,026
57
3,445
91,473
30,971
$ 60,502
2.15
$
2.15
$
1.200
$
21,825
75
3,267
84,286
29,964
$ 54,322
1.86
$
1.86
$
0.200
$
22,455
116
3,782
98,971
37,303
$ 61,668
2.11
$
2.11
$
2.980
$
21,825
21
3,817
100,271
35,437
$ 64,834
2.21
$
2.21
$
0.875
$
21,822
37
3,971
92,772
33,921
$ 58,851
2.00
$
2.00
$
0.720
$
1,346
$730,000
162
$
1,320
$692,000
154
$
1,310
$722,000
161
$
1,288
$716,000
162
$
1,282
$716,000
168
$
and restricted cash . . . . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . .
$260,610
260,550
608,278
380,198
$245,256
269,617
596,918
391,109
$194,646
230,612
532,646
345,234
$245,989
272,139
551,089
366,679
$234,851
251,523
532,759
334,014
(1) The fiscal year 2012 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.
20
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations:
Results of Operations
The table below sets forth certain financial data of the Company expressed as a percentage of retail sales for
the years indicated:
Fiscal Year Ended
Retail sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 31,
2015
February 1,
2014
February 2,
2013
100.0 %
0.9
100.9
61.4
28.3
2.3
0.4
9.4
6.2 %
100.0 %
1.0
101.0
62.7
27.0
2.4
0.4
9.3
6.0 %
100.0 %
1.1
101.1
62.3
26.2
2.4
0.4
10.6
6.6 %
Fiscal 2014 Compared to Fiscal 2013
Retail sales increased by 7.4% to $977.9 million in fiscal 2014 compared to $910.5 million in fiscal 2013.
The increase in retail sales in fiscal 2014 was largely attributable to a same-store sales increase of 4% from fiscal
2013 and non-comparable store sales including e-commerce. 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. E-commerce sales were less than 1% of sales in
fiscal 2014 and fiscal 2013 and are not yet included in the same-store sales calculation. 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 and layaway fees),
increased by 7.3% to $986.9 million in fiscal 2014 compared to $920.0 million in fiscal 2013. The Company
operated 1,346 stores at January 31, 2015 compared to 1,320 stores operated at February 1, 2014.
In fiscal 2014, the Company opened 33 new stores, relocated four stores and closed seven stores.
Other revenue in total decreased to $9.0 million from $9.5 million in fiscal 2013. The decrease resulted
primarily from lower credit revenue and finance charges offset by higher layaway charges.
Credit revenue of $5.8 million represented 0.6% of total revenue in fiscal 2014, a decrease compared to
fiscal 2013 credit revenue of $6.2 million or 0.7% of total revenue. The slight 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 bad debt expense, payroll, postage and other administrative
expenses and totaled $3.4 million in fiscal 2014 compared to $3.6 million in fiscal 2013. The decrease in these
expenses was principally due to a reduction in bad debt expense of $0.1 million. See Note 14 of Notes to
Consolidated Financial Statements for a schedule of credit-related expenses. Total credit segment income before
taxes decreased $0.3 million from $2.6 million in fiscal 2013 to $2.3 million in fiscal 2014 due to lower credit
revenue. Total credit income of $2.3 million in fiscal 2014 represented 2.5% of total income before taxes of
$91.5 million compared to total credit income of $2.6 million in fiscal 2013, which represented 3.1% of fiscal
2013 total income before taxes of $84.3 million.
Cost of goods sold was $600.6 million, or 61.4% of retail sales, in fiscal 2014 compared to $571.2 million,
or 62.7% of retail sales, in fiscal 2013. The decrease in cost of goods sold as a percentage of sales resulted
primarily from leveraging of merchandise and distribution costs due to higher sales of regular priced goods. Cost
21
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) increased by 11.2% to $377.3 million in
fiscal 2014 from $339.3 million in fiscal 2013. Gross margin as presented may not be comparable to that of other
companies.
Selling, general and administrative expenses (“SG&A”), which primarily include corporate and store
payroll, related payroll taxes and benefits, insurance, supplies, advertising, bank and credit card processing fees
and bad debts were $276.3 million in fiscal 2014 compared to $245.9 million in fiscal 2013, an increase of
12.4%. As a percent of retail sales, SG&A was 28.3% compared to 27.0% in the prior year. The increase in
SG&A as a percent of sales resulted primarily from an increase in incentive compensation, partially offset by
lower closed store and impairment costs.
Depreciation expense was $22.0 million in fiscal 2014 compared to $21.8 million in fiscal 2013.
Depreciation expense increased slightly from fiscal 2013 due to increases in store development, information
technology investments and home office renovations, partially offset by older stores and IT projects being fully
depreciated.
Interest and other income increased to $3.4 million in fiscal 2014 compared to $3.3 million in fiscal 2013.
Miscellaneous income and interest income were greater compared to fiscal 2013. See Note 2 of Notes to
Consolidated Financial Statements for further details.
Income tax expense was $31.0 million, or 3.2% of retail sales in fiscal 2014 compared to $30.0 million, or
3.3% of retail sales in fiscal 2013. The dollar increase resulted from higher pre-tax income, partially offset by a
lower effective tax rate. The effective tax rate was 33.9% in fiscal 2014 compared to 35.6% in fiscal 2013.
Fiscal 2013 Compared to Fiscal 2012
Retail sales decreased by 2.5% to $910.5 million in fiscal 2013 compared to $933.8 million in fiscal 2012.
The fiscal year ended February 1, 2014 contained 52 weeks versus 53 weeks in fiscal year ended February 2,
2013. The decrease in retail sales in fiscal 2013 was largely attributable to one fewer week of sales and a same-
store sales decrease of 3% from fiscal 2012, partially offset by sales from new stores. 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. E-commerce sales were less
than 1% of sales in fiscal 2013 and are not included in the same-store sales calculation. There were no e-
commerce sales in fiscal 2012. 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 and layaway fees), decreased by 2.5% to $920.0 million in fiscal 2013
compared to $944.0 million in fiscal 2012. The Company operated 1,320 stores at February 1, 2014 compared to
1,310 stores operated at February 2, 2013.
In fiscal 2013, the Company opened 32 new stores, relocated five stores and closed 22 stores. The Company
also launched its online shopping website, which is operated in-house.
Other revenue in total decreased to $9.5 million in fiscal 2013 from $10.3 million in fiscal 2012. The
decrease resulted primarily from lower credit revenue and finance charges and layaway charges.
Credit revenue of $6.2 million represented 0.7% of total revenue in fiscal 2013, a decrease compared to
fiscal 2012 credit revenue of $6.9 million or 0.7% of total revenue. The slight decrease in credit revenue was
22
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 bad debt expense, payroll, postage and other administrative
expenses and totaled $3.6 million in fiscal 2013 compared to $3.9 million in fiscal 2012. The decrease in these
expenses was principally due to a reduction in bad debt expense of $0.3 million. See Note 14 of Notes to
Consolidated Financial Statements for a schedule of credit-related expenses. Total credit segment income before
taxes decreased $ 0.4 million from $ 3.0 million in fiscal 2012 to $ 2.6 million in fiscal 2013 due to lower credit
revenue. Total credit income of $2.6 million in fiscal 2013 represented 3.1% of total income before taxes of
$84.3 million compared to total credit income of $3.0 million in fiscal 2012, which represented 3.0% of fiscal
2012 total income before taxes.
Cost of goods sold was $571.2 million, or 62.7% of retail sales, in fiscal 2013 compared to $582.0 million,
or 62.3% of retail sales, in fiscal 2012. The increase in cost of goods sold as a percent of retail sales resulted
primarily from higher occupancy 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 3.6% to $339.3 million in fiscal 2013 from $351.8 million in fiscal 2012. Gross
margin as presented may not be comparable to that of other companies.
Selling, general and administrative expenses (“SG&A”), which primarily include corporate and store
payroll, related payroll taxes and benefits, insurance, supplies, advertising, bank and credit card processing fees
and bad debts were $245.9 million in fiscal 2013 compared to $244.3 million in fiscal 2012, an increase of 0.6%.
As a percent of retail sales, SG&A was 27.0% compared to 26.2% in the prior year. The overall dollar increase in
SG&A resulted primarily from an increase in store impairment charges and incentive compensation, partially
offset by a decrease in payroll costs and advertising costs.
Depreciation expense was $21.8 million in fiscal 2013 compared to $22.5 million in fiscal 2012.
Depreciation expense decreased from fiscal 2012 due to older stores and IT projects being fully depreciated,
partially offset by investments in store development, information technology investments, and the home office
expansion.
Interest and other income decreased to $3.3 million in fiscal 2013 compared to $3.8 million in fiscal 2012
due to lower interest income driven by lower interest rates. Miscellaneous income and interest income were
lower compared to fiscal 2012. See Note 2 of Notes to Consolidated Financial Statements for further details.
Income tax expense was $30.0 million, or 3.3% of retail sales in fiscal 2013 compared to $37.3 million, or
4.0% of retail sales in fiscal 2012. The decrease resulted from a lower effective tax rate combined with lower
pre-tax income. The effective tax rate was 35.6% in fiscal 2013 compared to 37.7% in fiscal 2012, due to a
correction of an out of period adjustment in fiscal 2012.
Off-Balance Sheet Arrangements
Other than operating leases in the ordinary course of business, the Company is not a party to any off-balance
sheet arrangements.
Critical Accounting Policies
The Company’s accounting policies are more fully described in Note 1 to the 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
23
(“GAAP”) requires management to make estimates and assumptions about future events that affect the amounts
reported in the financial statements and accompanying notes. Future events and their effects cannot be
determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment.
Actual results inevitably will differ from those estimates, and such differences may be material to the financial
statements. The most significant accounting estimates inherent in the preparation of the Company’s financial
statements include the allowance for doubtful accounts, inventory shrinkage, the calculation of potential asset
impairment, workers’ compensation, general and auto insurance liabilities, reserves relating to self-insured health
insurance, and uncertain tax positions.
The Company’s critical accounting policies and estimates are discussed with the Audit Committee.
Allowance for Doubtful Accounts
The Company evaluates the collectability of accounts receivable and records an allowance for doubtful
accounts 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 significantly impacted by
changes in bad debt write-off experience and the aging of the accounts receivable portfolio.
Merchandise Inventories
The Company’s inventory is valued using the weighted-average cost method and is stated at the lower of
cost or market. 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.
Lease Accounting
The Company recognizes rent expense on a straight-line basis over the lease term as defined in ASC 840 -
Leases. Our lease agreements generally provide for scheduled rent increases during the lease term or rent
holidays, including rental payments commencing at a date other than the date of initial occupancy. We include
any rent escalation and rent holidays in our straight-line rent expense. In addition, we record landlord allowances
for normal tenant improvements as deferred rent, which is included in other noncurrent liabilities in the
consolidated balance sheets. This deferred rent is amortized over the lease term as a reduction of rent expense.
Also, leasehold improvements are amortized using the straight-line method over the shorter of their estimated
useful lives or the related lease term. See Note 1 to the Consolidated Financial Statements for further information
on the Company’s accounting for its leases.
Impairment of Long-Lived Assets
The Company primarily invests in property and equipment 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 assets, recording an impairment charge for the amount by which carrying value
exceeds fair value, if necessary, when the Company decides to close the store or otherwise determines that future
estimated undiscounted cash flows associated with those 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
cash flows, estimated future sales growth, real estate development in the area and perceived local market
conditions that can be difficult to predict and may be subject to change. In addition, the Company regularly
evaluates its computer-related and other long-lived assets and may accelerate depreciation over the revised useful
life if the asset is expected to be replaced or has limited future value. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts, and
any resulting gain or loss is reflected in income for that period.
24
Insurance Liabilities
The Company is primarily self-insured for health care, workers’ compensation and general liability 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 health care, 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.
Uncertain Tax Positions
The Company records liabilities for uncertain tax positions principally 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 regulations 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.
Revenue Recognition
While the Company’s recognition of revenue is predominantly derived from routine retail transactions and
does not involve significant judgment, revenue recognition represents an important accounting policy of the
Company. As discussed in Note 1 to the Consolidated Financial Statements, the Company recognizes sales from
stores at the point of purchase when the customer takes possession of the merchandise and pays for the purchase,
generally with cash or credit. E-commerce sales are recorded when the risk of loss is transferred to the customer.
Sales from purchases made with Cato credit, gift cards and layaway sales are also recorded when the customer
takes possession of the merchandise. Gift cards are recorded as deferred revenue within accrued expenses until
they are redeemed or forfeited. Layaway sales are recorded as deferred revenue within accrued expenses until the
customer takes possession or forfeits the merchandise. Gift cards do not have expiration dates. A provision is
made for estimated product returns based on sales volumes and the Company’s experience; actual returns have
not varied materially from amounts provided historically.
The Company recognizes income on unredeemed gift cards (“gift card breakage”) as a component of other
income. Gift card breakage is determined after 60 months when the likelihood of the remaining balances being
redeemed is remote based on our historical redemption data and there is no legal obligation to remit the
remaining balances to relevant jurisdictions. Gift card breakage income is analyzed and recognized on a quarterly
basis and is not expected to be material.
Finance revenue on the Company’s private label credit card portfolio is recognized as earned under the
interest method. Late fees are recognized as earned, less provisions for estimated uncollectible fees.
Liquidity, Capital Resources and Market Risk
The Company has consistently maintained a strong liquidity position. Cash provided by operating activities
during fiscal 2014 was $117.5 million as compared to $93.0 million in fiscal 2013. These amounts have enabled
the Company to fund its regular operating needs, capital expenditure program, cash dividend payments and
selective repurchases of the Company’s common stock.
25
Cash provided by operating activities for these periods was primarily generated by earnings adjusted for
depreciation, deferred taxes, and changes in working capital. The increase of $24.5 million for fiscal 2014 over
fiscal 2013 is primarily due to a larger decrease in inventory from the end of the fiscal year and an increase in net
income and accrued expenses, partially offset by an increase in accounts receivable and prepaid and other assets.
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 proposed capital expenditures, dividends and other operating requirements for fiscal 2015 and for the
foreseeable future.
At January 31, 2015, the Company had working capital of $260.6 million compared to $269.6 million and
$230.6 million at February 1, 2014 and February 2, 2013, respectively. Additionally,
the Company had
$0.9 million, $1.0 million, and $1.0 million invested in privately managed investment funds and other
miscellaneous equities for fiscal years 2014, 2013 and 2012, respectively, which are reported under Other assets
in the Consolidated Balance Sheets.
At January 31, 2015, the Company had an unsecured revolving credit agreement, which provided for
borrowings of up to $35.0 million less the balance of revocable letters of credit discussed below. The revolving
credit agreement is committed until August 2015. 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 31, 2015. There were no borrowings outstanding under this credit facility during the fiscal year ended
January 31, 2015 or the fiscal year ended February 1, 2014.
The Company had no outstanding revocable letters of credit relating to purchase commitments at
January 31, 2015. The Company had approximately $0.4 million and $2.9 million of revocable letters of credit at
February 1, 2014 and February 2, 2013, respectively.
Expenditures for property and equipment totaled $28.9 million, $31.5 million and $45.2 million in fiscal
2014, 2013 and 2012, respectively. The expenditures for fiscal 2014 were primarily for store development,
investments in new technology and general office expansion. In fiscal 2015, the Company is planning to invest
approximately $38.1 million in capital expenditures. In addition, the Company has planned for additional
investments in technology and the renovation of the current office space.
Net cash used in investing activities totaled $27.7 million for fiscal 2014 compared to net cash used in
investing activities of $32.9 million for fiscal 2013 and net cash provided by investing activities of $3.2 million
for fiscal 2012. The decrease in cash used was due primarily to lower expenditures for property and equipment
and purchases of short-term investments, partially offset by sales of short-term investments and other assets.
On February 26, 2015, the Board of Directors maintained the quarterly dividend at $0.30 per share, which
was paid on March 25, 2015.
The Company does not use derivative financial instruments.
See Note 4, “Fair Value Measurements,” for information regarding the Company’s financial assets that are
measured at fair value.
The Company’s investment portfolio was primarily invested in corporate bonds and tax-exempt and taxable
governmental debt securities held in managed accounts with underlying ratings of A or better at January 31,
2015. The state, municipal and corporate bonds have contractual maturities which range from 15 days to 6.5
years. The U.S. Treasury Notes and Certificates of Deposit have contractual maturities which range from 43 days
to 2.1 years. These securities are classified as available-for-sale and are recorded as Short-term investments,
Restricted cash and investments and Other assets on the accompanying Consolidated Balance Sheets. These
assets are carried at fair value with unrealized gains and losses reported net of taxes in Accumulated other
comprehensive income.
26
Additionally, at January 31, 2015, the Company had $0.3 million of privately managed funds and $0.6
million of corporate equities. During the fourth quarter of 2014, the Company had its Auction Rate Security
(“ARS”) redeemed at par. All of these assets are recorded within Other assets in the Consolidated Balance
Sheets. At February 1, 2014, the Company had $0.4 million of privately managed funds, $0.6 million of
corporate equities, and a single ARS of $3.1 million, all of which are recorded within Other assets in the
Consolidated Balance Sheets.
Level 1 category securities are measured at fair value using quoted active market prices. Level 2 investment
securities include corporate and municipal bonds for which quoted prices may not be available on active
exchanges for identical instruments. Their fair value is principally based on market values determined by
management with assistance of a third-party pricing service. Since quoted prices in active markets for identical
assets are not available, these prices are determined by the pricing service using observable market information
such as quotes from less active markets and/or quoted prices of securities with similar characteristics, among
other factors.
The Company’s privately managed funds consist of two types of funds. The privately managed funds cannot
be redeemed at net asset value at a specific date without advance notice. As a result, the Company has classified
the investments as Level 3.
Deferred compensation plan assets consist of life insurance policies. These life insurance policies are valued
based on the cash surrender value of the insurance contract, which is determined based on such factors as the fair
value of the underlying assets and discounted cash flow and are therefore classified within Level 3 of the
valuation hierarchy. The Level 3 liability associated with the life insurance policies represents a deferred
compensation obligation, the value of which is tracked via underlying insurance funds. These funds are designed
to mirror existing mutual funds and money market funds that are observable and actively traded. Cash surrender
values are provided by third parties and reviewed for reasonableness by the Company.
The following table shows the Company’s obligations and commitments as of January 31, 2015, to make
future payments under noncancellable contractual obligations (in thousands):
Contractual Obligations (1)
Total
2015
2016
2017
2018
2019
Thereafter
Payments Due During One Year Fiscal Period Ending
. . . . . .
Merchandise letters of credit
Operating leases . . . . . . . . . . . . . . . .
Land Commitments . . . . . . . . . . . . .
$ — $ — $ — $ — $ — $ — $ —
18,612
203,776
—
5,000
65,330
5,000
22,525
—
50,109
—
34,775
—
12,425
—
Total Contractual Obligations . . . . .
$208,776
$70,330
$50,109
$34,775
$22,525
$12,425
$18,612
(1)
In addition to the amounts shown in the table above, $9.4 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, Recent Accounting Pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk:
The Company is subject to market rate risk from exposure to changes in interest rates based on its financing,
investing and cash management activities, but the Company does not believe such exposure is material.
27
Item 8. Financial Statements and Supplementary Data:
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Page
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29
Consolidated Statements of Income and Comprehensive Income for the fiscal years ended
January 31, 2015, February 1, 2014 and February 2, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at January 31, 2015 and February 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2015, February 1, 2014 and
February 2, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 31, 2015, February 1,
2014 and February 2, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II — Valuation and Qualifying Accounts for the fiscal years ended January 31, 2015, February 1,
2014 and February 2, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
31
32
33
34
64
28
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
The Cato Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income
and comprehensive income, stockholders’ equity and cash flows present fairly, in all material respects, the
financial position of The Cato Corporation and its subsidiaries at January 31, 2015 and February 1, 2014, and the
results of their operations and their cash flows for each of the three years in the period ended January 31, 2015 in
conformity with accounting principles generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of January 31, 2015, based on criteria established in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for these financial statements and financial statement schedule, 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 these financial statements, on
the financial statement schedule, and on the Company’s internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. 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.
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 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.
internal control over financial reporting may not prevent or detect
Because of its inherent
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.
limitations,
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 27, 2015
29
THE CATO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
January 31,
2015
Fiscal Year Ended
February 1,
2014
February 2,
2013
(Dollars in thousands, except per share data)
REVENUES
Retail sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (principally finance charges, late fees and layaway
$977,867
$910,500
$933,782
charges)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,047
9,533
10,266
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
986,914
920,033
944,048
COSTS AND EXPENSES, NET
Cost of goods sold (exclusive of depreciation shown below) . . . . . . . .
Selling, general and administrative (exclusive of depreciation shown
below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
600,569
571,246
581,961
276,234
22,026
57
(3,445)
245,868
21,825
75
(3,267)
244,327
22,455
116
(3,782)
Cost and expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
895,441
835,747
845,077
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91,473
30,971
84,286
29,964
98,971
37,303
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 60,502
$ 54,322
$ 61,668
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on available-for-sale securities, net of deferred
income taxes of $5, ($26), and ($69) for fiscal 2014, 2013 and 2012,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
2.15
2.15
1.20
$
$
$
1.86
1.86
0.20
$
$
$
2.11
2.11
2.98
$ 60,502
$ 54,322
$ 61,668
8
(43)
(115)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 60,510
$ 54,279
$ 61,553
See notes to consolidated financial statements.
30
THE CATO CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $1,542 at
January 31, 2015 and $1,743 at February 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchandise inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment — net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 31,
2015
February 1,
2014
(Dollars in thousands)
$ 93,946
162,185
4,479
$ 79,427
161,128
4,701
41,023
137,549
4,291
10,978
454,451
135,181
3,363
15,283
39,224
150,861
4,720
6,687
446,748
141,129
1,373
7,668
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$608,278
$596,918
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued bonus and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities (primarily deferred rent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ Equity: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock, $100 par value per share, 100,000 shares authorized, none issued . . .
Class A common stock, $.033 par value per share, 50,000,000 shares authorized;
26,174,684 and 27,498,216 shares issued at January 31, 2015 and February 1, 2014,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible Class B common stock, $.033 par value per share, 15,000,000 shares
$111,674
48,404
19,567
14,256
193,901
34,179
—
$111,514
45,763
4,999
14,855
177,131
28,678
—
—
—
873
917
authorized; 1,743,525 shares at January 31, 2015 and February 1, 2014 . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58
85,029
293,452
786
58
80,463
308,893
778
Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
380,198
391,109
Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$608,278
$596,918
See notes to consolidated financial statements.
31
THE CATO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase premium and premium amortization of investments . . . . . . . . .
Share based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based compensation . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of property and equipment
. . . . . . . . . . . . . . . . . . . . . . .
Impairment of store assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities which provided (used) cash:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchandise inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable, accrued expenses and other liabilities . . . . . . . . . . .
Year Ended
January 31,
2015
February 1,
2014
February 2,
2013
(Dollars in thousands)
$ 60,502
$ 54,322
$ 61,668
22,026
875
(104)
3,582
(243)
(1,563)
1,288
2,249
(2,674)
13,312
(6,078)
(356)
24,643
21,825
1,009
(873)
3,007
(88)
(4,766)
1,665
2,646
(217)
(10,123)
2,969
651
20,932
22,455
1,259
—
2,796
(509)
(5,540)
1,747
2,011
1,749
(10,356)
(6,730)
(343)
9,103
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
117,459
92,959
79,310
Investing Activities:
Expenditures for property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in restricted cash and investments provided (used) . . . . . . . . . . . . . .
(28,901)
(49,820)
48,850
(1,267)
3,227
222
(31,542)
(65,455)
62,766
—
—
1,298
(45,175)
(108,662)
156,642
—
1,041
(674)
Net cash (used) in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(27,689)
(32,933)
3,172
Financing Activities:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from employee stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based compensation . . . . . . . . . . . . . . . . . . .
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(33,886)
(42,129)
510
243
11
(5,853)
(6,429)
394
88
132
(87,222)
(367)
723
509
51
Net cash provided (used) in financing activities . . . . . . . . . . . . . . . . . . . . . .
(75,251)
(11,668)
(86,306)
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,519
79,427
—
48,358
31,069
—
(3,824)
34,893
—
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 93,946
$ 79,427
$ 31,069
Non-cash investing activity
Accrued plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,780
$ 4,315
$
2,819
See notes to consolidated financial statements.
32
THE CATO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Class A
Common
Stock
Convertible
Class B
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity
$914
$58
$72,030
$292,741
$ 936
$366,679
(Dollars in thousands)
Balance — January 28, 2012 . . . . . . . . . . . . . . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized losses on available-for-sale securities,
net of deferred income tax benefit of ($69) . . . . . .
Dividends paid ($2.980 per share) . . . . . . . . . . . . . . . . .
Class A common stock sold through employee stock
purchase plan — 32,995 shares . . . . . . . . . . . . . . . . .
Class A common stock sold through stock option
plans — 5,750 shares . . . . . . . . . . . . . . . . . . . . . . . . .
Class A common stock issued through restricted stock
grant plans 98,743 shares . . . . . . . . . . . . . . . . . . . . .
Windfall tax benefit from equity compensation
plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase and retirement of treasury shares – 12,997
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance — February 2, 2013 . . . . . . . . . . . . . . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains on available-for-sale securities, net
of deferred income tax benefit of ($26) . . . . . . . . .
Dividends paid ($.20 per share) . . . . . . . . . . . . . . . . . . .
Class A common stock sold through employee stock
purchase plan — 19,070 shares . . . . . . . . . . . . . . . . .
Class A common stock sold through stock option
plans — 9,050 shares . . . . . . . . . . . . . . . . . . . . . . . . .
Class A common stock issued through restricted stock
grant plans 198,017 shares . . . . . . . . . . . . . . . . . . . .
Windfall tax benefit from equity compensation
plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance — February 1, 2014 . . . . . . . . . . . . . . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains on available-for-sale securities, net
of deferred income tax liability of $5 . . . . . . . . . .
Dividends paid ($1.20 per share) . . . . . . . . . . . . . . . . . .
Class A common stock sold through employee stock
purchase plan — 20,941 shares . . . . . . . . . . . . . . . . .
Class A common stock sold through stock option
plans — 500 shares . . . . . . . . . . . . . . . . . . . . . . . . . .
Class A common stock issued through restricted stock
grant plans 164,927 shares . . . . . . . . . . . . . . . . . . . .
Windfall tax benefit from equity compensation
plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
1
—
3
—
$918
—
—
—
1
—
7
—
—
—
—
1
—
5
—
Repurchase and retirement of treasury shares —
271,296 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9)
Repurchase and retirement of treasury shares —
1,509,965 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(50)
—
—
—
—
—
—
—
—
—
—
—
849
562
2,644
509
—
61,668
(87,222)
—
—
23
—
(367)
—
(115)
—
—
—
—
—
—
61,668
(115)
(87,222)
850
562
2,670
509
(367)
$58
$76,594
$266,843
$ 821
$345,234
—
—
—
—
—
—
—
—
—
—
—
463
145
2,915
346
—
54,322
—
(5,853)
—
—
1
(6,420)
—
(43)
—
—
—
—
—
—
54,322
(43)
(5,853)
464
145
2,923
346
(6,429)
—
—
—
—
—
—
—
—
—
—
—
600
28
3,449
489
60,502
—
(33,886)
—
—
20
—
—
(42,077)
—
8
—
—
—
—
—
—
60,502
8
(33,886)
601
28
3,474
489
(42,127)
$917
$58
$80,463
$308,893
$ 778
$391,109
Balance — January 31, 2015 . . . . . . . . . . . . . . . . . . .
$873
$58
$85,029
$293,452
$ 786
$380,198
See notes to consolidated financial statements.
33
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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: The Company has two reportable segments — the 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” and 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.
Correction of Prior Period Error: During the fourth quarter of 2013, the Company discovered that we
had improperly netted our purchases and sales activity for our investments within cash flows related to investing
activities in prior periods. In addition, we had also improperly classified the premiums and amortization of
premiums on those investments in cash flows related to investing activities when they should have been in cash
flows related to operating activities. The presentation of these amounts was corrected in the consolidated
financial statements for the year ended February 1, 2014 and was immaterial to all prior periods presented.
In connection with the preparation of our Consolidated Financial Statements for the year ended February 2,
2013, the Company recorded the following out of period adjustments: (1) corrected its accounting for accrued
landlord insurance by recording additional pre-tax expense of $1.2 million in fiscal 2012 which originated prior
to fiscal year 2008; (2) corrected fiscal year 2011 federal income tax expense by recording an additional $1.1
million of income tax expense in fiscal 2012; and (3) corrected prior period state income tax expense of $0.6
million in fiscal 2012, of which $0.5 million originated in fiscal 2011 and $0.1 million in fiscal 2010. The
Company has assessed the materiality of these errors and concluded that the errors were not material to any of
the current or previously issued financial statements.
Use of Estimates: The preparation of the Company’s financial statements in conformity with 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 doubtful accounts, 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 equivalents consist of highly liquid investments with original
maturities of three months or less.
Short-Term Investments:
Investments with original maturities beyond three months are classified 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.
34
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted Cash and Investments: The Company has $4.5 million and $4.7 million in escrow at
January 31, 2015 and February 1, 2014, 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 investments on the Consolidated Balance Sheets.
Supplemental Cash Flow Information:
Income tax payments, net of refunds received, for the fiscal
years ended January 31, 2015, February 1, 2014 and February 2, 2013 were $37,888,000, $34,238,000 and
$43,124,000, respectively.
Inventories: Merchandise inventories are stated at the lower of cost or market as determined by the
weighted-average cost method.
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. The Company has
changed the purpose of land that was previously classified as property and equipment to land held for investment
and is now classified within Other assets as of January 31, 2015. 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:
Classification
Land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixtures and equipment
Information technology equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated
Useful Lives
10 years
30-40 years
5-10 years
3-10 years
3-10 years
Impairment of Long-Lived Assets
The Company invests in property 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 assets, recording an impairment charge for the amount by which the carrying
value exceeds the fair value, if necessary, when the Company decides to close the store or otherwise determines
that future estimated undiscounted cash flows associated with those 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 cash flows, estimated future sales growth, real estate development in the area and perceived local
market conditions that can be difficult to predict and may be subject to change. Store asset impairment charges
incurred in fiscal 2014 were $2,249,000. Store asset impairment charges incurred in fiscal 2013 were $2,646,000.
Store asset impairment charges incurred in fiscal 2012 were $2,011,000. In addition, the Company regularly
evaluates its computer-related and other long-lived assets and may accelerate depreciation over the revised useful
life if the asset is expected to be replaced or has limited future value. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts, and
any resulting gain or loss is reflected in income for that period.
Other Assets
Other assets are comprised of
long-term assets, primarily insurance contracts related to deferred
compensation assets and land held for investment purposes. During the fourth quarter of 2014, the Company had
35
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
its ARS redeemed at par for $3,450,000. Prior year amounts have been reclassed to reflect
presentation on the Consolidated Statements of Cash Flows.
the current
We have revised our 2012 Consolidated Statements of Cash Flows to correctly classify approximately $1.0
million of cash inflows related to the sales of other assets previously reported in operating activities as investing
activities. This amount is immaterial to our previously issued financial statements.
Leases
The Company determines the classification of leases consistent with ASC 840 — Leases. 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.
For construction allowances, the Company records a deferred rent liability in Other noncurrent liabilities on
the Consolidated Balance Sheets and amortizes the deferred rent over the term of the respective lease as a
reduction to Cost of goods sold on the Consolidated Statements of Income and Comprehensive Income.
For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date
other than the date of initial occupancy, the Company records minimum rental expenses on a straight-line basis
over the terms of the leases.
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.
In fiscal 2014, 2013 and 2012, the Company recognized $553,000, $370,000 and $500,000, respectively, of
income on unredeemed gift cards (“gift card breakage”) as a component of Other income on the Consolidated
Statements of Income and Comprehensive Income. Gift card breakage is determined after 60 months when the
likelihood of the remaining balances being redeemed is remote based on our historical redemption data and there
is no legal obligation to remit the remaining balances to relevant jurisdictions.
The Company offers its own credit card to customers. All credit activity is performed by the Company’s
wholly-owned subsidiaries. None of the credit card receivables are secured. Finance income is recognized as
earned under the interest method and late charges are recognized in the month in which they are assessed, net of
provisions for estimated uncollectible amounts. The Company evaluates the collectability of accounts receivable
and records an allowance for doubtful accounts based on the aging of accounts and estimates of actual write-offs.
Finance revenue on the Company’s private label credit card portfolio is recognized as earned under the interest
method. Late fees are recognized as earned, less provisions for estimated uncollectible fees.
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-
36
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
Advertising: Advertising costs are expensed in the period in which they are incurred. Advertising expense
the fiscal years ended January 31,
was approximately $5,528,000, $5,741,000 and $6,186,000 for
2015, February 1, 2014 and February 2, 2013, respectively.
Stock Repurchase Program: For fiscal year ending January 31, 2015, the Company had 2,195,113 shares
remaining in open authorization. There is no specified expiration date for the Company’s repurchase program.
Share repurchases are recorded in Retained earnings, net of par value.
Earnings Per Share: ASC 260 — Earnings Per Share, requires dual presentation of basic EPS and
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 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 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.
January 31,
2015
Fiscal Year Ended
February 1,
2014
(Dollars in thousands)
February 2,
2013
Numerator
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings allocated to non-vested equity awards . . . .
Net earnings available to common stockholders . . . .
$
$
60,502
(1,180)
59,322
$
$
54,322
(884)
53,438
$
$
61,668
(894)
60,774
Denominator
Basic weighted average common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,600,350
28,767,615
28,796,815
Dilutive effect of stock options and restricted
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,903
5,063
3,563
Diluted weighted average common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,604,253
28,772,678
28,800,378
Net income per common share
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . .
$
$
2.15
2.15
$
$
1.86
1.86
$
$
2.11
2.11
37
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
Unrecognized tax benefits for uncertain tax positions 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. Potential accrued interest and penalties related to unrecognized tax benefits within operations are
recognized as a component of earnings before 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.
Closed Store Lease Obligations: At the time stores are closed, provisions are made for the rentals
required to be paid over the remaining lease terms on a discounted cash flow basis, reduced by any expected
sublease rentals.
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 for employee healthcare, $350,000 for workers’
compensation and $250,000 for general liability.
Fair Value of Financial Instruments: The Company’s carrying values of financial instruments, such 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: The Company records compensation expense associated with restricted
stock and other forms of equity compensation in accordance with ASC 718 — Compensation — Stock
Compensation. Compensation cost associated with stock awards recognized in all years presented 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.
Recent Accounting Pronouncements
In the first quarter of fiscal 2014, the Company adopted new accounting guidance which eliminates diversity
in practice on the presentation of unrecognized tax benefits when a net operating loss, a similar tax loss, or tax
credit carry-forward exists at the reporting date. The new guidance may affect balance sheet classification of
certain unrecognized tax benefits and had no impact on the Company’s consolidated results of operations or cash
flows.
In May 2014, the Financial Accounting Standards Board issued an accounting standards update that will
supersede most current revenue recognition guidance and modify the accounting treatment for certain costs
38
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
associated with revenue generation. The core principle of the revised revenue recognition standard is that an
entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those good or services, and provides
several steps to apply to achieve that principle. In addition, the new guidance enhances disclosure requirements
to include more information about specific revenue contracts entered into by the entity. The standard is effective
for the Company’s first quarter of its 2017 fiscal year; early adoption is not permitted. The Company is assessing
what impacts this new standard will have on its Consolidated Financial Statements.
2.
Interest and Other Income:
The components of Interest and other income are shown below (in thousands):
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain on investment sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 31,
2015
February 1,
2014
February 2,
2013
$
(21)
(1,266)
(1,936)
(222)
$(3,445)
$
(17)
(1,288)
(1,686)
(276)
$
(19)
(1,518)
(1,852)
(393)
$(3,267)
$(3,782)
3. Short-Term Investments:
At January 31, 2015, the Company’s investment portfolio was primarily invested in 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.
The table below reflects gross accumulated unrealized gains (losses) in short-term investments at
January 31, 2015 and February 1, 2014 (in thousands):
January 31, 2015
February 1, 2014
Debt securities
issued by various
states of the
United States
and political
subdivisions of
the states
Corporate
debt
securities
Total
Debt securities
issued by various
states of the
United States
and political
subdivisions of
the states
Corporate
debt
securities
Total
Cost basis . . . . . . . . . . . . . . . . .
Unrealized gains . . . . . . . . . . . .
Unrealized (loss) . . . . . . . . . . . .
$147,227
906
—
$13,996 $161,223
962
—
56
—
$157,358
971
—
$2,795 $160,153
975
—
4
—
Estimated fair value . . . . . . . . .
$148,133
$14,052 $162,185
$158,329
$2,799 $161,128
39
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 31, 2015 and February 1, 2014 (in thousands):
Security Type
January 31, 2015
February 1, 2014
Unrealized
Gain/(Loss)
Deferred
Tax
Benefit
Unrealized
Net Gain/
(Loss)
Unrealized
Gain/(Loss)
Deferred
Tax
Benefit
Unrealized
Net Gain/
(Loss)
Short-Term Investments . . . . . . .
Equity Investments . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . .
$ 963
297
$1,260
$(362)
(112)
$(474)
$601
185
$786
$ 978
270
$1,248
$(368)
(102)
$(470)
$610
168
$778
4. Fair Value Measurements:
The following tables set forth information regarding the Company’s financial assets that are measured at fair
value (in thousands) as of January 31, 2015 and February 1, 2014:
Description
Assets:
State/Municipal Bonds . . . . . . . . . . . . . . . . .
Corporate Bonds . . . . . . . . . . . . . . . . . . . . . .
Auction Rate Securities (ARS)
. . . . . . . . . .
U.S. Treasury Notes . . . . . . . . . . . . . . . . . . .
Cash Surrender Value of Life Insurance . . .
Privately Managed Funds . . . . . . . . . . . . . . .
Corporate Equities . . . . . . . . . . . . . . . . . . . .
Certificates of Deposit . . . . . . . . . . . . . . . . .
January 31,
2015
$148,650
14,052
—
3,758
4,558
306
613
100
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$172,037
Liabilities:
Prices in
Active
Markets for
Identical
Assets
Level 1
$ —
—
—
3,758
—
—
613
100
$4,471
Significant
Other
Observable
Inputs
Level 2
$148,650
14,052
—
—
—
—
—
—
$162,702
Significant
Unobservable
Inputs
Level 3
$ —
—
—
—
4,558
306
—
—
$ 4,864
Deferred Compensation . . . . . . . . . . . . . . . .
(4,272)
—
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . .
$ (4,272)
$ —
$
—
—
(4,272)
$(4,272)
40
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Description
State/Municipal Bonds . . . . . . . . . . . . . . . . . . .
Corporate Bonds . . . . . . . . . . . . . . . . . . . . . . . .
Auction Rate Securities (ARS)
. . . . . . . . . . . .
U.S. Treasury Notes . . . . . . . . . . . . . . . . . . . . .
Cash Surrender Value of Life Insurance . . . . .
Privately Managed Funds . . . . . . . . . . . . . . . . .
Corporate Equities . . . . . . . . . . . . . . . . . . . . . .
Certificates of Deposit . . . . . . . . . . . . . . . . . . .
February 1,
2014
$159,074
2,799
3,140
3,405
2,957
392
585
100
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$172,452
Liabilities:
Prices in
Active
Markets for
Identical
Assets
Level 1
$ —
—
—
3,405
—
—
585
100
$4,090
Significant
Other
Observable
Inputs
Level 2
$159,074
2,799
—
—
—
—
—
—
$161,873
Significant
Unobservable
Inputs
Level 3
$ —
—
3,140
—
2,957
392
—
—
$ 6,489
Deferred Compensation . . . . . . . . . . . . . .
(3,298)
—
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . .
$ (3,298)
$ —
$
—
—
(3,298)
$(3,298)
The Company’s investment portfolio was primarily invested in corporate bonds and tax-exempt and taxable
governmental debt securities held in managed accounts with underlying ratings of A or better at January 31,
2015. The state, municipal and corporate bonds have contractual maturities which range from 15 days to 6.5
years. The U.S. Treasury Notes and Certificates of Deposit have contractual maturities which range from 43 days
to 2.1 years. These securities are classified as available-for-sale and are recorded as Short-term investments,
Restricted cash and investments and Other assets on the accompanying Consolidated Balance Sheets. These
assets are carried at fair value with unrealized gains and losses reported net of taxes in Accumulated other
comprehensive income.
Additionally, at January 31, 2015, the Company had $0.3 million of privately managed funds and $0.6
million of corporate equities. During the fourth quarter of 2014, the Company had its Auction Rate Security
(“ARS”) redeemed at par. All of these assets are recorded within Other assets in the Consolidated Balance
Sheets. At February 1, 2014, the Company had $0.4 million of privately managed funds, $0.6 million of
corporate equities, and a single ARS of $3.1 million, all of which are recorded within Other assets in the
Consolidated Balance Sheets.
Level 1 category securities are measured at fair value using quoted active market prices. Level 2 investment
securities include corporate and municipal bonds for which quoted prices may not be available on active
exchanges for identical instruments. Their fair value is principally based on market values determined by
management with assistance of a third-party pricing service. Since quoted prices in active markets for identical
assets are not available, these prices are determined by the pricing service using observable market information
such as quotes from less active markets and/or quoted prices of securities with similar characteristics, among
other factors.
The Company’s privately managed funds consist of two types of funds. The privately managed funds cannot
be redeemed at net asset value at a specific date without advance notice. As a result, the Company has classified
the investments as Level 3.
Deferred compensation plan assets consist of life insurance policies. These life insurance policies are valued
based on the cash surrender value of the insurance contract, which is determined based on such factors as the fair
41
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. These funds are designed
to mirror existing mutual funds and money market funds that are observable and actively traded. Cash surrender
values are provided by third parties and reviewed for reasonableness by the Company.
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 31, 2015 and February 1, 2014 (in thousands):
Beginning Balance at February 1, 2014 . . .
Redemptions . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . .
Total gains or (losses) . . . . . . . . . . . . . .
Included in interest and other income
(or changes in net assets) . . . . . . . .
Included in other comprehensive
income . . . . . . . . . . . . . . . . . . . . . .
Fair Value Measurements Using Significant
Unobservable Asset Inputs (Level 3)
Available-For-Sale Debt
Securities
Other
Investments
Cash
ARS
$ 3,140
(3,450)
—
Private Equity
Surrender Value Total
$
392
(93)
—
$2,957
—
753
$ 6,489
(3,543)
753
311
—
147
(140)
848
1,306
—
(140)
Ending Balance at January 31, 2015 . . . . .
$ —
$
306
$4,558
$ 4,865
Beginning Balance at February 1, 2014 . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . .
Total (gains) or losses . . . . . . . . . . . . . .
Included in interest and other income
(or changes in net assets) . . . . . . . .
Ending Balance at January 31, 2015 . . . . .
Fair Value Measurements Using Significant
Unobservable Liability Inputs (Level 3)
Deferred
Compensation
$(3,298)
(719)
(255)
$(4,272)
Total
$(3,298)
(719)
(255)
$(4,272)
Beginning Balance at February 2, 2013 . . .
Redemptions . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . .
Total gains or (losses) . . . . . . . . . . . . . .
Included in interest and other income
(or changes in net assets) . . . . . . . .
Included in other comprehensive
income . . . . . . . . . . . . . . . . . . . . . .
Ending Balance at February 1, 2014 . . . . .
Fair Value Measurements Using Significant
Unobservable Asset Inputs (Level 3)
Available-For-Sale Debt
Securities
Other
Investments
Cash
ARS
$ 3,450
—
Private Equity Surrender Value Total
$
561
(122)
$2,051
—
775
$ 6,062
(122)
775
(311)
121
131
(59)
—
$ 3,140
(168)
392
$
—
$2,957
(168)
$ 6,489
42
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value Measurements Using Significant
Unobservable Liability Inputs (Level 3)
Beginning Balance at February 2, 2013 . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total (gains) or losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Included in interest and other income (or changes in net
Deferred
Compensation
$(2,178)
(863)
assets) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(257)
Ending Balance at February 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . .
$(3,298)
Total
$(2,178)
(863)
(257)
$(3,298)
Quantitative information regarding the significant unobservable inputs related to the ARS as of February 1,
2014 were as follows:
Fair Value
Valuation Technique
Unobservable Inputs
$3,140 Net present value
of cash flows
5. Accounts Receivable:
Total Term
Yield
Comparative bond discount rate
8.66 Years
0.07%
0.14%
Accounts receivable consist of the following (in thousands):
Customer accounts — principally deferred payment accounts . . . . . . . . . . . .
Miscellaneous trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 31,
2015
February 1,
2014
$26,071
16,494
42,565
1,542
$27,414
13,553
40,967
1,743
Accounts receivable — net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$41,023
$39,224
Finance charge and late charge revenue on customer deferred payment accounts totaled $5,773,000,
$6,220,000 and $6,929,000 for the fiscal years ended January 31, 2015, February 1, 2014 and February 2, 2013,
respectively, and charges against the allowance for doubtful accounts were approximately $875,000, $1,009,000
and $1,259,000 for the fiscal years ended January 31, 2015, February 1, 2014 and February 2, 2013, respectively.
Expenses relating to the allowance for doubtful accounts are classified as a component of Selling, general and
administrative expense in the accompanying Consolidated Statements of Income and Comprehensive Income.
43
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6. Property and Equipment:
Property and equipment consist of the following (in thousands):
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixtures and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information technology equipment and software . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 31,
2015
February 1,
2014
$
7,968
25,807
100,808
214,969
59,829
12,243
421,624
286,443
$
7,851
27,269
94,185
208,902
58,705
12,300
409,212
268,083
Property and equipment — net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$135,181
$141,129
Construction in progress primarily represents costs related to new store development and investments in
new technology.
7. Accrued Expenses:
Accrued expenses consist of the following (in thousands):
Accrued payroll and related items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued self-insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 31,
2015
February 1,
2014
$ 7,905
16,091
11,589
12,819
$48,404
$ 7,608
15,285
10,605
12,265
$45,763
8. Financing Arrangements
As of January 31, 2015, the Company had an unsecured revolving credit agreement to borrow $35.0 million
less the balance of revocable credits discussed below. During 2013, the revolving credit agreement was amended
and extended to August 2015. 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 31, 2015. There were no borrowings outstanding under this credit facility during the periods ended
January 31, 2015, February 1, 2014 or February 2, 2013. The weighted average interest rate under the credit
facility was zero at January 31, 2015 due to no borrowings during the year.
At January 31, 2015, the Company had no outstanding revocable letters of credit relating to purchase
commitments. At February 1, 2014 and February 2, 2013, the Company had approximately $0.4 million and $2.9
million, respectively, of outstanding revocable letters of credit relating to purchase commitments.
9. Stockholders’ Equity:
The holders of Class A Common Stock are entitled to one vote per share, whereas the holders of Class B
Common Stock are entitled to ten votes per share. Each share of Class B Common Stock may be converted at any
44
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
The Company’s certificate of incorporation provides that shares of Class B Common Stock may be
transferred only to certain “Permitted Transferees” consisting generally of the lineal descendants of holders of
Class B 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.
On March 25, 2015, the Company paid a quarterly dividend of $0.30 per share.
10. Employee Benefit Plans:
The Company has a defined contribution retirement savings plan (“401(k) plan”) which covers all associates
who meet minimum age and service requirements. The 401(k) plan allows participants to contribute up to 60% 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 31, 2015, February 1, 2014 and February 2, 2013 were approximately $1,268,000, $1,196,000 and
$1,186,000, respectively.
The Company has a trusteed, non-contributory Employee Stock Ownership Plan (“ESOP”), which 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. The Company has chosen to contribute
cash and the plan purchases stock on the open market consistent with prior years. The Committee approved a
contribution of approximately $7,784,000 for the year ended January 31, 2015. The Company’s contribution for
the year ended February 1, 2014 was $887,000 and year ended February 2, 2013 was $508,000.
The Company is primarily self-insured for health care. 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. 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 health care
contributions to a third-party provider.
11. Leases:
The Company has operating lease arrangements for store facilities and equipment. Facility leases generally
are at a fixed rate for periods of five years with renewal options. For leases with landlord capital improvement
funding, the funded amount is recorded as a deferred liability and amortized over the term of the lease as a
reduction to rent expense on the Consolidated Statements of Income and Comprehensive Income. Equipment
leases are generally for one to three year periods.
45
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The minimum rental commitments under non-cancelable operating leases are (in thousands):
Fiscal Year
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 65,330
50,109
34,775
22,525
12,425
18,612
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$203,776
The following schedule shows the composition of total rental expense for all leases (in thousands):
Fiscal Year Ended
Minimum rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent rent
Total rental expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 31,
2015
February 1,
2014
February 2,
2013
$66,040
4
$66,044
$61,889
4
$59,887
16
$61,893
$59,903
12.
Income Taxes:
Unrecognized tax benefits for uncertain tax positions 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 31, 2015, the Company had gross unrecognized tax benefits totaling approximately
$9.4 million, of which approximately $10.0 million, inclusive of interest, would affect the effective tax rate if
recognized. The Company had approximately $4.8 million, $5.4 million and $5.0 million of interest and penalties
accrued related to uncertain tax positions as of January 31, 2015, February 1, 2014 and February 2, 2013,
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 $740,000, $927,000 and $899,000 of interest and
penalties in the Consolidated Statements of Income and Comprehensive Income for the years ended January 31,
2015, February 1, 2014 and February 2, 2013, respectively. The Company is no longer subject to U.S. federal
income tax examinations for years before 2011. In state and local tax jurisdictions, the Company has limited
exposure before 2004. 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 can not be determined.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in
thousands):
Fiscal Year Ended
January 31,
2015
February 1,
2014
February 2,
2013
Balances, beginning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions of the current year . . . . . . . . . . . .
$9,214
877
$8,892
1,209
$8,689
1,222
Reduction for tax positions of prior years for:
Settlements during the period . . . . . . . . . . . . . . . . . . . . . . . . .
Lapses of applicable statute of limitations . . . . . . . . . . . . . . .
(170)
(490)
(464)
(423)
(581)
(438)
Balances, ending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9,431
$9,214
$8,892
46
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The provision for income taxes consists of the following (in thousands):
Fiscal Year Ended
Current income taxes:
January 31,
2015
February 1,
2014
February 2,
2013
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,108
514
33,622
$31,699
3,032
$38,415
4,429
34,731
42,844
Deferred income taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,863)
(611)
(177)
(2,651)
(4,260)
(507)
—
(4,767)
(4,952)
(589)
—
(5,541)
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,971
$29,964
$37,303
Significant components of the Company’s deferred tax assets and liabilities as of January 31, 2015 and
February 1, 2014 are as follows (in thousands):
January 31,
2015
February 1,
2014
Deferred tax assets:
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal benefit of uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$
543
2,717
1,881
1,895
1,664
4,237
3,862
—
2,422
$
598
2,349
2,940
1,133
1,668
4,292
3,246
800
2,065
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,221
19,091
Deferred tax liabilities
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains on short-term investments . . . . . . . . . . . . . . . . . . . . . . . . .
Health care expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
6,458
472
2,117
2,517
8,690
469
1,383
2,456
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,564
12,998
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,657
$ 6,093
47
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The reconciliation of the Company’s effective income tax rate with the statutory rate is as follows:
Fiscal Year Ended
Federal income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax exempt interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effects of permanent differences . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 31,
2015
February 1,
2014
February 2,
2013
35.0 %
(0.2)
(1.8)
(0.5)
0.6
0.8
33.9 %
35.0 %
2.8
(1.4)
(0.5)
0.1
(0.4)
35.6 %
35.0 %
3.2
(1.1)
(0.5)
0.1
1.0
37.7 %
13. Quarterly Financial Data (Unaudited):
Summarized quarterly financial results are as follows (in thousands, except per share data):
Fiscal 2014
First
Second
Third
Fourth
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (exclusive of depreciation) . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . .
$284,732
120,369
30,006
1.04
1.04
$
$
$246,461
97,422
15,652
0.56
0.56
$
$
$215,608
79,515
5,692
0.22
0.22
$
$
$240,113
89,039
9,152
0.33
0.33
$
$
Fiscal 2013
First
Second
Third
Fourth
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (exclusive of depreciation) . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . .
$269,698
112,797
30,839
1.05
1.05
$
$
$231,718
86,768
14,775
0.51
0.51
$
$
$201,043
72,256
4,885
0.17
0.17
$
$
$217,574
76,966
3,823
0.13
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, similar products, similar
production processes, similar clients and similar 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 operates its women’s fashion specialty retail stores in 32 states as of January 31, 2015,
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.
48
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following schedule summarizes certain segment information (in thousands):
Fiscal 2014
Retail
Credit
Total
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$981,141
21,981
3,445
89,131
533,236
28,871
$ 5,773
45
—
2,342
75,042
30
$986,914
22,026
3,445
91,473
608,278
28,901
Fiscal 2013
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2012
Retail
Credit
Total
$913,813
21,785
3,267
81,709
524,908
31,423
$ 6,220
40
—
2,577
72,010
119
$920,033
21,825
3,267
84,286
596,918
31,542
Retail
Credit
Total
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$937,119
22,404
3,782
95,972
463,527
44,924
$ 6,929
51
—
2,999
69,119
251
$944,048
22,455
3,782
98,971
532,646
45,175
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 31,
2015
February 1,
2014
February 2,
2013
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 875
841
737
933
$3,386
$1,009
907
744
943
$3,603
$1,259
919
751
950
$3,879
15. Stock Based Compensation:
As of January 31, 2015, the Company had three long-term compensation plans pursuant to which stock-
based compensation was outstanding or could be granted. The Company’s 1987 Non-Qualified Stock Option
Plan is for the granting of options to officers and key employees. The 2013 Incentive Compensation Plan and
2004 Incentive Compensation Plan are for the granting of various forms of equity-based awards, including
restricted stock and stock options for grant, to officers, directors and key employees. Effective May 23, 2013,
shares for grant were no longer available under the 2004 Amended and Restated Incentive Compensation Plan.
49
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 January 31, 2015:
Options and/or restricted stock initially authorized . . . . . . . .
Options and/or restricted stock available for grant:
February 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1987
Plan
2004
Plan
2013
Plan
Total
5,850,000
1,350,000
1,500,000
8,700,000
—
—
— 1,488,902
— 1,287,396
1,488,902
1,287,396
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 31, 2015, there was $10,357,000 of total unrecognized
compensation expense related to nonvested restricted stock awards, which is expected to be recognized over a
remaining weighted-average vesting period of 2.6 years. The total fair value of the shares recognized as
compensation expense during the twelve months ended January 31, 2015, February 1, 2014 and February 2, 2013
was $3,474,000, $2,924,000 and $2,669,000, respectively. The expenses are classified as a component of Selling,
general and administrative expenses in the Consolidated Statements of Income and Comprehensive Income.
The following summary shows the changes in the shares of unvested restricted stock outstanding during the
years ended January 31, 2015, February 1, 2014 and February 2, 2013:
Restricted stock awards at January 28, 2012 . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock awards at February 2, 2013 . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock awards at February 1, 2014 . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
461,341
110,397
(114,172)
(17,420)
440,146
214,637
(121,692)
(27,468)
505,623
206,713
(108,155)
(51,686)
Restricted stock awards at January 31, 2015 . . . . . . . . . . . . . . . . . . . . .
552,495
Weighted Average
Grant Date Fair
Value Per Share
$21.44
28.23
18.83
24.95
$23.70
23.57
19.82
24.71
$24.52
28.25
22.41
26.00
$26.19
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 periods ended January 31, 2015, the Company
sold 20,941 shares to employees at an average discount of $4.30 per share under the Employee Stock Purchase
Plan. The compensation expense recognized for the 15% discount given under the Employee Stock Purchase
Plan was approximately $90,000, $70,000 and $128,000 for fiscal years 2014, 2013 and 2012, respectively.
These expenses are classified as a component of selling, general and administrative expenses.
50
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a summary of changes in stock options outstanding during the year ended January 31,
2015:
Options outstanding at February 1, 2014 . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at January 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and exercisable at January 31, 2015 . . . . . . . . . . . . . . . . . . . .
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
9.04 years
$163,000
Weighted
Average
Exercise
Price
$23.33
—
—
$23.56
$23.56
8.25 years
8.25 years
$194,628
$ 38,926
Shares
20,627
—
—
(500)
20,127
4,025
(a) The intrinsic value of a stock option is the amount by which the market value of the underlying stock
exceeds the exercise price of the option.
No options were granted in fiscal 2014, 20,127 options were granted in fiscal 2013, and no options were
granted in fiscal 2012. The Company utilizes the Black–Scholes method to estimate the fair value of share based
payments.
The total intrinsic value of options exercised during the years ended January 31, 2015, February 1, 2014 and
February 2, 2013 was $11,000, $112,000 and $79,000, respectively.
The stock option expense was $17,000 for the twelve months ended January 31, 2015, $13,000 for the
twelve months ended February 1, 2014, and zero for the twelve months ended February 2, 2013.
Stock option awards outstanding under the Company’s current plans were granted at exercise prices which
were equal to the market value of the Company’s stock on the date of grant, vest over five years, and expire no
later than ten years after the grant date.
16. Commitments and Contingencies:
The Company does not have any guarantees with third parties.
The Company is a defendant in legal proceedings considered to be in the normal course of business. The
resolution of such currently pending matters, individually or collectively, is not expected to have a material effect
on the Company’s results of operations, cash flows or financial position. We accrue for these matters when the
liability is deemed probable and estimable. The Company has committed to purchase approximately $5 million
of land that it expects to close no later than November 2015.
51
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 31, 2015:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at February 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income before reclassification . . . . . . . . . . . . . .
Amounts reclassified from accumulated other comprehensive
income (b)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net current-period other comprehensive income . . . . . . . . . . . . . . . . . . . .
Ending Balance at January 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 778
148
(140)
8
$ 786
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive
income (“OCI”).
(b)
Includes $224 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 $84.
Amounts in parentheses indicate a debit/reduction to OCI.
The following table sets forth information regarding the reclassification out of Accumulated other
comprehensive income (in thousands) as of February 1, 2014:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at February 2, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income before reclassification . . . . . . . . . . . .
Amounts reclassified from accumulated other comprehensive
income (b)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net current-period other comprehensive income . . . . . . . . . . . . . . . . . . . .
Ending Balance at February 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 821
125
(168)
(43)
$ 778
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to OCI.
(b)
Includes $269 impact of accumulated other comprehensive income reclassifications into Interest and other
income for net gains on available-for-sale securities. The tax impact of this reclassification was $101.
Amounts in parentheses indicate a debit/reduction to OCI.
52
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure:
None.
Item 9A. Controls and Procedures:
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We carried out an evaluation, with the participation of our Principal Executive Officer and Principal
Financial Officer, of the effectiveness of our disclosure controls and procedures as of January 31, 2015. Based on
this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of January 31,
2015, 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
Management
is responsible for establishing and maintaining adequate internal control over financial
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 31, 2015 based on the
Internal Control – Integrated Framework (2013) issued by the Committee of 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 31, 2015.
PricewaterhouseCoopers LLP, our
registered public accounting firm, has audited the
effectiveness of our internal control over financial reporting as of January 31, 2015, as stated in its report which
is included herein.
independent
Changes in Internal Control Over Financial Reporting
No change in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-
15(f)) has occurred during the Company’s fiscal quarter ended January 31, 2015 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information:
None.
Item 10. Directors, Executive Officers and Corporate Governance:
PART III
Information contained under the captions “Election of Directors,” “Meetings and Committees,” “Corporate
Governance Matters” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Registrant’s Proxy
Statement for its 2015 annual stockholders’ meeting (the “2015 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.”
53
Item 11. Executive Compensation:
Information contained under
the captions “2014 Executive Compensation,” “Fiscal 2014 Director
Compensation,” “Corporate Governance Matters-Compensation Committee Interlocks and Insider Participation”
in the Company’s 2015 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
The following table provides information about stock options outstanding and shares available for future
awards under all of Cato’s equity compensation plans. The information is as of January 31, 2015.
Plan Category
Equity compensation plans approved by
security holders . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved
by security holders . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(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)
20,127
—
20,127
$23.56
—
$23.56
1,515,220
—
1,515,220
(1) This column contains information regarding employee stock options only; there are no outstanding warrants
or stock appreciation rights.
(2)
Includes the following:
Under the Company’s stock incentive plan, referred to as the 2013 Incentive Compensation Plan, 1,287,396
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, 227,824 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.
Information contained under “Security Ownership of Certain Beneficial Owners and Management” in the
2015 Proxy Statement is incorporated by reference in response to this Item.
Item 13. Certain Relationships and Related Transactions, and Director Independence:
Information contained under the caption “Certain Relationships and Related Person Transactions,”
“Corporate Governance Matters-Director Independence” and “Meetings and Committees” in the 2015 Proxy
Statement is incorporated by reference in response to this Item.
Item 14. Principal Accountant Fees and Services:
Information contained under the captions “Ratification of Independent Registered Public Accounting 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 2015 Proxy Statement is incorporated by reference in
response to this item.
54
PART IV
Item 15. Exhibits and Financial Statement Schedules:
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income and Comprehensive Income for the fiscal years ended
January 31, 2015, February 1, 2014 and February 2, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at January 31, 2015 and February 1, 2014 . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the fiscal years ended January 31,
2015, February 1, 2014 and February 2, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 31,
2015, February 1, 2014 and February 2, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Financial Statement Schedule: The following report and financial statement schedule is
filed herewith:
Page
29
30
31
32
33
34
Schedule II — Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64
All other schedules are omitted as the required information is inapplicable or the information is presented in
the Consolidated Financial Statements or related Notes thereto.
(3) Index to Exhibits: The following exhibits listed in the Index below are filed with this report or, as 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. You may also read and copy any such
document at the SEC’s public reference room located at Room 1580, 100 F. Street, N.E., Washington, D.C.
20549 under the Company’s SEC file number (1–31340).
Exhibit
Number
Description of Exhibit
3.1
3.2
4.1
10.3*
10.4*
10.5*
Registrant’s Restated Certificate of Incorporation of the Registrant dated March 6, 1987,
incorporated by reference to Exhibit 4.1 to Form S-8 of the Registrant filed February 7, 2000 (SEC
File No. 333–96283).
Registrant’s By Laws incorporated by reference to Exhibit 99.2 to Form 8-K of the Registrant filed
December 10, 2007.
Rights Agreement dated December 18, 2003, incorporated by reference to Exhibit 4.1 to
Form 8-A12G of the Registrant filed December 22, 2003 and as amended in Form 8-A12B/A filed on
January 6, 2004.
2004 Incentive Compensation Plan, amended and restated as of May 22, 2008, incorporated by
reference to Appendix A to Definitive Proxy Statement on Schedule 14A filed April 11, 2008.
2013 Incentive Compensation Plan, incorporated by reference to Exhibit 4.1 to Form S-8 of the
Registrant filed May 31, 2013 (SEC file No. 333-188993).
Form of Agreement, dated as of August 29, 2003, between the Registrant and Wayland H. Cato, Jr.,
incorporated by reference to Exhibit 99(c) to Form 8-K of the Registrant filed on July 22, 2003.
55
Exhibit
Number
10.6*
10.7*
10.8*
10.9*
10.10*
Description of Exhibit
Form of Agreement, dated as of August 29, 2003, between the Registrant and Edgar T. Cato,
incorporated by reference to Exhibit 99(d) to Form 8-K of the Registrant filed on July 22, 2003.
Retirement Agreement between Registrant and Wayland H. Cato, Jr. dated August 29, 2003
incorporated by reference to Exhibit 10.1 to Form 10-Q of the Registrant for quarter ended
August 2, 2003.
Retirement Agreement between Registrant and Edgar T. Cato dated August 29, 2003, incorporated
by reference to Exhibit 10.2 to Form 10-Q of the Registrant for the quarter ended August 2, 2003.
Letter Agreement between the Registrant and John R. Howe dated as of August 28, 2008,
incorporated by Reference to Exhibit 99.1 to Form 8-K of the Registrant filed September 3, 2008.
Deferred Compensation Plan effective July 28, 2011, incorporated by reference to Exhibit 10.1 to
Form 8-K of the Registrant filed on July 19, 2011.
21.1**
Subsidiaries of Registrant.
23.1**
Consent of Independent Registered Public Accounting Firm.
31.1**
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
31.2**
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
32.1**
Section 1350 Certification of Chief Executive Officer.
32.2**
Section 1350 Certification of Chief Financial Officer.
101.1**
The following materials from Registrant’s Annual Report on form 10-K for the fiscal years ended
January 31, 2015, formatted in XBRL: (i) Consolidated Statements of Income and Comprehensive
Income for the fiscal years ended January 31, 2015, February 1, 2014 and February 2, 2013;
(ii) Consolidated Balance Sheets at January 31, 2015 and February 1, 2014; (iii) Consolidated
Statements of Cash Flows for the fiscal years ended January 31, 2015, February 1, 2014 and
February 2, 2013; (iv) Consolidated Statements of Stockholders’ Equity for the fiscal years ended
January 31, 2015, February 1, 2014 and February 2, 2013; and (v) Notes to Consolidated Financial
Statements.
* 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.
56
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Cato has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
The Cato Corporation
By /s/
JOHN R. HOWE
John R. Howe
Executive Vice President
Chief Financial Officer
By /s/
JOHN P. D. CATO
John P. D. Cato
Chairman, President and
Chief Executive Officer
By /s/
JEFFREY R. SHOCK
Jeffrey R. Shock
Senior Vice President
Controller
Date: March 27, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on
March 27, 2015 by the following persons on behalf of the Registrant and in the capacities indicated:
/s/
JOHN P. D. CATO
/s/ BAILEY W. PATRICK
John P. D. Cato
(President and Chief Executive Officer
(Principal Executive Officer) and Director)
Bailey W. Patrick
(Director)
/s/
JOHN R. HOWE
/s/ THOMAS B. HENSON
John R. Howe
(Executive Vice President
Chief Financial Officer (Principal Financial Officer))
Thomas B. Henson
(Director)
/s/
JEFFREY R. SHOCK
/s/ BRYAN F. KENNEDY III
Jeffrey R. Shock
(Senior Vice President
Controller (Principal Accounting Officer))
Bryan F. Kennedy III
(Director)
/s/ THOMAS E. MECKLEY
/s/ D. HARDING STOWE
Thomas E. Meckley
(Director)
/s/ EDWARD I. WEISIGER, JR
Edward I. Weisiger, Jr.
(Director)
D. Harding Stowe
(Director)
57
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary
CHW LLC
Providence Insurance Company,
Limited
CatoSouth LLC
Cato of Texas L.P.
Cato Southwest, Inc.
CaDel LLC
CatoWest LLC
Cedar Hill National Bank
catocorp.com, LLC
Cato Land Development, LLC
Cato WO LLC
Cat Overseas Limited
State of
Incorporation/Organization
Delaware
A Bermudian Company
North Carolina
Texas
Delaware
Delaware
Nevada
A Nationally Chartered Bank
Delaware
South Carolina
North Carolina
A Hong Kong Company
Name under which
Subsidiary does Business
CHW LLC
Providence Insurance Company,
Limited
CatoSouth LLC
Cato of Texas L.P.
Cato Southwest, Inc.
CaDel LLC
CatoWest LLC
Cedar Hill National Bank
catocorp.com, LLC
Cato Land Development, LLC
Cato WO LLC
Cato Overseas Limited
58
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-
188990, 333-188993, 333-176511, 333-119300, 333-119299, 33-41314, 33-41315, 33-69844, and 333-96285) of
The Cato Corporation of our report dated March 27, 2015 relating to the financial statements, financial statement
schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
EXHIBIT 23.1
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 27, 2015
59
EXHIBIT 31.1
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO
SECURITIES EXCHANGE ACT OF 1934 RULE 13a-14(a)/15d-14(a), AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John P. D. Cato, certify that:
1.
I have reviewed this Annual Report on Form 10-K of The Cato Corporation (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
to provide reasonable assurance regarding the
reporting to be designed under our supervision,
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 27, 2015
/s/ John P. D. Cato
John P. D. Cato
Chairman, President and
Chief Executive Officer
60
EXHIBIT 31.2
PRINCIPAL FINANCIAL OFFICER CERTIFICATION PURSUANT TO
SECURITIES EXCHANGE ACT OF 1934 RULE 13a-14(a)/15d-14(a), AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John R. Howe, certify that:
1.
I have reviewed this Annual Report on Form 10-K of The Cato Corporation (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
to provide reasonable assurance regarding the
reporting to be designed under our supervision,
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 27, 2015
/s/ John R. Howe
John R. Howe
Executive Vice President
Chief Financial Officer
61
CERTIFICATION OF PERIODIC REPORT
EXHIBIT 32.1
I, John P. D. Cato, Chairman, President and Chief Executive Officer of The Cato Corporation, certify, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that on the date of this Certification:
1.
2.
the Annual Report on Form 10-K of the Company for the annual period ended January 31, 2015 (the
“Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: March 27, 2015
/s/ John P. D. Cato
John P. D. Cato
Chairman, President and
Chief Executive Officer
62
CERTIFICATION OF PERIODIC REPORT
EXHIBIT 32.2
I, John R. Howe, Executive Vice President, Chief Financial Officer of The Cato Corporation, certify, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that on the date of this Certification:
1.
2.
the Annual Report on Form 10-K of the Company for the annual period ended January 31, 2015 (the
“Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: March 27, 2015
/s/ John R. Howe
John R. Howe
Executive Vice President
Chief Financial Officer
63
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at January 28, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions charged to costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions (reductions) charged to other accounts . . . . . . . . . . . . . . . . . . . .
Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at February 2, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions charged to costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions (reductions) charged to other accounts . . . . . . . . . . . . . . . . . . . .
Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at February 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions charged to costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions (reductions) charged to other accounts . . . . . . . . . . . . . . . . . . . .
Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance
for
Doubtful
Accounts(a)
$ 2,362
1,259
756(c)
(2,324)(d)
2,053
1,221
425(c)
(1,956)(d)
$ 1,743
1,070
428(c)
(1,699)(d)
Balance at January 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,542
(a) Deducted from trade accounts receivable.
(b) Reserve for Workers’ Compensation and General Liability.
(c) Recoveries of amounts previously written off.
(d) Uncollectible accounts written off.
Schedule II
Self Insurance
Reserves(b)
$ 6,332
3,525
1,974
(3,744)
8,087
4,497
(611)
(2,861)
$ 9,112
4,518
(680)
(2,888)
$10,062
64
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[THIS PAGE INTENTIONALLY LEFT BLANK]
Corporate Information
A copy of the Company’s Annual
Report to the Securities and
Exchange Commission (Form
10-K) for the fiscal year ended
January 31, 2015 is available to
shareholders without charge upon
written request to:
Mr. John R. Howe
Executive Vice President,
Chief Financial Officer
The Cato Corporation
P.O. Box 34216
Charlotte, North Carolina 28234
corporate headquarters
The Cato Corporation
8100 Denmark Road
Charlotte, North Carolina
28273-5975
(704) 554-8510
mailing address
P.O. Box 34216
Charlotte, North Carolina 28234
independent auditor
market and dividend notice
PricewaterhouseCoopers LLP
Charlotte, North Carolina 28202
corporate counsel
Robinson, Bradshaw & Hinson, P.A.
Charlotte, North Carolina 28246
The Company’s Class A Common Stock
trades on the New York Stock Exchange
(“NYSE”) under the symbol CATO. Below is
the market range and dividend information
for the four quarters of fiscal 2014 and 2013.
price
transfer agent and registrar
American Stock Transfer
Securities Transfer Department,
CMG-5
Charlotte, North Carolina 28288
2014
high
low dividend
First quarter
$ 30.45
$ 25.77
$ .30
Second quarter
Third quarter
32.71
36.15
27.70
31.30
Fourth quarter
44.26
34.84
.30
.30
.30
annual meeting notice
The Annual Meeting of
Shareholders
Thursday, May 21, 2015
11:00 a.m.
Corporate Office
8100 Denmark Road
Charlotte, North Carolina
28273-5975
price
2013
high
low dividend
First quarter
$ 27.66
$ 22.43
$ .05
Second quarter
Third quarter
Fourth quarter
28.72
30.75
34.28
23.66
25.16
27.96
.05
.05
.05
As of March 27, 2015 the approximate
number of record holders of the Company’s
Class A Common Stock was 5,000 and there
were 2 record holders of the Company’s
Class B Common Stock.
8100 DENMARK ROAD CHARLOTTE, NC 28273-5975 CATOCORP.COM