##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended August 1, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 1-31340
 THE CATO CORPORATION
  Delaware
    
    56-0484485(State or other jurisdiction
of incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 8100
Denmark Road, Charlotte, North Carolina 28273-5975
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year,
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



THE CATO CORPORATION
 FORM 10-Q
 Quarter Ended August 1, 2009
 Table of Contents
 Page No.PART I  FINANCIAL INFORMATION (UNAUDITED)Item 1. Financial Statements:Condensed Consolidated Statements of Income and Comprehensive Income
    
    
    2For the Three Months and Six Months Ended August 1, 2009 and
August 2, 2008Condensed Consolidated Balance Sheets
    
    
    3At August 1, 2009, August 2, 2008, and January 31, 2009Condensed Consolidated Statements of Cash Flows
    
    
    4For the Six Months Ended August 1, 2009 and August 2, 2008Notes to Condensed Consolidated Financial Statements
    
    
    5 - 13For the Three Months and Six Months Ended
August 1, 2009 and August 2, 2008Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    14 - 19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    21Item 4.
Submission of Matters to a Vote of Security Holders
    
    
    22Item 5.
Other Information
    
    
    22Item 6.
Exhibits
    
    
    22Signatures
    
    
    23 - 27EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 THE CATO CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
 Three Months Ended
    
    
    Six Months EndedAugust 1,
    
    
    August 2,
    
    
    August 1,
    
    
    August 2,2009
    
    
    2008
    
    
    2009
    
    
    2008(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)(Dollars in thousands, except per share data)REVENUESRetail sales
    
    $
    225,369
    
    
    $
    230,957
    
    
    $
    463,423
    
    
    $
    456,748Other income (principally finance charges, late fees and
layaway charges)
    
    
    2,897
    
    
    
    2,911
    
    
    
    5,870
    
    
    
    5,948Total revenues
    
    
    228,266
    
    
    
    233,868
    
    
    
    469,293
    
    
    
    462,696COSTS AND EXPENSES, NETCost of goods sold (exclusive of depreciation shown below)
    
    
    143,459
    
    
    
    148,020
    
    
    
    285,372
    
    
    
    289,640Selling, general and administrative (exclusive of depreciation
shown below)
    
    
    56,480
    
    
    
    63,580
    
    
    
    121,124
    
    
    
    119,896Depreciation
    
    
    5,482
    
    
    
    5,657
    
    
    
    11,026
    
    
    
    11,267Interest and other income
    
    
    (861
    )
    
    
    (1,709
    )
    
    
    (1,921
    )
    
    
    (3,609
    )204,560
    
    
    
    215,548
    
    
    
    415,601
    
    
    
    417,194Income before income taxes
    
    
    23,706
    
    
    
    18,320
    
    
    
    53,692
    
    
    
    45,502Income tax expense
    
    
    7,048
    
    
    
    6,229
    
    
    
    18,220
    
    
    
    16,558Net income
    
    $
    16,658
    
    
    $
    12,091
    
    
    $
    35,472
    
    
    $
    28,944Basic earnings per share
    
    $
    0.57
    
    
    $
    0.41
    
    
    $
    1.21
    
    
    $
    0.98Diluted earnings per share
    
    $
    0.56
    
    
    $
    0.41
    
    
    $
    1.20
    
    
    $
    0.98Dividends per share
    
    $
    0.165
    
    
    $
    0.165
    
    
    $
    0.33
    
    
    $
    0.33Comprehensive income:Net income
    
    $
    16,658
    
    
    $
    12,091
    
    
    $
    35,472
    
    
    $
    28,944Unrealized gains (losses) on available-for-sale securities, net
of deferred income tax expense
    
    
    56
    
    
    
    (84
    )
    
    
    30
    
    
    
    (320
    )Net comprehensive income
    
    $
    16,714
    
    
    $
    12,007
    
    
    $
    35,502
    
    
    $
    28,624
  2




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##### Table of Contents



THE CATO CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 August 1,
    
    
    August 2,
    
    
    January 31,2009
    
    
    2008
    
    
    2009(Unaudited)
    
    
    (Unaudited)(Dollars in thousands, except per share data)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    28,888
    
    
    $
    45,371
    
    
    $
    42,262Short-term investments
    
    
    145,427
    
    
    
    98,875
    
    
    
    93,452Restricted cash
    
    
    9,057
    
    
    
    9,077
    
    
    
    9,089Accounts receivable, net of allowance for doubtful accounts of
$3,301, $3,195 and $3,723 at August 1, 2009, August 2, 2008 and
January 31, 2009, respectively
    
    
    41,798
    
    
    
    44,026
    
    
    
    44,136Merchandise inventories
    
    
    93,807
    
    
    
    96,864
    
    
    
    112,290Deferred income taxes
    
    
    6,408
    
    
    
    6,904
    
    
    
    6,403Prepaid expenses
    
    
    7,875
    
    
    
    7,880
    
    
    
    7,737Total Current Assets
    
    
    333,260
    
    
    
    308,997
    
    
    
    315,369Property and
equipment  net
    
    
    111,001
    
    
    
    119,952
    
    
    
    116,262Other assets
    
    
    7,324
    
    
    
    4,482
    
    
    
    3,722Total Assets
    
    $
    451,585
    
    
    $
    433,431
    
    
    $
    435,353LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    76,923
    
    
    $
    83,899
    
    
    $
    102,971Accrued expenses
    
    
    32,648
    
    
    
    34,052
    
    
    
    29,946Accrued bonus and benefits
    
    
    10,742
    
    
    
    6,830
    
    
    
    6,307Accrued income taxes
    
    
    20,817
    
    
    
    18,433
    
    
    
    11,506Total Current Liabilities
    
    
    141,130
    
    
    
    143,214
    
    
    
    150,730Deferred income taxes
    
    
    2,528
    
    
    
    1,707
    
    
    
    2,528Other noncurrent liabilities (primarily deferred rent)
    
    
    18,639
    
    
    
    20,758
    
    
    
    20,282Commitments 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; issued 36,471,549 shares, 36,281,440 shares,
and 36,303,922 shares at August 1, 2009, August 2, 2008 and
January 31, 2009, respectively
    
    
    1,216
    
    
    
    1,209
    
    
    
    1,210Convertible Class B common stock, $.033 par value per share,
15,000,000 shares authorized; issued 1,743,525 shares
at August 1, 2009, August 2, 2008 and January 31, 2009
    
    
    58
    
    
    
    58
    
    
    
    58Additional paid-in capital
    
    
    63,328
    
    
    
    60,147
    
    
    
    61,608Retained earnings
    
    
    380,101
    
    
    
    359,323
    
    
    
    354,333Accumulated other comprehensive income
    
    
    443
    
    
    
    389
    
    
    
    413445,146
    
    
    
    421,126
    
    
    
    417,622Less Class A common stock in treasury, at cost (8,662,902 shares,
8,461,615 shares and 8,660,333 shares at August 1, 2009,
August 2, 2008 and January 31, 2009, respectively)
    
    
    (155,858
    )
    
    
    (153,374
    )
    
    
    (155,809
    )Total Stockholders Equity
    
    
    289,288
    
    
    
    267,752
    
    
    
    261,813Total Liabilities and Stockholders Equity
    
    $
    451,585
    
    
    $
    433,431
    
    
    $
    435,353
  3




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##### Table of Contents



THE CATO CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedAugust 1,
    
    
    August 2,2009
    
    
    2008(Unaudited)
    
    
    (Unaudited)(Dollars in thousands)OPERATING ACTIVITIESNet income
    
    $
    35,472
    
    
    $
    28,944Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    11,026
    
    
    
    11,267Provision for doubtful accounts
    
    
    1,752
    
    
    
    1,462Share-based compensation
    
    
    1,230
    
    
    
    1,064Excess tax benefits from share-based compensation
    
    
    (72
    )
    
    
    (41
    )Loss on disposal of property and equipment
    
    
    393
    
    
    
    2,510Changes in operating assets and liabilities which provided
(used) cash:Accounts receivable
    
    
    586
    
    
    
    (206
    )Merchandise inventories
    
    
    18,483
    
    
    
    21,815Prepaid and other assets
    
    
    (3,740
    )
    
    
    (55
    )Accrued income taxes
    
    
    9,383
    
    
    
    10,546Accounts payable, accrued expenses and other liabilities
    
    
    (20,548
    )
    
    
    (18,246
    )Net cash provided by operating activities
    
    
    53,965
    
    
    
    59,060INVESTING ACTIVITIESExpenditures for property and equipment
    
    
    (6,170
    )
    
    
    (10,540
    )Purchases of short-term investments
    
    
    (96,292
    )
    
    
    (99,820
    )Sales of short-term investments
    
    
    44,347
    
    
    
    84,395Change in restricted cash
    
    
    32
    
    
    
    Net cash (used in) investing activities
    
    
    (58,083
    )
    
    
    (25,965
    )FINANCING ACTIVITIESDividends paid
    
    
    (9,723
    )
    
    
    (9,710
    )Purchase of treasury stock
    
    
    (49
    )
    
    
    Proceeds from employee stock purchase plan
    
    
    200
    
    
    
    233Excess tax benefits from share-based compensation
    
    
    72
    
    
    
    41Proceeds from stock options exercised
    
    
    244
    
    
    
    129Net cash used in financing activities
    
    
    (9,256
    )
    
    
    (9,307
    )Net increase (decrease) in cash and cash equivalents
    
    
    (13,374
    )
    
    
    23,788Cash and cash equivalents at beginning of period
    
    
    42,262
    
    
    
    21,583Cash and cash equivalents at end of period
    
    $
    28,888
    
    
    $
    45,371
  4




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##### Table of Contents



THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 
 NOTE 1  GENERAL:
        Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating
Securities.
 5




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##### Table of Contents



THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 NOTE
2  EARNINGS PER SHARE:
 Earnings Per Share
  Three Months Ended
    
    Six Months EndedAugust 1,
    
    August 2,
    
    August 1,
    
    August 2,2009
    
    2008
    
    2009
    
    2008(Dollars in thousands, except per share data)Basic earnings per share:Net earnings
    
    $
    16,658
    
    
    $
    12,091
    
    
    $
    35,472
    
    
    $
    28,944Earnings allocated to non-vested equity awards
    
    
    (244
    )
    
    
    (167
    )
    
    
    (516
    )
    
    
    (346
    )Net earnings available to common stockholders
    
    $
    16,414
    
    
    $
    11,924
    
    
    $
    34,956
    
    
    $
    28,598Basic weighted-average common shares outstanding
    
    
    29,039,565
    
    
    
    29,113,017
    
    
    
    28,997,030
    
    
    
    29,104,465Basic earnings per share
    
    $
    0.57
    
    
    $
    0.41
    
    
    $
    1.21
    
    
    $
    0.98Diluted earnings per share:Net earnings
    
    $
    16,658
    
    
    $
    12,091
    
    
    $
    35,472
    
    
    $
    28,944Earnings allocated to non-vested equity awards
    
    
    (244
    )
    
    
    (167
    )
    
    
    (516
    )
    
    
    (346
    )Net earnings available to common stockholders
    
    $
    16,414
    
    
    $
    11,924
    
    
    $
    34,956
    
    
    $
    28,598Basic weighted-average common shares outstanding
    
    
    29,039,565
    
    
    
    29,113,017
    
    
    
    28,997,030
    
    
    
    29,104,465Dilutive effect of stock options
    
    
    21,964
    
    
    
    17,142
    
    
    
    18,393
    
    
    
    15,946Diluted
weighted avg. shares outstanding
    
    
    29,061,529
    
    
    
    29,130,159
    
    
    
    29,015,423
    
    
    
    29,120,411Diluted earnings per share
    
    $
    0.56
    
    
    $
    0.41
    
    
    $
    1.20
    
    
    $
    0.98
 6




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##### Table of Contents



THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 
 NOTE
3  SUPPLEMENTAL CASH FLOW INFORMATION:
  NOTE
4  FINANCING ARRANGEMENTS:
   NOTE
5  REPORTABLE SEGMENT INFORMATION:
   Three Months Ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six Months EndedAugust 1, 2009
    
    Retail
    
    
    Credit
    
    
    Total
    
    
    August 1, 2009
    
    Retail
    
    
    Credit
    
    
    TotalRevenues
    
    $
    225,932
    
    
    $
    2,334
    
    
    $
    228,266
    
    
    Revenues
    
    $
    464,541
    
    
    $
    4,752
    
    
    $
    469,293Depreciation
    
    
    5,476
    
    
    
    6
    
    
    
    5,482
    
    
    Depreciation
    
    
    11,010
    
    
    
    16
    
    
    
    11,026Interest and other income
    
    
    (861
    )
    
    
    
    
    
    
    (861
    )
    
    Interest and other income
    
    
    (1,921
    )
    
    
    
    
    
    
    (1,921
    )Income before taxes
    
    
    22,918
    
    
    
    788
    
    
    
    23,706
    
    
    Income before taxes
    
    
    52,288
    
    
    
    1,404
    
    
    
    53,692Total assets
    
    
    380,522
    
    
    
    71,063
    
    
    
    451,585
    
    
    Total assets
    
    
    380,522
    
    
    
    71,063
    
    
    
    451,585Capital expenditures
    
    
    2,631
    
    
    
    
    
    
    
    2,631
    
    
    Capital expenditures
    
    
    6,164
    
    
    
    
    
    
    
    6,164
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six Months EndedAugust 2, 2008
    
    Retail
    
    
    Credit
    
    
    Total
    
    
    August 2, 2008
    
    Retail
    
    
    Credit
    
    
    TotalRevenues
    
    $
    231,401
    
    
    $
    2,467
    
    
    $
    233,868
    
    
    Revenues
    
    $
    457,710
    
    
    $
    4,986
    
    
    $
    462,696Depreciation
    
    
    5,646
    
    
    
    11
    
    
    
    5,657
    
    
    Depreciation
    
    
    11,246
    
    
    
    21
    
    
    
    11,267Interest and other income
    
    
    (1,709
    )
    
    
    
    
    
    
    (1,709
    )
    
    Interest and other income
    
    
    (3,609
    )
    
    
    
    
    
    
    (3,609
    )Income before taxes
    
    
    17,309
    
    
    
    1,011
    
    
    
    18,320
    
    
    Income before taxes
    
    
    43,628
    
    
    
    1,874
    
    
    
    45,502Total assets
    
    
    361,874
    
    
    
    71,557
    
    
    
    433,431
    
    
    Total assets
    
    
    361,874
    
    
    
    71,557
    
    
    
    433,431Capital expenditures
    
    
    4,893
    
    
    
    
    
    
    
    4,893
    
    
    Capital expenditures
    
    
    10,540
    
    
    
    
    
    
    
    10,540
 7




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##### Table of Contents



THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 
 NOTE
5  REPORTABLE SEGMENT INFORMATION (CONTINUED):
   Three Months Ended
    
    Six Months EndedAugust 1,
    
    August 2,
    
    August 1,
    
    August 1,2009
    
    2008
    
    2009
    
    2008Bad debt expense
    
    $
    828
    
    
    $
    696
    
    
    $
    1,752
    
    
    $
    1,462Payroll
    
    
    247
    
    
    
    254
    
    
    
    496
    
    
    
    507Postage
    
    
    224
    
    
    
    240
    
    
    
    469
    
    
    
    513Other expenses
    
    
    241
    
    
    
    255
    
    
    
    615
    
    
    
    609Total expenses
    
    $
    1,540
    
    
    $
    1,445
    
    
    $
    3,332
    
    
    $
    3,091
 NOTE
6  STOCK BASED COMPENSATION:
   1987
    
    
    1999
    
    
    2004Plan
    
    
    Plan
    
    
    Plan
    
    
    TotalOptions and/or restricted stock initially authorized
    
    
    5,850,000
    
    
    
    1,500,000
    
    
    
    1,350,000
    
    
    
    8,700,000Options and/or restricted stock available for grant:January 31, 2009
    
    
    18,627
    
    
    
    
    
    
    
    868,078
    
    
    
    886,705August 1, 2009
    
    
    18,627
    
    
    
    
    
    
    
    737,362
    
    
    
    755,989
  8




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##### Table of Contents



THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
  NOTE
6  STOCK BASED COMPENSATION (CONTINUED):
  WeightedWeighted


AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    Value (a)Options outstanding at January 31, 2009
    
    
    107,950
    
    
    $
    12.72
    
    
    4.07 years
    
    $
    124,257Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    23,225Outstanding at August 1, 2009
    
    
    84,725
    
    
    $
    13.33
    
    
    4.06 years
    
    $
    347,642Vested and exercisable at August 1, 2009
    
    
    75,275
    
    
    $
    13.07
    
    
    3.83 years
    
    $
    328,093
 
 (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.     9




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##### Table of Contents



THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 
 NOTE 6  STOCK BASED COMPENSATION (CONTINUED):
    Weighted AverageNumber of
    
    

    Grant Date FairShares
    
    
    Value Per ShareRestricted stock awards at January 31, 2009
    
    
    439,921
    
    
    $
    20.46Granted
    
    
    157,525
    
    
    
    18.90Vested
    
    
    (58,283
    )
    
    
    22.52Forfeited
    
    
    (39,437
    )
    
    
    20.38Restricted stock awards at August 1, 2009
    
    
    499,726
    
    
    
    19.73
 NOTE
7  INCOME TAXES:
  10




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##### Table of Contents



THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 NOTE 8  FAIR VALUE MEASUREMENTS:
 Fair Value
Measurements. Effective date of
FASB Statement No. 157
  Fair Value Measurements at Reporting Date UsingDescription
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Short term investments
    
    $
    145,427
    
    
    $
    145,427
    
    
    $
    
    
    
    $
    Other Assets
    
    
    5,817
    
    
    
    393
    
    
    
    1,974
    
    
    
    3,450
  Fair Value Measurements at Reporting Date UsingDescription
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Short term investments
    
    $
    93,452
    
    
    $
    90,002
    
    
    $
    3,450
    
    
    $
    Other Assets
    
    
    2,258
    
    
    
    303
    
    
    
    1,955
    
    
    
    
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THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 
 NOTE 8  FAIR VALUE MEASUREMENTS (CONTINUED):
   (in thousands)
    
    Fair ValueBalance at January 31, 2009
    
    $
    Transfer into Level 3
    
    
    3,450Balance at August 1, 2009
    
    $
    3,450
 NOTE
9  RECENT ACCOUNTING PRONOUNCEMENTS:
 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities
 Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly
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THE CATO CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 
 NOTE 9  RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED):
  Recognition and
Presentation of Other-Than-Temporary Impairments
 Subsequent Events
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THE CATO CORPORATION
 
 ITEM
2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 FORWARD LOOKING INFORMATION:
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THE CATO CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
 CRITICAL ACCOUNTING POLICIES:
   RESULTS OF OPERATIONS:
  Three Months Ended
    
    
    Six Months EndedAugust 1,
    
    
    August 2,
    
    
    August 1,
    
    
    August 2,2009
    
    
    2008
    
    
    2009
    
    
    2008Total retail sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Other income
    
    
    1.3
    
    
    
    1.3
    
    
    
    1.3
    
    
    
    1.3Total revenues
    
    
    101.3
    
    
    
    101.3
    
    
    
    101.3
    
    
    
    101.3Cost of goods sold
    
    
    63.7
    
    
    
    64.1
    
    
    
    61.6
    
    
    
    63.4Selling, general and administrative
    
    
    25.1
    
    
    
    27.5
    
    
    
    26.1
    
    
    
    26.2Depreciation
    
    
    2.4
    
    
    
    2.5
    
    
    
    2.4
    
    
    
    2.5Interest and other income
    
    
    (0.4
    )
    
    
    (0.7
    )
    
    
    (0.4
    )
    
    
    (0.8
    )Income before income taxes
    
    
    10.5
    
    
    
    7.9
    
    
    
    11.6
    
    
    
    10.0Net income
    
    
    7.4
    
    
    
    5.2
    
    
    
    7.7
    
    
    
    6.3
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THE CATO CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
 RESULTS OF OPERATIONS  (CONTINUED):
 Comparison of Second Quarter and First Six Months of 2009 with 2008.
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THE CATO CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
 RESULTS OF OPERATIONS  (CONTINUED):
      17




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THE CATO CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
 RESULTS OF OPERATIONS  (CONTINUED):
  LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK:
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THE CATO CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
 LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK (CONTINUED):
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THE CATO CORPORATION  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
  
 ITEM 4. CONTROLS AND PROCEDURES:
  CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:
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PART II OTHER INFORMATION
 THE CATO CORPORATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A.RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   Total Number of
    
    
    Maximum NumberShares Purchased as
    
    
    (or Approximate DollarTotal Number
    
    
    
    
    
    
    Part of Publicly
    
    
    Value) of Shares that mayOf Shares
    
    
    Average Price
    
    
    Announced Plans or
    
    
    Yet be Purchased UnderPeriod
    
    Purchased
    
    
    Paid per Share (1)
    
    
    Programs (2)
    
    
    The Plans or Programs (2)May 2009
    
    
    2,569
    
    
    $
    19.00
    
    
    
    48,811June 2009
    
    
    
    
    
    
    
    
    
    
    July 2009
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,569
    
    
    $
    19.00
    
    
    
    48,811
    
    
    693,373 shares
 
 (1)
    
    Prices include trading costs.(2)
    
    The Companys Board of Directors authorized an increase in the share repurchase program
of 2,000,000 shares and 500,000 shares on August 30, 2007 and February 26, 2009,
respectively. At the second quarter ending August 1, 2009, the Company had 693,373 million
shares remaining in open authorizations. There is no specified expiration date for the
Companys repurchase program. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
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PART II OTHER INFORMATION (CONTINUED)
 THE CATO CORPORATION
 
 ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Election of Directors :
 Voting PowerFor
    
    Withheld
    
    For
    
    WithheldMr. John P. D. Cato
    
    
    26,673,892
    
    
    
    771,877
    
    
    
    42,365,617
    
    
    
    771,877Mr. Bailey W. Patrick
    
    
    26,992,993
    
    
    
    452,776
    
    
    
    42,684,718
    
    
    
    452,776Mr. Thomas E. Meckley
    
    
    26,994,190
    
    
    
    451,579
    
    
    
    42,685,915
    
    
    
    451,579
 Ratification of Independent Auditor:
 Voting PowerFor
    
    Against
    
    Abstain
    
    For
    
    Against
    
    Abstain27,185,835
    
    
    
    235,759
    
    
    
    24,175
    
    
    
    42,877,560
    
    
    
    235,759
    
    
    
    24,175
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 Exhibit No.
    
    Item3.1
    
    
    Registrants Restated Certificate of Incorporation 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).3.2
    
    
    Registrants By Laws incorporated by reference to Exhibit 99.2 to Form
8-K of the Registrant filed December 10, 2007.4.1
    
    
    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 January 6, 2004.31.1
    
    
    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.
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PART II OTHER INFORMATION
 THE CATO CORPORATION
  THE CATO CORPORATIONSeptember 9, 2009
    
    /s/ John P. D. CatoDate
    
    John P. D. Cato
Chairman, President and
Chief Executive OfficerSeptember 9, 2009
    
    /s/ John R. HoweDate
    
    John R. Howe
Executive Vice President
Chief Financial Officer
 23