General - Notes to Financial Statements | 12 Months Ended |
Feb. 01, 2014 |
General Dsiclosure [Abstract] | ' |
Summary of Significant Account Policies | ' |
Recent Accounting Pronouncements |
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During the first quarter of fiscal 2013, the Company adopted guidance that requires additional disclosures on reclassifications from accumulated other comprehensive income into net income. The new accounting guidance requires entities to report either parenthetically on the face of the financial statements or in the footnotes of these reclassifications for each financial statement line item. This new guidance only impacts disclosures and as such will have no impact on the Company's consolidated financial position, results of operations or cash flows. |
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In the first quarter of fiscal 2014, the Company will adopt 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 will have no impact on the Company's consolidated results of operations or cash flows. |
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1. Summary of Significant Accounting Policies: |
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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. |
Correction of Prior Period Error: 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 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 2012; and (3) corrected prior period state income tax expense of $0.6 million in 2012, of which $0.5 million originated in fiscal year 2011 and $0.1 million in fiscal year 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. |
Restricted Cash and Investments: The Company has $4.7 million in escrow at February 1, 2014 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. |
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Supplemental Cash Flow Information: Income tax payments, net of refunds received, for the fiscal years ended February 1, 2014, February 2, 2013 and January 28, 2012 were $34,238,000, $43,124,000 and $34,290,000, respectively. |
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Inventories: Merchandise inventories are stated at the lower of cost or market as determined by the weighted-average cost method. |
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Property and Equipment: Property and equipment are recorded at cost. Maintenance and repairs are expensed to operations as incurred; renewals and betterments are capitalized. Depreciation is determined on the straight-line method over the estimated useful lives of the related assets excluding leasehold improvements. Leasehold improvements are amortized over the shorter of the estimated useful life or lease term. For leases with renewal periods at the Company's option, the Company generally uses the original lease term plus reasonably assured renewal option periods (generally one five year option period) to determine estimated useful lives. Typical estimated useful lives are as follows: |
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| | | Estimated | | | | | | | | | | | | | | | |
Classification | | | Useful Lives | | | | | | | | | | | | | | | |
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Land improvements | | | 10 years | | | | | | | | | | | | | | | |
Buildings | | | 30-40 years | | | | | | | | | | | | | | | |
Leasehold improvements | | | 5-10 years | | | | | | | | | | | | | | | |
Fixtures and equipment | | | 3-10 years | | | | | | | | | | | | | | | |
Information technology equipment and software | | | 3-10 years | | | | | | | | | | | | | | | |
Impairment of Long-Lived Assets |
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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 2013 were $2,646,000. Store asset impairment charges incurred in fiscal 2012 were $2,011,000. Store asset impairment charges incurred in fiscal 2011 were de minimis. 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. |
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Leases |
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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. |
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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. |
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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. |
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Revenue Recognition |
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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. |
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In fiscal 2013, 2012 and 2011, the Company recognized $370,000, $500,000 and $470,000, 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. |
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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. |
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Cost of Goods Sold: Cost of goods sold includes merchandise costs, net of discounts and allowances, buying costs, distribution costs, occupancy costs, freight, and inventory shrinkage. Net merchandise costs and in-bound freight are capitalized as inventory costs. Buying and distribution costs include payroll, payroll-related costs and operating expenses for our buying departments and distribution center. Occupancy expenses include rent, real estate taxes, insurance, common area maintenance, utilities and maintenance for stores and distribution facilities. Buying, distribution, occupancy and internal transfer costs are treated as period costs and are not capitalized as part of inventory. |
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Advertising: Advertising costs are expensed in the period in which they are incurred. Advertising expense was approximately $5,741,000, $6,186,000 and $7,056,000 for the fiscal years ended February 1, 2014, February 2, 2013 and January 28, 2012, respectively. |
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Stock Repurchase Program: For fiscal year ending February 1, 2014, the Company had 1,704,672 shares remaining in open authorization. There is no specified expiration date for the Company's repurchase program. |
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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. 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. |
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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. |
| | | Fiscal Year Ended | | | | | | | | |
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| | | 1-Feb-14 | | 2-Feb-13 | | 28-Jan-12 | | | | | | | | |
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Numerator | | (Dollars in thousands) | | | | | | | | |
| Net earnings | | $ | 54,322 | | $ | 61,668 | | $ | 64,834 | | | | | | | | |
| Earnings allocated to non-vested equity awards | | | -884 | | | -894 | | | -1,016 | | | | | | | | |
| Net earnings available to common stockholders | | $ | 53,438 | | $ | 60,774 | | $ | 63,818 | | | | | | | | |
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Denominator | | | | | | | | | | | | | | | | | |
| Basic weighted average common shares outstanding | | | 28,767,615 | | | 28,796,815 | | | 28,896,355 | | | | | | | | |
| Dilutive effect of stock options and restricted stock | | | 5,063 | | | 3,563 | | | 4,930 | | | | | | | | |
| Diluted weighted average common shares outstanding | | | 28,772,678 | | | 28,800,378 | | | 28,901,285 | | | | | | | | |
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Net income per common share | | | | | | | | | | | | | | | | | |
| Basic earnings per share | | $ | 1.86 | | $ | 2.11 | | $ | 2.21 | | | | | | | | |
| Diluted earnings per share | | $ | 1.86 | | $ | 2.11 | | $ | 2.21 | | | | | | | | |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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Recent Accounting Pronouncements |
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During the first quarter of fiscal 2013, the Company adopted guidance that requires additional disclosures on reclassifications from accumulated other comprehensive income into net income. The new accounting guidance requires entities to report either parenthetically on the face of the financial statements or in the footnotes of these reclassifications for each financial statement line item. This new guidance only impacts disclosures and as such will have no impact on the Company's consolidated financial position, results of operations or cash flows. |
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In the first quarter of fiscal 2014, the Company will adopt 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 will have no impact on the Company's consolidated results of operations or cash flows. |
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The following is a summary of changes in stock options outstanding during the year ended February 1, 2014. | | | | | | | | | |
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| | | | | | Weighted | | | | | | | | | | | | |
| | | | Weighted | | Average | | | | | | | | | | | | |
| | | | Average | | Remaining | | | Aggregate | | | | | | | | | |
| | | | Exercise | | Contractual | | | Intrinsic | | | | | | | | | |
| Shares | | | Price | | Term | | | Value(a) | | | | | | | | | |
Options outstanding at February 2, 2013 | 9,550 | | $ | 13.47 | | 2.12 years | | $ | 136,185 | | | | | | | | | |
Granted | 20,127 | | | - | | | | | | | | | | | | | | |
Forfeited or expired | - | | | | | | | | | | | | | | | | | |
Exercised | -9,050 | | | - | | | | | | | | | | | | | | |
Outstanding at February 1, 2014 | 20,627 | | $ | 23.33 | | 9.04 years | | $ | 163,000 | | | | | | | | | |
Vested and exercisable at February 1, 2014 | 500 | | $ | 14.17 | | 0.67 years | | $ | 8,500 | | | | | | | | | |
The following is a summary of changes in stock options outstanding during the year ended February 1, 2014. | | | | | | | | | |
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| | | | | | Weighted | | | | | | | | | | | | |
| | | | Weighted | | Average | | | | | | | | | | | | |
| | | | Average | | Remaining | | | Aggregate | | | | | | | | | |
| | | | Exercise | | Contractual | | | Intrinsic | | | | | | | | | |
| Shares | | | Price | | Term | | | Value(a) | | | | | | | | | |
Options outstanding at February 2, 2013 | 9,550 | | $ | 13.47 | | 2.12 years | | $ | 136,185 | | | | | | | | | |
Granted | 20,127 | | | - | | | | | | | | | | | | | | |
Forfeited or expired | - | | | | | | | | | | | | | | | | | |
Exercised | -9,050 | | | - | | | | | | | | | | | | | | |
Outstanding at February 1, 2014 | 20,627 | | $ | 23.33 | | 9.04 years | | $ | 163,000 | | | | | | | | | |
Vested and exercisable at February 1, 2014 | 500 | | $ | 14.17 | | 0.67 years | | $ | 8,500 | | | | | | | | | |