CATO CORPCATO

CATO CORP Income Taxes Disclosure

10-KFiled Mar 25, 20266 min read
12.
Income Taxes:
Unrecognized
tax
benefits
for
uncertain
tax
positions,
primarily
recorded
in
Other
noncurrent
liabilities, are established in accordance
with ASC 740 when, despite
the fact that the
tax return positions
are
supportable, the
Company believes
these
positions may
be
challenged
and the
results
are
uncertain.
The
Company adjusts
these
liabilities
in
light
of
changing
facts
and
circumstances.
As
of
January
31,
2026, the
Company had
gross unrecognized
tax benefits
totaling approximately
$
1.9
million.
Including
the gross unrecognized tax benefits,
and interest and penalties, $
2.5
million would affect the
effective tax
rate
if
recognized.
The
Company
had
approximately
$
1.0
million,
$
1.7
million
and
$
1.8
million
of
interest and
penalties accrued related
to uncertain tax
positions as of
January 31, 2026,
February 1, 2025
and
February
3,
2024,
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
$
188,000
,
$
295,000
and
$
393,000
of
interest
and
penalties
in
the
Consolidated
Statements
of
Income
(Loss)
and
Comprehensive Income
(Loss)
for
the
years
ended January
31,
2026, February
1,
2025
and
February
3,
2024,
respectively.
The
Company
is
no
longer
subject
to
U.S.
federal
income
tax
examinations
for
years
before
2022.
In
state
and
local
tax
jurisdictions,
the
Company
has
limited
exposure before
2015.
During the
next 12
months, various
state and
local taxing
authorities’ statutes
of
limitations
will
expire
and
certain
state
examinations
may
close,
which
could
result
in
a
potential
reduction of unrecognized tax benefits for which a range cannot be determined.
A reconciliation
of the
beginning and
ending amount
of gross
unrecognized tax benefits
is as
follows
(in thousands):
`
January 31, 2026
February 1, 2025
February 3, 2024
Fiscal Year
Ended
Balances, beginning
$
3,234
$
3,897
$
4,886
Additions for tax positions of the current year
374
65
76
Reduction for tax positions of prior years for:
Lapses of applicable statutes of limitations
(1,702)
(728)
(1,065)
Balances, ending
$
1,906
$
3,234
$
3,897
The (benefit) provision for income
taxes consists of the following (in thousands):
`
January 31, 2026
February 1, 2025
February 3, 2024
Fiscal Year
Ended
Current income taxes:
Federal
$
(1,061)
$
(128)
$
(148)
State
(864)
395
(334)
Foreign
334
1,677
1,898
Total
(1,591)
1,944
1,416
Deferred income taxes:
Federal
-
-
6,613
State
-
-
2,093
Foreign
-
-
18
Total
-
-
8,724
Total income tax (benefit) expense
$
(1,591)
$
1,944
$
10,140
Significant
components of
the
Company’s deferred
tax assets
and liabilities
as of
January
31,
2026
and
February 1, 2025 are as follows
(in thousands):
January 31, 2026
February 1, 2025
Deferred tax assets:
Allowance for customer credit losses
$
145
$
124
Inventory valuation
1,412
1,584
Non-deductible accrued liabilities
1,045
1,587
Other taxes
780
834
Federal benefit of uncertain tax positions
403
655
Equity compensation expense
2,476
2,750
Federal tax credits
1,583
928
Net operating losses
17,629
11,147
Charitable contribution carryover
113
264
Lease liabilities
34,653
33,077
Property and equipment
3,412
4,735
Amortization
-
1,774
Other
1,513
1,776
Total deferred
tax assets before valuation allowance
65,164
61,235
Valuation
allowance
(25,394)
(23,151)
Total deferred
tax assets after valuation allowance
39,770
38,084
Deferred tax liabilities:
Right-of-Use assets
39,660
38,000
Accrued self-insurance reserves
110
84
Total deferred
tax liabilities
39,770
38,084
Net deferred tax assets
$
-
$
-
The changes in the valuation allowance are presented below:
January 31, 2026
February 1, 2025
February 3, 2024
Valuation
Allowance Beginning Balance
$
(23,151)
$
(17,998)
$
(5,058)
Net Valuation
Allowance (Additions) / Reductions
(2,243)
(5,153)
(12,940)
Valuation
Allowance Ending Balance
$
(25,394)
$
(23,151)
$
(17,998)
As of January
31, 2026, the
Company had $
9.9
million of net
deferred tax assets
attributable to state
net
operating loss carryforwards. The Company assessed the
likelihood that deferred tax assets related to
state net
operating loss
carryforwards and
other deferred
tax assets
affecting state
income tax
will be
realized. Based
on this
assessment, the
Company concluded
that it
is more
likely than
not the
Company will
not be
able to
realize $
9.9
million of
the net
operating losses,
and accordingly,
has recorded
a valuation
allowance for
the
same amount.
As
of January
31,
2026, the
Company
had
$
15.5
million
of
net
deferred tax
assets
attributable to
U.S.
federal net
operating
loss
carryforwards,
other
credit carryforwards
and
all
other deferred
tax assets
net of
deferred tax liabilities.
The Company assessed the likelihood that deferred tax
assets related to net operating
loss
carryforwards,
credit
carryforwards
and
all
other
remaining
deferred
tax
assets
net
of
deferred
tax
liabilities will be
realized.
Based on this
assessment, the Company
concluded that it
is more likely
than not
the
Company
will
not
be
able
to
realize
$
7.7
million
of
net
operating
loss
carryforwards,
$
1.6
million
of
credit carryforwards and $
6.2
million of remaining deferred tax assets
net of deferred tax liabilities.
The net change
in the valuation
allowance of $
2.2
million for the
year ended January
31, 2026
is due to
recording a valuation allowance of
$
0.3
million against net deferred tax assets
attributable to U.S. federal net
operating loss
carryforwards, other
credit carryforwards
and all
other deferred
tax assets
net of
deferred tax
liabilities, including $
1.9
million against state net operating losses. The net change in the valuation allowance
for
the
year
ended
February
1,
2025
relates
to
U.S.
federal
net
operating
loss
carryforwards,
other
credit
carryforwards, all
other deferred
tax assets
net of
deferred tax
liabilities, state
net operating
losses and
state
tax credits.
As
of
January
31,
2026,
the
Company’s
position
is
that
its
overseas
subsidiaries
will
not
invest
undistributed
earnings
indefinitely.
Future
unremitted
earnings
when
distributed
are
expected
to
be
either
distributions
of
GILTI-previously
taxed income
or eligible
for
a
100
%
dividends received
deduction.
The
withholding
tax
rate
on
any
unremitted
earnings
is
zero
and
state
income
taxes
on
such
earnings
are
considered
immaterial.
Therefore,
the
Company
has
not
provided
deferred
U.S.
income
taxes
on
approximately $
14.1
million of cumulative earnings from non-U.S. subsidiaries.
Domestic losses
of $
17.8
million, $
36.8
million,
and $
38.0
million for
the fiscal
year ended
January
31,
2026,
February
1,
2025,
and
February
3,
2024,
respectively,
were
offset
by
profits
in
foreign
jurisdictions of $
10.3
million, $
20.7
million, and $
24.2
million, respectively.
The reconciliation of the Company’s effective
income tax rate with the
statutory rate is as follows:
January 31, 2026
February 1, 2025
February 3, 2024
U.S. Federal Statutory Tax
Rate
$
(1,575)
21.0
%
$
(3,384)
21.0
%
$
(2,898)
21.0
%
State and Local Income Taxes,
Net of
Federal Income Tax
Effect (a)
661
(8.8)
935
(5.8)
2,752
(19.9)
Foreign Tax
Effects
Hong Kong
Tax Rate Differential
(453)
6.0
(922)
5.7
(1,082)
7.8
Offshore Claim
(1,372)
18.3
(1,739)
10.8
(2,098)
15.2
Other foreign jurisdictions
1
-
2
-
4
-
Effect of Changes in Tax
Laws or Rates
Enacted in the Current Period
Change in Tax Rate
-
-
-
-
(2)
-
Effect of Cross-Border Tax
Laws
Global intangible low-taxed income
1,970
(26.3)
3,969
(24.6)
4,577
(33.2)
Tax Credits
Research and development tax credits
(165)
2.2
(100)
0.6
(70)
0.5
Employment related tax credits
(655)
8.7
(309)
1.9
(207)
1.5
Other
(1)
-
(1)
-
(2)
-
Changes in Valuation
Allowance
1,165
(15.5)
3,347
(20.8)
9,570
(69.3)
Nontaxable or Nondeductible items
Limitation on officer compensation
335
(4.5)
431
(2.7)
435
(3.1)
Addback on wage related credits
96
(1.3)
65
(0.4)
43
(0.3)
Share-based payment awards
247
(3.3)
94
(0.6)
4
-
Other
(49)
0.7
279
(1.7)
131
(1.1)
Changes in Unrecognized Tax
Benefits
(1,796)
23.9
(723)
4.5
(1,017)
7.4
Effective Tax
Rate
$
(1,591)
21.2
%
$
1,944
(12.1)
%
$
10,140
(73.5)
%
(a) State taxes in South Carolina and Texas
made up the majority (greater than
50
%) of the tax effect in this category for
the years ended January 31, 2026, February 1, 2025, and February 3, 2024,
respectively.

Historical Timeline

Fiscal YearFiled
2026Mar 25, 2026Showing above
2025Mar 31, 2025
2024Mar 27, 2024
2023Mar 23, 2023
2022Mar 23, 2022
2021Mar 29, 2021
2020Mar 27, 2020
2019Mar 27, 2019
2018Mar 27, 2018
2017Mar 23, 2017
2016Mar 24, 2016

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Other Available Disclosures

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