##### 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 endedOctober 28, 2006
 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,
if changed since last report)
  þ o
  o þ o
  o þ




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##### Table of Contents



THE CATO CORPORATION
 FORM 10-Q
 Quarter Ended October 28, 2006
 Table of Contents
 PageNo.PART I  FINANCIAL INFORMATION (UNAUDITED)Item 1. Financial Statements:Condensed Consolidated Statements of Income and Comprehensive Income
    
    
    2For the Three Months and Nine Months Ended October 28, 2006
and October 29, 2005Condensed Consolidated Balance Sheets
    
    
    3At October 28, 2006, October 29, 2005 and January 28, 2006Condensed Consolidated Statements of Cash Flows
    
    
    4For the Nine Months Ended October 28, 2006 and October 29, 2005Notes to Condensed Consolidated Financial Statements
    
    
    512For the Three Months and Nine Months Ended
October 28, 2006 and October 29, 2005Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    13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
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits
    
    
    21Signatures
    
    
    22-26Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 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
    
    
    Nine Months EndedOctober 28,
    
    
    October 29,
    
    
    October 28,
    
    
    October 29,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)(Dollars in thousands, except per share data)REVENUESRetail sales
    
    $
    187,727
    
    
    $
    177,762
    
    
    $
    632,101
    
    
    $
    601,142Other income (principally finance charges, late fees and
layaway charges)
    
    
    3,155
    
    
    
    3,592
    
    
    
    9,686
    
    
    
    11,103Total revenues
    
    
    190,882
    
    
    
    181,354
    
    
    
    641,787
    
    
    
    612,245COSTS AND EXPENSES, NETCost of goods sold
    
    
    127,229
    
    
    
    119,869
    
    
    
    413,087
    
    
    
    396,729Selling, general and administrative
    
    
    51,472
    
    
    
    51,231
    
    
    
    157,801
    
    
    
    151,328Depreciation
    
    
    5,169
    
    
    
    5,094
    
    
    
    15,561
    
    
    
    15,158Interest expense
    
    
    10
    
    
    
    10
    
    
    
    30
    
    
    
    172Interest and other income
    
    
    (2,131
    )
    
    
    (1,235
    )
    
    
    (5,624
    )
    
    
    (3,247
    )181,749
    
    
    
    174,969
    
    
    
    580,855
    
    
    
    560,140Income before income taxes
    
    
    9,133
    
    
    
    6,385
    
    
    
    60,932
    
    
    
    52,105Income tax expense
    
    
    3,272
    
    
    
    2,318
    
    
    
    22,179
    
    
    
    18,914Net Income
    
    $
    5,861
    
    
    $
    4,067
    
    
    $
    38,753
    
    
    $
    33,191Basic earnings per share
    
    $
    0.19
    
    
    $
    0.13
    
    
    $
    1.24
    
    
    $
    1.07Basic weighted average shares
    
    
    31,298,253
    
    
    
    31,126,752
    
    
    
    31,270,347
    
    
    
    31,139,741Diluted earnings per share
    
    $
    0.18
    
    
    $
    0.13
    
    
    $
    1.22
    
    
    $
    1.04Diluted weighted average shares
    
    
    31,846,241
    
    
    
    31,771,535
    
    
    
    31,795,150
    
    
    
    31,798,500Dividends per share
    
    $
    0.15
    
    
    $
    0.13
    
    
    $
    0.43
    
    
    $
    0.38Comprehensive income:Net income
    
    $
    5,861
    
    
    $
    4,067
    
    
    $
    38,753
    
    
    $
    33,191Unrealized gains (losses) on available-for-sale securities, net
of deferred income tax liability or benefit
    
    
    78
    
    
    
    (20
    )
    
    
    112
    
    
    
    10Net comprehensive income
    
    $
    5,939
    
    
    $
    4,047
    
    
    $
    38,865
    
    
    $
    33,201
  2




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##### Table of Contents



THE CATO CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 October 28,
    
    
    October 29,2006
    
    
    2005
    
    
    January 28,(Unaudited)
    
    
    (Unaudited)
    
    
    2006(Dollars in thousands)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    21,428
    
    
    $
    18,288
    
    
    $
    21,734Short-term investments
    
    
    86,229
    
    
    
    75,107
    
    
    
    86,085Accounts receivable, net of allowance for doubtful accounts of $3,585,
$4,187 and $3,694 at October 28, 2006, October 29, 2005 and
January 28, 2006, respectively
    
    
    45,229
    
    
    
    47,638
    
    
    
    49,644Merchandise inventories
    
    
    110,078
    
    
    
    103,435
    
    
    
    103,370Deferred income taxes
    
    
    8,462
    
    
    
    5,775
    
    
    
    8,526Prepaid expenses
    
    
    2,438
    
    
    
    2,919
    
    
    
    2,318Total Current Assets
    
    
    273,864
    
    
    
    253,162
    
    
    
    271,677Property and equipment  net
    
    
    130,255
    
    
    
    122,034
    
    
    
    124,104Other assets
    
    
    11,150
    
    
    
    10,941
    
    
    
    10,855Total Assets
    
    $
    415,269
    
    
    $
    386,137
    
    
    $
    406,636LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    63,542
    
    
    $
    71,286
    
    
    $
    78,036Accrued expenses
    
    
    34,334
    
    
    
    32,439
    
    
    
    31,967Accrued bonus and benefits
    
    
    11,511
    
    
    
    12,956
    
    
    
    17,570Accrued income taxes
    
    
    5,803
    
    
    
    3,457
    
    
    
    4,990Total Current Liabilities
    
    
    115,190
    
    
    
    120,138
    
    
    
    132,563Deferred income taxes
    
    
    9,261
    
    
    
    10,172
    
    
    
    9,261Other noncurrent liabilities (primarily deferred rent)
    
    
    23,187
    
    
    
    24,306
    
    
    
    24,864Commitments 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 35,922,824 shares, 35,571,286 shares
and 35,622,516 shares at October 28, 2006, October 29, 2005 and
January 28, 2006, respectively
    
    
    1,197
    
    
    
    1,186
    
    
    
    1,188Convertible Class B common stock, $.033 par value per share,
15,000,000 shares authorized; issued 690,525 shares,
at October 28, 2006, October 29, 2005 and
January 28, 2006, respectively
    
    
    23
    
    
    
    23
    
    
    
    23Additional paid-in capital
    
    
    41,318
    
    
    
    37,841
    
    
    
    39,244Retained earnings
    
    
    319,716
    
    
    
    286,882
    
    
    
    294,462Accumulated other comprehensive income
    
    
    190
    
    
    
    81
    
    
    
    78Unearned compensation  restricted stock awards
    
    
    
    
    
    
    (398
    )
    
    
    (229
    )362,444
    
    
    
    325,615
    
    
    
    334,766Less Class A common stock in treasury, at cost (5,093,609
Class A shares at October 28, 2006, and
5,055,840 Class A shares at October 29, 2005 and
5,093,840 Class A shares at January 28, 2006)
    
    
    (94,813
    )
    
    
    (94,094
    )
    
    
    (94,818
    )Total Stockholders Equity
    
    
    267,631
    
    
    
    231,521
    
    
    
    239,948Total Liabilities and Stockholders Equity
    
    $
    415,269
    
    
    $
    386,137
    
    
    $
    406,636
  3




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THE CATO CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months EndedOctober 28,
    
    
    October 29,2006
    
    
    2005(Unaudited)
    
    
    (Unaudited)(Dollars in thousands)OPERATING ACTIVITIESNet income
    
    $
    38,753
    
    
    $
    33,191Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    15,561
    
    
    
    15,158Provision for doubtful accounts
    
    
    2,111
    
    
    
    3,519Share-based compensation
    
    
    983
    
    
    
    512Excess tax benefits from share-based compensation
    
    
    (312
    )
    
    
    Deferred income taxes
    
    
    64
    
    
    
    6Loss on disposal of property and equipment
    
    
    1,323
    
    
    
    1,516Changes in operating assets and liabilities which provided
(used) cash:Accounts receivable
    
    
    2,304
    
    
    
    (268
    )Merchandise inventories
    
    
    (6,708
    )
    
    
    (2,897
    )Prepaid and other assets
    
    
    (416
    )
    
    
    (1,752
    )Accrued income taxes
    
    
    1,125
    
    
    
    (1,008
    )Accounts payable, accrued expenses and other liabilities
    
    
    (20,327
    )
    
    
    (7,903
    )Net cash provided by operating activities
    
    
    34,461
    
    
    
    40,074INVESTING ACTIVITIESExpenditures for property and equipment
    
    
    (23,169
    )
    
    
    (21,050
    )Purchases of short-term investments
    
    
    (114,143
    )
    
    
    (56,689
    )Sales of short-term investments
    
    
    114,110
    
    
    
    70,180Net cash used in investing activities
    
    
    (23,202
    )
    
    
    (7,559
    )FINANCING ACTIVITIESChange in cash overdrafts included in accounts payable
    
    
    600
    
    
    
    2,500Dividends paid
    
    
    (13,508
    )
    
    
    (11,808
    )Purchase of treasury stock
    
    
    
    
    
    
    (2,812
    )Payments to settle long term debt
    
    
    
    
    
    
    (22,000
    )Proceeds from employee stock purchase plan
    
    
    395
    
    
    
    416Excess tax benefits from share-based compensation
    
    
    312
    
    
    
    Proceeds from stock options exercised
    
    
    636
    
    
    
    837Net cash used in financing activities
    
    
    (11,565
    )
    
    
    (32,867
    )Net decrease in cash and cash equivalents
    
    
    (306
    )
    
    
    (352
    )Cash and cash equivalents at beginning of period
    
    
    21,734
    
    
    
    18,640Cash and cash equivalents at end of period
    
    $
    21,428
    
    
    $
    18,288
  4




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THE CATO CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2006 AND OCTOBER 29, 2005
 NOTE 1  GENERAL:
        5




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THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2006 AND OCTOBER 29, 2005
 NOTE 1  GENERAL (CONTINUED):
  NOTE 2  EARNINGS PER SHARE:
  Three Months Ended
    
    Nine Months EndedOctober 28,
    
    October 29,
    
    October 28,
    
    October 29,2006
    
    2005
    
    2006
    
    2005Weighted-average shares outstanding
    
    
    31,298,253
    
    
    
    31,126,752
    
    
    
    31,270,347
    
    
    
    31,139,741Dilutive effect of :Stock options
    
    
    523,476
    
    
    
    516,430
    
    
    
    511,307
    
    
    
    538,809Restricted stock
    
    
    24,512
    
    
    
    128,353
    
    
    
    13,496
    
    
    
    119,950Employee stock purchase plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average shares and
common stock equivalents
outstanding
    
    
    31,846,241
    
    
    
    31,771,535
    
    
    
    31,795,150
    
    
    
    31,798,500
 NOTE 3  SUPPLEMENTAL CASH FLOW INFORMATION:
  NOTE 4  FINANCING ARRANGEMENTS:
  6




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THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2006 AND OCTOBER 29, 2005
 NOTE 4  FINANCING ARRANGEMENTS (CONTINUED):
   NOTE 5  REPORTABLE SEGMENT INFORMATION:
   Three Months Ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedOctober 28, 2006
    
    Retail
    
    Credit
    
    Total
    
    October 28, 2006
    
    Retail
    
    Credit
    
    TotalRevenues
    
    $
    188,171
    
    
    $
    2,711
    
    
    $
    190,882
    
    
    Revenues
    
    $
    633,718
    
    
    $
    8,069
    
    
    $
    641,787Depreciation
    
    
    5,142
    
    
    
    27
    
    
    
    5,169
    
    
    Depreciation
    
    
    15,494
    
    
    
    67
    
    
    
    15,561Interest and other income
    
    
    (2,131
    )
    
    
    
    
    
    
    (2,131
    )
    
    Interest and other income
    
    
    (5,624
    )
    
    
    
    
    
    
    (5,624
    )Income before taxes
    
    
    7,948
    
    
    
    1,185
    
    
    
    9,133
    
    
    Income before taxes
    
    
    57,753
    
    
    
    3,179
    
    
    
    60,932Total assets
    
    
    345,075
    
    
    
    70,194
    
    
    
    415,269
    
    
    Total assets
    
    
    345,075
    
    
    
    70,194
    
    
    
    415,269Capital expenditures
    
    
    5,797
    
    
    
    2
    
    
    
    5,799
    
    
    Capital expenditures
    
    
    23,146
    
    
    
    23
    
    
    
    23,169
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedOctober 29, 2005
    
    Retail
    
    Credit
    
    Total
    
    October 29, 2005
    
    Retail
    
    Credit
    
    TotalRevenues
    
    $
    178,226
    
    
    $
    3,128
    
    
    $
    181,354
    
    
    Revenues
    
    $
    602,522
    
    
    $
    9,723
    
    
    $
    612,245Depreciation
    
    
    5,069
    
    
    
    25
    
    
    
    5,094
    
    
    Depreciation
    
    
    15,076
    
    
    
    82
    
    
    
    15,158Interest and other income
    
    
    (1,235
    )
    
    
    
    
    
    
    (1,235
    )
    
    Interest and other income
    
    
    (3,247
    )
    
    
    
    
    
    
    (3,247
    )Income before taxes
    
    
    5,093
    
    
    
    1,292
    
    
    
    6,385
    
    
    Income before taxes
    
    
    48,486
    
    
    
    3,619
    
    
    
    52,105Total assets
    
    
    320,659
    
    
    
    65,478
    
    
    
    386,137
    
    
    Total assets
    
    
    320,659
    
    
    
    65,478
    
    
    
    386,137Capital expenditures
    
    
    9,366
    
    
    
    
    
    
    
    9,366
    
    
    Capital expenditures
    
    
    21,048
    
    
    
    2
    
    
    
    21,050
   7




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THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2006 AND OCTOBER 29, 2005
 NOTE 5  REPORTABLE SEGMENT INFORMATION (CONTINUED):
 Three Months Ended
    
    
    Nine Months EndedOctober 28,
    
    
    October 29,
    
    
    October 28,
    
    
    October 29,2006
    
    
    2005
    
    
    2006
    
    
    2005Bad debt expense
    
    $
    722
    
    
    $
    1,074
    
    
    $
    2,303
    
    
    $
    3,517Payroll
    
    
    246
    
    
    
    251
    
    
    
    760
    
    
    
    801Postage
    
    
    239
    
    
    
    223
    
    
    
    780
    
    
    
    820Other expenses
    
    
    292
    
    
    
    263
    
    
    
    980
    
    
    
    884Total expenses
    
    $
    1,499
    
    
    $
    1,811
    
    
    $
    4,823
    
    
    $
    6,022
 NOTE 6  STOCK BASED COMPENSATION:
 Share-Based Payment, Accounting for Stock Issued to
Employees,
  8




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THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2006 AND OCTOBER 29, 2005
 NOTE 6  STOCK BASED COMPENSATION (CONTINUED):
  1987
    
    1999
    
    2004Plan
    
    Plan
    
    Plan
    
    TotalOptions and/or restricted stock initially authorized
    
    
    4,612,500
    
    
    
    1,000,000
    
    
    
    1,350,000
    
    
    
    6,962,500Options and/or restricted stock available for grant:January 28, 2006
    
    
    5,227
    
    
    
    
    
    
    
    1,300,500
    
    
    
    1,305,727October 28, 2006
    
    
    8,827
    
    
    
    
    
    
    
    1,092,218
    
    
    
    1,101,045
   Weighted AverageWeighted Average
    
    
    Remaining Contractual

    
    Aggregate IntrinsicShares
    
    
    Exercise Price
    
    
    Term

    
    Value (a)Options outstanding at January 28, 2006
    
    
    1,343,400
    
    
    $
    8.23
    
    
    3.05 yearsGranted
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (10,500
    )Exercised
    
    
    (64,275
    )Outstanding at October 28, 2006
    
    
    1,268,625
    
    
    $
    8.08
    
    
    2.17 years
    
    
    $
    18,612,870Vested and exercisable at October 28, 2006
    
    
    1,180,550
    
    
    $
    7.59
    
    
    1.84 years
    
    
    $
    17,896,661
 
 (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 NINE MONTHS ENDED OCTOBER 28, 2006 AND OCTOBER 29, 2005
 NOTE 6  STOCK BASED COMPENSATION (CONTINUED):
 Nine Months EndedOctober 29,2005Risk free interest rate
    
    
    4.35
    %Expected life
    
    5.0 yearsExpected volatility
    
    
    36.86
    %Expected dividend yield
    
    
    2.62
    %Weighted-average grant date fair value per share
    
    $
    6.19
    Three Months
    
    
    Nine MonthsEnded
    
    
    EndedOctober 29,
    
    
    October 29,2005
    
    
    2005Net Income as Reported
    
    $
    4,067
    
    
    $
    33,191Add: Stock-based employee compensation expense included
in reported net income, net of related tax effects
    
    
    109
    
    
    
    326Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards,
net of related tax effects
    
    
    (125
    )
    
    
    (387
    )Pro forma Net Income
    
    $
    4,051
    
    
    $
    33,130Earnings per share:Basic  as reported
    
    $
    .13
    
    
    $
    1.07Basic  pro forma
    
    $
    .13
    
    
    $
    1.06Diluted  as reported
    
    $
    .13
    
    
    $
    1.04Diluted  pro forma
    
    $
    .13
    
    
    $
    1.04
 10




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THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2006 AND OCTOBER 29, 2005
 NOTE 6  STOCK BASED COMPENSATION (CONTINUED):
  
   Weighted AverageGrant Date FairNumber of Shares
    
    
    Value Per ShareRestricted stock awards at January 28, 2006
    
    
    150,000
    
    
    $
    18.21Granted
    
    
    219,754
    
    
    
    22.84Vested
    
    
    (150,000
    )
    
    
    18.21Forfeited
    
    
    (5,472
    )
    
    
    22.89Restricted stock awards at October 28, 2006
    
    
    214,282
    
    
    $
    22.84
 NOTE 7  RECENT ACCOUNTING PRONOUNCEMENTS:
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THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2006 AND OCTOBER 29, 2005
 NOTE 7  RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED):
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THE CATO CORPORATION
 
 ITEM
2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD LOOKING INFORMATION:
 
 www.catocorp.com
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THE CATO CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 CRITICAL ACCOUNTING POLICIES:
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THE CATO CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 RESULTS OF OPERATIONS:
  Three Months Ended
    
    Nine Months EndedOctober 28,
    
    October 29,
    
    October 28,
    
    October 29,2006
    
    2005
    
    2006
    
    2005Total retail sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Total revenues
    
    
    101.7
    
    
    
    102.0
    
    
    
    101.5
    
    
    
    101.9Cost of goods sold
    
    
    67.8
    
    
    
    67.4
    
    
    
    65.3
    
    
    
    66.0Selling, general and administrative
    
    
    27.4
    
    
    
    28.8
    
    
    
    25.0
    
    
    
    25.2Depreciation
    
    
    2.7
    
    
    
    2.9
    
    
    
    2.5
    
    
    
    2.5Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest and other income
    
    
    (1.1
    )
    
    
    (0.7
    )
    
    
    (0.9
    )
    
    
    (0.5
    )Income before income taxes
    
    
    4.9
    
    
    
    3.6
    
    
    
    9.6
    
    
    
    8.7Net income
    
    
    3.1
    
    
    
    2.3
    
    
    
    3.5
    
    
    
    5.5
 Comparison of Third Quarter and First Nine Months of 2006 with 2005.
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##### Table of Contents



THE CATO CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 RESULTS OF OPERATIONS  (CONTINUED):
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##### Table of Contents



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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##### Table of Contents



THE CATO CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK (CONTINUED):
        18




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##### Table of Contents



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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##### Table of Contents



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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##### Table of Contents



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
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 Exhibit No.
    
    Item3.1
    
    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, 2000.3.2
    
    Registrants By Laws, incorporated by reference to Exhibit 4.2 to
Form S-8 of the Registrant Filed February 7, 2000.31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief 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
Principal Financial Officer.
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##### Table of Contents



PART II OTHER INFORMATION
 THE CATO CORPORATION
  THE CATO CORPORATIONDecember 1, 2006

Date
    
    
    
    /s/ John P. D. Cato

John P. D. CatoChairman, President andChief Executive OfficerDecember 1, 2006

Date
    
    
    
    /s/ Robert M. Sandler

Robert M. SandlerSenior Vice PresidentControllerprincipal financial officer
 22