##### 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 2, 2008
 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
  
   
   þ o
  Large accelerated filer þAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o  o þ




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##### 



THE CATO CORPORATION
 FORM 10-Q
 Quarter Ended August 2, 2008
 Table of Contents
 PageNo.PART I  FINANCIAL INFORMATION (UNAUDITED)Item 1.
    
    Financial Statements:Condensed
Consolidated Statements of Income and Comprehensive Income 
For the Three Months and Six Months Ended August 2, 2008 and
August 4, 2007
    
    
    2Condensed
Consolidated Balance Sheets 
At August 2, 2008, August 4, 2007, and February 2, 2008
    
    
    3Condensed
Consolidated Statements of Cash Flows 
For the Six Months Ended August 2, 2008 and August 4, 2007
    
    
    4Notes to
Condensed Consolidated Financial Statements 
For the Three Months and Six Months Ended
August 2, 2008 and August 4, 2007
    
    
    5  12Item 2.
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    13  18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    19PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    20Item 1A.
    
    Risk Factors
    
    
    20Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3.
    
    Defaults Upon Senior Securities
    
    
    20Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    20Item 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
    
    
    Six Months EndedAugust 2,
    
    
    August 4,
    
    
    August 2,
    
    
    August 4,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)(Dollars in thousands, except per share data)REVENUESRetail sales
    
    $
    230,957
    
    
    $
    218,973
    
    
    $
    456,748
    
    
    $
    443,107Other income (principally finance charges, late fees and
layaway charges)
    
    
    2,911
    
    
    
    2,961
    
    
    
    5,948
    
    
    
    6,056Total revenues
    
    
    233,868
    
    
    
    221,934
    
    
    
    462,696
    
    
    
    449,163COSTS AND EXPENSES, NETCost of goods sold (exclusive of depreciation shown below)
    
    
    148,020
    
    
    
    147,514
    
    
    
    289,640
    
    
    
    290,936Selling, general and administrative (exclusive of depreciation
shown below)
    
    
    63,580
    
    
    
    52,463
    
    
    
    119,896
    
    
    
    103,599Depreciation
    
    
    5,657
    
    
    
    5,623
    
    
    
    11,267
    
    
    
    11,014Interest and other income
    
    
    (1,709
    )
    
    
    (2,316
    )
    
    
    (3,609
    )
    
    
    (4,209
    )215,548
    
    
    
    203,284
    
    
    
    417,194
    
    
    
    401,340Income before income taxes
    
    
    18,320
    
    
    
    18,650
    
    
    
    45,502
    
    
    
    47,823Income tax expense
    
    
    6,229
    
    
    
    6,140
    
    
    
    16,558
    
    
    
    16,642Net Income
    
    $
    12,091
    
    
    $
    12,510
    
    
    $
    28,944
    
    
    $
    31,181Basic earnings per share
    
    $
    0.42
    
    
    $
    0.39
    
    
    $
    0.99
    
    
    $
    0.99Basic weighted average shares
    
    
    29,113,017
    
    
    
    31,897,365
    
    
    
    29,104,465
    
    
    
    31,624,979Diluted earnings per share
    
    $
    0.41
    
    
    $
    0.39
    
    
    $
    0.99
    
    
    $
    0.97Diluted weighted average shares
    
    
    29,200,726
    
    
    
    32,189,903
    
    
    
    29,180,499
    
    
    
    32,040,169Dividends per share
    
    $
    0.165
    
    
    $
    0.165
    
    
    $
    0.33
    
    
    $
    0.315Comprehensive income:Net income
    
    $
    12,091
    
    
    $
    12,510
    
    
    $
    28,944
    
    
    $
    31,181Unrealized gains (losses) on available-for-sale securities, net
of deferred income tax expense
    
    
    (84
    )
    
    
    (49
    )
    
    
    (320
    )
    
    
    (21
    )Net comprehensive income
    
    $
    12,007
    
    
    $
    12,461
    
    
    $
    28,624
    
    
    $
    31,160
  2




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THE CATO CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 August 2,
    
    
    August 4,2008
    
    
    2007
    
    
    February 2,(Unaudited)
    
    
    (Unaudited)
    
    
    2008(Dollars in thousands)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    45,371
    
    
    $
    19,929
    
    
    $
    21,583Short-term investments
    
    
    107,952
    
    
    
    150,387
    
    
    
    92,995Accounts receivable, net of allowance for doubtful accounts of $3,195,
$3,226 and $3,263 at August 2, 2008, August 4, 2007 and February
2, 2008, respectively
    
    
    44,026
    
    
    
    45,533
    
    
    
    45,282Merchandise inventories
    
    
    96,864
    
    
    
    99,236
    
    
    
    118,679Deferred income taxes
    
    
    6,904
    
    
    
    7,522
    
    
    
    6,756Prepaid expenses
    
    
    7,880
    
    
    
    7,197
    
    
    
    7,755Total Current Assets
    
    
    308,997
    
    
    
    329,804
    
    
    
    293,050Property and equipment  net
    
    
    119,952
    
    
    
    126,573
    
    
    
    123,190Other assets
    
    
    4,482
    
    
    
    4,279
    
    
    
    4,552Total Assets
    
    $
    433,431
    
    
    $
    460,656
    
    
    $
    420,792LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    83,899
    
    
    $
    82,879
    
    
    $
    110,848Accrued expenses
    
    
    34,052
    
    
    
    29,438
    
    
    
    27,617Accrued bonus and benefits
    
    
    6,830
    
    
    
    1,426
    
    
    
    2,543Accrued income taxes
    
    
    18,433
    
    
    
    6,437
    
    
    
    7,928Total Current Liabilities
    
    
    143,214
    
    
    
    120,180
    
    
    
    148,936Deferred income taxes
    
    
    1,707
    
    
    
    8,817
    
    
    
    1,707Other noncurrent liabilities (primarily deferred rent)
    
    
    20,758
    
    
    
    23,286
    
    
    
    22,779Commitments 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 36,281,440 shares, 36,089,761 shares,
and 36,109,263 shares at August 2, 2008, August 4, 2007 and
February 2, 2008, respectively
    
    
    1,209
    
    
    
    1,203
    
    
    
    1,204Convertible Class B common stock, $.033 par value per share,
15,000,000 shares authorized; issued 1,743,525 shares, 1,743,525
shares and 1,743,525 shares at August 2, 2008, August 4, 2007 and
February 2, 2008, respectively
    
    
    58
    
    
    
    58
    
    
    
    58Additional paid-in capital
    
    
    60,147
    
    
    
    56,913
    
    
    
    58,685Retained earnings
    
    
    359,323
    
    
    
    349,276
    
    
    
    340,088Accumulated other comprehensive income
    
    
    389
    
    
    
    204
    
    
    
    709421,126
    
    
    
    407,654
    
    
    
    400,744Less Class A common stock in treasury, at cost (8,461,615 shares,
5,299,500 shares and 8,461,615 shares at August 2, 2008,
August 4, 2007 and February 2, 2008, respectively)
    
    
    (153,374
    )
    
    
    (99,281
    )
    
    
    (153,374
    )Total Stockholders Equity
    
    
    267,752
    
    
    
    308,373
    
    
    
    247,370Total Liabilities and Stockholders Equity
    
    $
    433,431
    
    
    $
    460,656
    
    
    $
    420,792
  3




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THE CATO CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedAugust 2,
    
    
    August 4,2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)(Dollars in thousands)OPERATING ACTIVITIESNet income
    
    $
    28,944
    
    
    $
    31,181Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    11,267
    
    
    
    11,014Provision for doubtful accounts
    
    
    1,462
    
    
    
    1,134Share-based compensation
    
    
    1,064
    
    
    
    812Excess tax benefits from share-based compensation
    
    
    (41
    )
    
    
    (5,450
    )Deferred income taxes
    
    
    
    
    
    
    Loss on disposal of property and equipment
    
    
    2,510
    
    
    
    326Changes in operating assets and liabilities which provided
(used) cash:Accounts receivable
    
    
    (206
    )
    
    
    (709
    )Merchandise inventories
    
    
    21,815
    
    
    
    16,682Prepaid and other assets
    
    
    (55
    )
    
    
    (541
    )Accrued income taxes
    
    
    10,546
    
    
    
    6,528Accounts payable, accrued expenses and other liabilities
    
    
    (18,246
    )
    
    
    (3,346
    )Net cash provided by operating activities
    
    
    59,060
    
    
    
    57,631INVESTING ACTIVITIESExpenditures for property and equipment
    
    
    (10,540
    )
    
    
    (9,568
    )Purchases of short-term investments
    
    
    (99,820
    )
    
    
    (206,024
    )Sales of short-term investments
    
    
    84,395
    
    
    
    154,310Net cash provided by (used in) investing activities
    
    
    (25,965
    )
    
    
    (61,282
    )FINANCING ACTIVITIESChange in cash overdrafts included in accounts payable
    
    
    
    
    
    
    (500
    )Dividends paid
    
    
    (9,710
    )
    
    
    (9,961
    )Purchase of treasury stock
    
    
    
    
    
    
    (4,468
    )Proceeds from employee stock purchase plan
    
    
    233
    
    
    
    233Excess tax benefits from share-based compensation
    
    
    41
    
    
    
    5,450Proceeds from stock options exercised
    
    
    129
    
    
    
    7,993Net cash used in financing activities
    
    
    (9,307
    )
    
    
    (1,253
    )Net increase (decrease) in cash and cash equivalents
    
    
    23,788
    
    
    
    (4,904
    )Cash and cash equivalents at beginning of period
    
    
    21,583
    
    
    
    24,833Cash and cash equivalents at end of period
    
    $
    45,371
    
    
    $
    19,929
  4




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THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 2008 AND AUGUST 4, 2007
 
 NOTE 1  GENERAL:
        5




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THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 2008 AND AUGUST 4, 2007
 
 NOTE 2  EARNINGS PER SHARE:
 Earnings Per Share
  Three Months Ended
    
    Six Months EndedAugust 2,
    
    August 4,
    
    August 2,
    
    August 4,2008
    
    2007
    
    2008
    
    2007Weighted-average shares outstanding
    
    
    29,113,017
    
    
    
    31,897,365
    
    
    
    29,104,465
    
    
    
    31,624,979Dilutive effect of:Stock options
    
    
    17,168
    
    
    
    234,982
    
    
    
    15,956
    
    
    
    365,822Restricted stock
    
    
    70,541
    
    
    
    57,035
    
    
    
    60,078
    
    
    
    48,674Employee stock purchase plan
    
    
    
    
    
    
    521
    
    
    
    
    
    
    
    694Weighted-average shares and common
stock equivalents outstanding
    
    
    29,200,726
    
    
    
    32,189,903
    
    
    
    29,180,499
    
    
    
    32,040,169
 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 SIX MONTHS ENDED AUGUST 2, 2008 AND AUGUST 4, 2007
 
 NOTE 4  FINANCING ARRANGEMENTS (CONTINUED):
   NOTE 5  REPORTABLE SEGMENT INFORMATION:
   Three Months EndedAugust 2, 2008
    
    Retail
    
    Credit
    
    Total
    
    Six Months EndedAugust 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
 Three Months EndedAugust 4, 2007
    
    Retail
    
    Credit
    
    Total
    
    Six Months EndedAugust 4, 2007
    
    Retail
    
    Credit
    
    TotalRevenues
    
    $
    219,374
    
    
    $
    2,560
    
    
    $
    221,934
    

    

    Revenues
    
    $
    444,005
    
    
    $
    5,158
    
    
    $
    449,163Depreciation
    
    
    5,597
    
    
    
    26
    
    
    
    5,623
    

    

    Depreciation
    
    
    10,964
    
    
    
    50
    
    
    
    11,014Interest and other income
    
    
    (2,316
    )
    
    
    
    
    
    
    (2,316
    )

    

    Interest and other income
    
    
    (4,209
    )
    
    
    
    
    
    
    (4,209
    )Income before taxes
    
    
    17,549
    
    
    
    1,101
    
    
    
    18,650
    

    

    Income before taxes
    
    
    45,567
    
    
    
    2,256
    
    
    
    47,823Total assets
    
    
    393,081
    
    
    
    67,575
    
    
    
    460,656
    

    

    Total assets
    
    
    393,081
    
    
    
    67,575
    
    
    
    460,656Capital expenditures
    
    
    5,532
    
    
    
    106
    
    
    
    5,638
    

    

    Capital expenditures
    
    
    9,449
    
    
    
    119
    
    
    
    9,568
  7




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THE CATO CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 2008 AND AUGUST 4, 2007
 NOTE 5  REPORTABLE SEGMENT INFORMATION (CONTINUED):
  Three Months Ended
    
    
    Six Months EndedAugust 2,
    
    
    August 4,
    
    
    August 2,
    
    
    August 4,2008
    
    
    2007
    
    
    2008
    
    
    2007Bad debt expense
    
    $
    696
    
    
    $
    676
    
    
    $
    1,462
    
    
    $
    1,134Payroll
    
    
    254
    
    
    
    245
    
    
    
    507
    
    
    
    487Postage
    
    
    240
    
    
    
    235
    
    
    
    513
    
    
    
    513Other expenses
    
    
    255
    
    
    
    277
    
    
    
    609
    
    
    
    718Total expenses
    
    $
    1,445
    
    
    $
    1,433
    
    
    $
    3,091
    
    
    $
    2,852
 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:February 2, 2008
    
    
    12,277
    
    
    
    
    
    
    
    1,006,033
    
    
    
    1,018,310August 2, 2008
    
    
    12,877
    
    
    
    
    
    
    
    866,488
    
    
    
    879,365
  8




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THE CATO CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 2008 AND AUGUST 4, 2007
 NOTE 6  STOCK BASED COMPENSATION (CONTINUED):
  Weighted AverageWeighted Average
    
    Remaining Contractual
    
    Aggregate IntrinsicShares
    
    Exercise Price
    
    Term
    
    Value (a)Options outstanding at February 2, 2008
    
    
    139,075
    
    
    $
    12.41
    
    
    
    4.64
    
    
    $
    494,087Granted
    
    
    Forfeited or expired
    
    
    (600
    )
    
    $
    8.71Exercised
    
    
    (14,475
    )
    
    $
    8.93Outstanding at August 2, 2008
    
    
    124,000
    
    
    $
    12.83
    
    
    
    4.58
    
    
    $
    415,299Vested and exercisable at August 2, 2008
    
    
    94,825
    
    
    $
    12.16
    
    
    
    4.10
    
    
    $
    380,727
 
 (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.   ShareBased Payment
  9




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THE CATO CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 2008 AND AUGUST 4, 2007
 NOTE 6  STOCK BASED COMPENSATION (CONTINUED):
    Weighted AverageNumber of
    
    
    Grant Date FairShares
    
    
    Value Per ShareRestricted stock awards at February 2, 2008
    
    
    301,967
    
    
    $
    22.56Granted
    
    
    150,795
    
    
    
    16.61Vested
    
    
    
    
    
    
    Forfeited
    
    
    (11,250
    )
    
    
    23.88Restricted stock awards at August 2, 2008
    
    
    441,512
    
    
    $
    20.50
 10




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THE CATO CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 2, 2008 AND AUGUST 4, 2007
 NOTE 7  INCOME TAXES:
  NOTE 8  FAIR VALUE MEASUREMENTS:
 Fair Value Measurements Effective date of
FASB Statement No. 157
  Fair Value Measurements at Reporting Date UsingQuoted MarketPrices in Active
    
    SignificantMarket for
    
    Other
    
    SignificantIdentical
    
    Observable
    
    UnobservableAssets/Liabilities
    
    Inputs
    
    InputsDescription
    
    August 2, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Assets:Short term investments
    
    $
    107,952
    
    
    $
    103,552
    
    
    $
    4,400
    
    
    
    Other Assets
    
    
    2,700
    
    
    
    501
    
    
    
    2,199
    
    
    
    
   11




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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 2, 2008 AND AUGUST 4, 2007
 
 NOTE 8  FAIR VALUE MEASUREMENTS (CONTINUED):
  NOTE 9  RECENT ACCOUNTING PRONOUNCEMENTS:
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Accounting for Income Tax
Benefits of Dividends on Share-Based Payment
 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities
 12




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THE CATO CORPORATION  ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 FORWARD LOOKING INFORMATION:
  13




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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 2,
    
    August 4,
    
    August 2,
    
    August 4,2008
    
    2007
    
    2008
    
    2007Total retail sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Total revenues
    
    
    101.3
    
    
    
    101.3
    
    
    
    101.3
    
    
    
    101.4Cost of goods sold
    
    
    64.1
    
    
    
    67.4
    
    
    
    63.4
    
    
    
    65.7Selling, general and administrative
    
    
    27.5
    
    
    
    23.9
    
    
    
    26.2
    
    
    
    23.4Depreciation
    
    
    2.5
    
    
    
    2.6
    
    
    
    2.5
    
    
    
    2.5Interest and other income
    
    
    (0.7
    )
    
    
    (1.1
    )
    
    
    (0.8
    )
    
    
    (1.0
    )Income before income taxes
    
    
    7.9
    
    
    
    8.5
    
    
    
    10.0
    
    
    
    10.8Net income
    
    
    5.2
    
    
    
    5.7
    
    
    
    6.3
    
    
    
    7.0
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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 2008 with 2007.
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THE CATO CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
 RESULTS OF OPERATIONS  (CONTINUED):
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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:
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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):
      18




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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:
  19




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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
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Election of Directors :
 Voting PowerFor
    
    Withheld
    
    For
    
    WithheldMr. Robert W.
Bradshaw, Jr.
    
    
    22,933,323
    
    
    
    4,839,103
    
    
    
    38,625,048
    
    
    
    4,839,103Mr. Grant L. Hamrick
    
    
    26,837,554
    
    
    
    934,872
    
    
    
    42,529,279
    
    
    
    934,872
 Ratification of Independent Auditor:
 Voting PowerFor
    
    Against
    
    Abstain
    
    For
    
    Against
    
    Abstain27,738,240
    
    
    28,573
    
    
    
    5,612
    
    
    
    43,429,965
    
    
    
    28,573
    
    
    
    5,612
 Amended and Restated 2004 Incentive Compensation Plan:
 Broker
    
    Voting PowerFor
    
    Against
    
    Abstain
    
    Non Vote
    
    For
    
    Against
    
    Abstain26,158,751
    
    
    808,203
    
    
    
    11,187
    
    
    
    794,285
    
    
    
    41,850,476
    
    
    
    808,203
    
    
    
    11,187
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PART II OTHER INFORMATION (CONTINUED)
 THE CATO CORPORATION
 
 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 Principal Executive Officer.32.2
    
    Section 1350 Certification of Principal Financial Officer.
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PART II OTHER INFORMATION
 THE CATO CORPORATION
  THE CATO CORPORATIONSeptember 10, 2008
    
    /s/ John P. D. CatoDate
    
    John P. D. CatoChairman, President and
Chief Executive OfficerSeptember 10, 2008
    
    /s/ John R. HoweDate
    
    John R. HoweExecutive Vice President
Chief Financial Officer 22