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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended January 29, 2005                                                  
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-31340


The Cato Corporation


Registrant


|                                                                                                 |  |                                          
|------------------------------------------------------------------------------------------------ |  | -----------------------------------------
|Delaware                                                                                         |  | 56-0484485                               
|State of Incorporation                                                                           |  | I.R.S. Employer
    Identification Number
|                                                                                                
|8100 Denmark Road
    Charlotte, North Carolina 28273-5975Address of Principal Executive Offices |  | 704/554-8510Registrants Telephone Number

Securities registered pursuant to Section 12(b) of the
Act:






Securities registered pursuant to Section 12(g) of the
Act:




þ o


o


þ o






DOCUMENTS INCORPORATED BY REFERENCE















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---



THE CATO CORPORATION


FORM 10-K


TABLE OF CONTENTS







|         |  |                                                                                                                                             |  |      |         | 
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | 
|         |  |                                                                                                                                             |  | Page |        
|         |  |                                                                                                                                             |  |      |        
|PART I  
|Item 1.  |  | Business                                                                                                                                    |  |      | 3  7   | 
|Item 2.  |  | Properties                                                                                                                                  |  |      | 7       | 
|Item 3.  |  | Legal Proceedings                                                                                                                           |  |      | 7       | 
|Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                                                                     |  |      | 7       | 
|Item 4A. |  | Executive Officers of the Registrant                                                                                                        |  |      | 8       | 
|        
|PART II 
|Item 5.  |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities                        |  |      | 9       | 
|Item 6.  |  | Selected Financial Data                                                                                                                     |  |      | 10      | 
|Item 7.  |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                                   |  |      | 11  18 | 
|Item 7A. |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                                              |  |      | 18      | 
|Item 8.  |  | Financial Statements and Supplementary
    Data                                                                                             |  |      | 19  43 | 
|Item 9.  |  | Changes in and Disagreements with
    Independent Registered Public Accounting Firm on Accounting and
    Consolidated Financial Disclosure |  |      | 44      | 
|Item 9A. |  | Controls and Procedures                                                                                                                     |  |      | 44      | 
|        
|PART III
|Item 10. |  | Directors and Executive Officers of the
    Registrant                                                                                      |  |      | 45      | 
|Item 11. |  | Executive Compensation                                                                                                                      |  |      | 45      | 
|Item 12. |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                                          |  |      | 45      | 
|Item 13. |  | Certain Relationships and Related
    Transactions                                                                                          |  |      | 46      | 
|Item 14. |  | Principal Accountant Fees and Services                                                                                                      |  |      | 46      | 
|        
|PART IV 
|Item 15. |  | Exhibits and Financial Statement
    Schedules                                                                                              |  |      | 46  55 | 
|EX-21   
|EX-23.1 
|EX-23.2 
|EX-31.1 
|EX-31.2 
|EX-32.1 
|EX-32.2 



1



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Forward-looking Information




www.catocorp.com


2



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PART I







|        |          
|------- | ---------
|Item 1. | Business:

General




Restatement of Prior Financial Information




Business




Merchandise Assortment.


Value Pricing.


Strip Shopping Center Locations.


3



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Customer Service.


Credit and Layaway Programs.


Expansion.


Merchandising




| |              
| | -------------
| | Merchandising











| |                                        
| | ---------------------------------------
| | Purchasing, Allocation and Distribution





4



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| |            
| | -----------
| | Advertising



Store Operations






Store Locations








Store Development


|            |  |                  |       |  |        |  |    |        |  |  |                  |  |  |  |       | 
|----------- |  | ---------------- | ----- |  | ------ |  | -- | ------ |  |  | ---------------- |  |  |  | ----- | 
|            |  | Number of Stores |       |  |        |  |    |        | 
|            |  | Beginning of     |       |  | Number |  |    | Number |  |  | Number of Stores | 
|Fiscal Year |  | Year             |       |  | Opened |  |    | Closed |  |  | End of Year      | 
|            |  |                  |       |  |        |  |    |        |  |  |                  | 
|2000        |  |                  | 809   |  |        |  | 65 |        |  |  | 15               |  |  |  | 859   | 
|2001        |  |                  | 859   |  |        |  | 85 |        |  |  | 7                |  |  |  | 937   | 
|2002        |  |                  | 937   |  |        |  | 90 |        |  |  | 5                |  |  |  | 1,022 | 
|2003        |  |                  | 1,022 |  |        |  | 87 |        |  |  | 7                |  |  |  | 1,102 | 
|2004        |  |                  | 1,102 |  |        |  | 80 |        |  |  | 5                |  |  |  | 1,177 | 

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Credit and Layaway




| |                    
| | -------------------
| | Credit Card Program







| |             
| | ------------
| | Layaway Plan



Management Information Systems






Competition




6



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Regulation




Associates









|        |            
|------- | -----------
|Item 2. | Properties:










|        |                   
|------- | ------------------
|Item 3. | Legal Proceedings:








|        |                                                         
|------- | --------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders:



7



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|         |                                      
|-------- | -------------------------------------
|Item 4A. | Executive Officers of the Registrant:



|                    |  |     |    |  |          |                                                                              
|------------------- |  | --- | -- |  | -------- | -----------------------------------------------------------------------------
|Name                |  | Age |    |  | Position
|                    |  |     |    |  |         
|John P. Derham Cato |  |     | 54 |  |          | Chairman, President and
    Chief Executive Officer                          
|                   
|Michael O. Moore    |  |     | 54 |  |          | Executive Vice President,
    Chief Financial Officer and Secretary          
|                   
|B. Allen Weinstein  |  |     | 58 |  |          | Executive Vice President,
    Chief Merchandising Officer                    
|                   
|Howard A. Severson  |  |     | 57 |  |          | Executive Vice President, Chief Real Estate and
    Store Development Officer
|                   
|Michael T. Greer    |  |     | 42 |  |          | Senior Vice President,
    Director of Stores                                
|                   
|Robert C. Brummer   |  |     | 60 |  |          | Senior Vice President,
    Human Resources                                   

John P. Derham Cato


Michael O. Moore


B. Allen Weinstein


Howard A. Severson


Michael T. Greer


Robert C. Brummer


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PART II







|        |                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities:

Market & Dividend Information




|               |  |       |       |  |     |   |       |          |  |   |      | 
|-------------- |  | ----- | ----- |  | --- | - | ----- | -------- |  | - | ---- | 
|               |  | Price |       |  |    
|               |  |       |       |  |    
|2004           |  | High  |       |  | Low |   |       | Dividend | 
|               |  |       |       |  |     |   |       |          | 
|First quarter  |  | $     | 21.60 |  |     | $ | 19.47 |          |  | $ | .16  | 
|Second quarter |  |       | 22.82 |  |     |   | 18.90 |          |  |   | .175 | 
|Third quarter  |  |       | 23.35 |  |     |   | 20.35 |          |  |   | .175 | 
|Fourth quarter |  |       | 30.10 |  |     |   | 23.54 |          |  |   | .175 | 

|               |  |       |       |  |     |   |       |          |  |   |     | 
|-------------- |  | ----- | ----- |  | --- | - | ----- | -------- |  | - | --- | 
|               |  | Price |       |  |    
|               |  |       |       |  |    
|2003           |  | High  |       |  | Low |   |       | Dividend | 
|               |  |       |       |  |     |   |       |          | 
|First quarter  |  | $     | 20.50 |  |     | $ | 16.28 |          |  | $ | .15 | 
|Second quarter |  |       | 24.10 |  |     |   | 18.20 |          |  |   | .16 | 
|Third quarter  |  |       | 25.11 |  |     |   | 19.95 |          |  |   | .16 | 
|Fourth quarter |  |       | 21.57 |  |     |   | 18.84 |          |  |   | .16 | 



9



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|        |                         
|------- | ------------------------
|Item 6. | Selected Financial Data:





|                                                            |  |                                              |         |            |      |   |            |      |  |            |         |   |            |      |         |   |  |   |         |  
|----------------------------------------------------------- |  | -------------------------------------------- | ------- | ---------- | ---- | - | ---------- | ---- |  | ---------- | ------- | - | ---------- | ---- | ------- | - |  | - | ------- | -
|Fiscal Year                                                 |  | 2004                                         |         |            | 2003 |   |            | 2002 |  |            | 2001    |   |            | 2000 |        
|                                                            |  |                                              |         |            |      |   |            |      |  |            |         |   |            |      |        
|                                                            |  |                                              |         | (Restated) |      |   | (Restated) |      |  | (Restated) |         |   | (Restated) |     
|                                                            |  | (Dollars in thousands, except per share data |        
|                                                            |  | and selected operating data)                 |        
|STATEMENT OF OPERATIONS DATA:                               |  |                                              |         |            |      |   |            |      |  |            |         |   |            |      |         |   |  |   |         |  
|Retail sales                                                |  | $                                            | 773,809 |            |      | $ | 731,770    |      |  | $          | 732,742 |   |            | $    | 685,653 |   |  | $ | 648,482 |  
|Other income                                                |  |                                              | 15,795  |            |      |   | 15,497     |      |  |            | 15,589  |   |            |      | 13,668  |   |  |   | 14,055  |  
|Total revenues                                              |  |                                              | 789,604 |            |      |   | 747,267    |      |  |            | 748,331 |   |            |      | 699,321 |   |  |   | 662,537 |  
|Cost of goods sold                                          |  |                                              | 528,916 |            |      |   | 508,991    |      |  |            | 496,954 |   |            |      | 467,338 |   |  |   | 445,565 |  
|Gross margin                                                |  |                                              | 244,893 |            |      |   | 222,779    |      |  |            | 235,788 |   |            |      | 218,315 |   |  |   | 202,917 |  
|Gross margin percent                                        |  |                                              | 31.6    | %          |      |   | 30.4       | %    |  |            | 32.2    | % |            |      | 31.8    | % |  |   | 31.3    | %
|Selling, general and administrative                         |  |                                              | 187,618 |            |      |   | 174,202    |      |  |            | 168,914 |   |            |      | 162,082 |   |  |   | 154,150 |  
|Selling, general and administrative percent of retail sales |  |                                              | 24.2    | %          |      |   | 23.8       | %    |  |            | 23.1    | % |            |      | 23.6    | % |  |   | 23.8    | %
|Depreciation                                                |  |                                              | 20,397  |            |      |   | 18,695     |      |  |            | 14,913  |   |            |      | 10,886  |   |  |   | 9,492   |  
|Interest expense                                            |  |                                              | 717     |            |      |   | 306        |      |  |            | 21      |   |            |      | 38      |   |  |   | 3       |  
|Interest and other income                                   |  |                                              | (2,739  | )          |      |   | (3,614     | )    |  |            | (3,701  | ) |            |      | (6,337  | ) |  |   | (6,557  | )
|Income before income taxes                                  |  |                                              | 54,695  |            |      |   | 48,687     |      |  |            | 71,230  |   |            |      | 65,314  |   |  |   | 59,884  |  
|Income tax expense                                          |  |                                              | 19,854  |            |      |   | 17,673     |      |  |            | 25,785  |   |            |      | 22,852  |   |  |   | 20,960  |  
|Net income                                                  |  | $                                            | 34,841  |            |      | $ | 31,014     |      |  | $          | 45,445  |   |            | $    | 42,462  |   |  | $ | 38,924  |  
|Basic earnings per share                                    |  | $                                            | 1.69    |            |      | $ | 1.34       |      |  | $          | 1.78    |   |            | $    | 1.69    |   |  | $ | 1.56    |  
|Diluted earnings per share                                  |  | $                                            | 1.66    |            |      | $ | 1.32       |      |  | $          | 1.75    |   |            | $    | 1.64    |   |  | $ | 1.53    |  
|Cash dividends paid per share                               |  | $                                            | .685    |            |      | $ | .63        |      |  | $          | .585    |   |            | $    | .53     |   |  | $ | .425    |  
|SELECTED OPERATING DATA:                                    |  |                                              |         |            |      |   |            |      |  |            |         |   |            |      |         |   |  |   |         |  
|Stores open at end of year                                  |  |                                              | 1,177   |            |      |   | 1,102      |      |  |            | 1,022   |   |            |      | 937     |   |  |   | 859     |  
|Average sales per store(1)                                  |  | $                                            | 682,000 |            |      | $ | 692,000    |      |  | $          | 753,000 |   |            | $    | 767,000 |   |  | $ | 781,000 |  
|Average sales per square foot of selling space              |  | $                                            | 170     |            |      | $ | 171        |      |  | $          | 184     |   |            | $    | 186     |   |  | $ | 187     |  
|Comparable store sales increase (decrease)                  |  |                                              | 0       | %          |      |   | (7         | )%   |  |            | 0       | % |            |      | 1       | % |  |   | 3       | %
|BALANCE SHEET DATA:                                         |  |                                              |         |            |      |   |            |      |  |            |         |   |            |      |         |   |  |   |         |  
|Cash, cash equivalents and short-term investments           |  | $                                            | 107,228 |            |      | $ | 71,402     |      |  | $          | 106,936 |   |            | $    | 84,695  |   |  | $ | 83,112  |  
|Working capital                                             |  |                                              | 133,791 |            |      |   | 117,403    |      |  |            | 166,264 |   |            |      | 143,101 |   |  |   | 129,437 |  
|Total assets                                                |  |                                              | 394,134 |            |      |   | 356,284    |      |  |            | 387,272 |   |            |      | 335,708 |   |  |   | 314,637 |  
|Total stockholders equity                                  |  |                                              | 211,175 |            |      |   | 186,075    |      |  |            | 262,505 |   |            |      | 227,428 |   |  |   | 201,110 |  






|    |                                                                  
|--- | -----------------------------------------------------------------
|(1) | Calculated using an estimated annual sales volume for new stores.

10



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|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations:

Restatement of Prior Financial Information
















11



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Results of Operations




|                                    |  |             |       |            |             |  |            |             |  |  |       |  
|----------------------------------- |  | ----------- | ----- | ---------- | ----------- |  | ---------- | ----------- |  |  | ----- | -
|                                    |  | January 29, |       |            | January 31, |  |            | February 1, | 
|Fiscal Year Ended                   |  | 2005        |       |            | 2004        |  |            | 2003        | 
|                                    |  |             |       |            |             |  |            |             | 
|                                    |  |             |       | (Restated) |             |  | (Restated) |            
|Retail sales                        |  |             | 100.0 | %          |             |  | 100.0      | %           |  |  | 100.0 | %
|Other income                        |  |             | 2.0   |            |             |  | 2.1        |             |  |  | 2.1   |  
|Total revenues                      |  |             | 102.0 |            |             |  | 102.1      |             |  |  | 102.1 |  
|Cost of goods sold                  |  |             | 68.4  |            |             |  | 69.6       |             |  |  | 67.8  |  
|Selling, general and administrative |  |             | 24.2  |            |             |  | 23.8       |             |  |  | 23.1  |  
|Depreciation                        |  |             | 2.6   |            |             |  | 2.6        |             |  |  | 2.0   |  
|Interest expense                    |  |             | 0.1   |            |             |  | 0.0        |             |  |  | 0.0   |  
|Interest and other income           |  |             | (0.4  | )          |             |  | (0.5       | )           |  |  | (0.5  | )
|Income before income taxes          |  |             | 7.1   |            |             |  | 6.6        |             |  |  | 9.7   |  
|Net income                          |  |             | 4.5   | %          |             |  | 4.2        | %           |  |  | 6.2   | %

Fiscal 2004 Compared to Fiscal 2003












12



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Fiscal 2003 Compared to Fiscal 2002




















13



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Off Balance Sheet Arrangements




Critical Accounting Policies








| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |                      
| | ---------------------
| | Insurance Liabilities





| |                    
| | -------------------
| | Revenue Recognition



14



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| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets





| |             
| | ------------
| | Tax Reserves





| |                        
| | -----------------------
| | Merchandise Inventories





| |                 
| | ----------------
| | Lease Accounting



15



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Liquidity, Capital Resources and Market Risk




















16



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|                              |  |                                                   |         |  |      |   |        |      |  |   |        |  |  |      |        |  |      |   |        |       |  |   |       |  |  |   |     | 
|----------------------------- |  | ------------------------------------------------- | ------- |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  | ---- | - | ------ | ----- |  | - | ----- |  |  | - | --- | 
|                              |  | Payments Due During One Year Fiscal Period Ending |        
|                              |  |                                                   |        
|Contractual Obligations       |  | Total                                             |         |  | 2005 |   |        | 2006 |  |   | 2007   |  |  | 2008 |        |  | 2009 |   |        | 2010+ | 
|                              |  |                                                   |         |  |      |   |        |      |  |   |        |  |  |      |        |  |      |   |        |       | 
|Merchandise letters of credit |  | $                                                 | 3,469   |  |      | $ | 3,469  |      |  | $ |       |  |  | $    |       |  |      | $ |       |       |  | $ |      |  |  | $ |    | 
|Operating leases              |  |                                                   | 138,490 |  |      |   | 46,769 |      |  |   | 38,375 |  |  |      | 28,757 |  |      |   | 17,370 |       |  |   | 6,990 |  |  |   | 229 | 
|Loan payment                  |  |                                                   | 22,000  |  |      |   | 6,000  |      |  |   | 6,000  |  |  |      | 6,000  |  |      |   | 4,000  |       |  |   |      |  |  |   |    | 
|                              |  |                                                   |         |  |      |   |        |      |  |   |        |  |  |      |        |  |      |   |        |       | 
|Total Contractual Obligations |  | $                                                 | 163,959 |  |      | $ | 56,238 |      |  | $ | 44,375 |  |  | $    | 34,757 |  |      | $ | 21,370 |       |  | $ | 6,990 |  |  | $ | 229 | 
|                              |  |                                                   |         |  |      |   |        |      |  |   |        |  |  |      |        |  |      |   |        |       | 

Recent Accounting Pronouncements


Share-Based Payment, Accounting for Stock-Based Compensation.


Inventory Costs. Inventory Pricing,


17



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Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk:




18



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|        |                                             
|------- | --------------------------------------------
|Item 8. | Financial Statements and Supplementary Data:

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES


|                                                                                                                                                                       |  |      |       | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | 
|                                                                                                                                                                       |  | Page |      
|                                                                                                                                                                       |  |      |      
|Report of Independent Registered Public Accounting Firm                                                                                                                |  |      | 20-21 | 
|Report of Independent Registered Public Accounting Firm                                                                                                                |  |      | 22    | 
|Consolidated Statements of Income for the fiscal years ended
    January 29, 2005, January 31, 2004 (as restated) and
    February 1, 2003 (as restated)               |  |      | 23    | 
|Consolidated Balance Sheets at January 29, 2005 and
    January 31, 2004 (as restated)                                                                                 |  |      | 24    | 
|Consolidated Statements of Cash Flows for the fiscal years ended
    January 29, 2005, January 31, 2004 (as restated) and
    February 1, 2003 (as restated)           |  |      | 25    | 
|Consolidated Statements of Stockholders Equity for the
    fiscal years ended January 29, 2005, January 31, 2004
    (as restated) and February 1, 2003 (as restated) |  |      | 26    | 
|Notes to Consolidated Financial Statements                                                                                                                             |  |      | 27    | 
|Schedule I  Independent Registered Public Accounting
    Firms Consent                                                                                               |  |      | S-1   | 
|Schedule II  Valuation and Qualifying Accounts and
    Reserves for the fiscal years ended January 29, 2005,
    January 31, 2004 and February 1, 2003                |  |      | S-2   | 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of


The Cato Corporation:






| |                                                                       
| | ----------------------------------------------------------------------
| | Consolidated financial statements and financial statement
    schedule







| |                                          
| | -----------------------------------------
| | Internal control over financial reporting

Internal Control  Integrated Framework Internal Control 
Integrated Framework




20



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM  (Continued)












21



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of


The Cato Corporation
















22



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THE CATO CORPORATION


CONSOLIDATED STATEMENTS OF INCOME


|                                                                                                                |  |                                               |            |            |             |   |            |             |  |   |            |  
|--------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------- | ---------- | ---------- | ----------- | - | ---------- | ----------- |  | - | ---------- | -
|                                                                                                                |  | Fiscal Year Ended                             |           
|                                                                                                                |  |                                               |           
|                                                                                                                |  | January 29,                                   |            |            | January 31, |   |            | February 1, | 
|                                                                                                                |  | 2005                                          |            |            | 2004        |   |            | 2003        | 
|                                                                                                                |  |                                               |            |            |             |   |            |             | 
|                                                                                                                |  |                                               |            | (Restated) |             |   | (Restated) |            
|                                                                                                                |  | (Dollars in thousands, except per share data) |           
|REVENUES                                                                                                        |  |                                               |            |            |             |   |            |             |  |   |            |  
|Retail sales                                                                                                    |  | $                                             | 773,809    |            |             | $ | 731,770    |             |  | $ | 732,742    |  
|Other income (principally finance charges, late fees and layaway
    charges)                                   |  |                                               | 15,795     |            |             |   | 15,497     |             |  |   | 15,589     |  
|                                                                                                                |  |                                               |            |            |             |   |            |             | 
|Total revenues                                                                                                  |  |                                               | 789,604    |            |             |   | 747,267    |             |  |   | 748,331    |  
|                                                                                                                |  |                                               |            |            |             |   |            |             | 
|COSTS AND EXPENSES, NET                                                                                         |  |                                               |            |            |             |   |            |             |  |   |            |  
|Cost of goods sold                                                                                              |  |                                               | 528,916    |            |             |   | 508,991    |             |  |   | 496,954    |  
|Selling, general and administrative                                                                             |  |                                               | 187,618    |            |             |   | 174,202    |             |  |   | 168,914    |  
|Depreciation                                                                                                    |  |                                               | 20,397     |            |             |   | 18,695     |             |  |   | 14,913     |  
|Interest expense                                                                                                |  |                                               | 717        |            |             |   | 306        |             |  |   | 21         |  
|Interest and other income                                                                                       |  |                                               | (2,739     | )          |             |   | (3,614     | )           |  |   | (3,701     | )
|                                                                                                                |  |                                               |            |            |             |   |            |             | 
|                                                                                                                |  |                                               | 734,909    |            |             |   | 698,580    |             |  |   | 677,101    |  
|                                                                                                                |  |                                               |            |            |             |   |            |             | 
|Income before income taxes                                                                                      |  |                                               | 54,695     |            |             |   | 48,687     |             |  |   | 71,230     |  
|Income tax expense                                                                                              |  |                                               | 19,854     |            |             |   | 17,673     |             |  |   | 25,785     |  
|                                                                                                                |  |                                               |            |            |             |   |            |             | 
|Net income                                                                                                      |  | $                                             | 34,841     |            |             | $ | 31,014     |             |  | $ | 45,445     |  
|                                                                                                                |  |                                               |            |            |             |   |            |             | 
|Basic earnings per share                                                                                        |  | $                                             | 1.69       |            |             | $ | 1.34       |             |  | $ | 1.78       |  
|                                                                                                                |  |                                               |            |            |             |   |            |             | 
|Basic weighted average shares                                                                                   |  |                                               | 20,584,262 |            |             |   | 23,140,581 |             |  |   | 25,465,543 |  
|                                                                                                                |  |                                               |            |            |             |   |            |             | 
|Diluted earnings per share                                                                                      |  | $                                             | 1.66       |            |             | $ | 1.32       |             |  | $ | 1.75       |  
|                                                                                                                |  |                                               |            |            |             |   |            |             | 
|Diluted weighted average shares                                                                                 |  |                                               | 20,985,374 |            |             |   | 23,559,541 |             |  |   | 25,947,457 |  
|                                                                                                                |  |                                               |            |            |             |   |            |             | 
|Dividends per share                                                                                             |  | $                                             | .685       |            |             | $ | .63        |             |  | $ | .585       |  
|                                                                                                                |  |                                               |            |            |             |   |            |             | 
|                                                                                                               
|Comprehensive income:                                                                                           |  |                                               |            |            |             |   |            |             |  |   |            |  
|Net income                                                                                                      |  | $                                             | 34,841     |            |             | $ | 31,014     |             |  | $ | 45,445     |  
|Unrealized gains (losses) on available-for-sale securities, net
    of deferred income tax liability or benefit |  |                                               | 13         |            |             |   | (195       | )           |  |   | 820        |  
|                                                                                                                |  |                                               |            |            |             |   |            |             | 
|Net comprehensive income                                                                                        |  | $                                             | 34,854     |            |             | $ | 30,819     |             |  | $ | 46,265     |  
|                                                                                                                |  |                                               |            |            |             |   |            |             | 



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##### Table of Contents



THE CATO CORPORATION


CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                                                    |                           |                                            |          |            |             |   |          |         |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------------ | -------- | ---------- | ----------- | - | -------- | ------- | ------- | 
|                                                                                                                                                                                                    |                           | January 29,                                |          |            | January 31, |  
|                                                                                                                                                                                                    |                           | 2005                                       |          |            | 2004        |  
|                                                                                                                                                                                                    |                           |                                            |          |            |             |  
|                                                                                                                                                                                                    |                           |                                            |          | (Restated) |            
|                                                                                                                                                                                                    |                           | (Dollars in thousands)                     |         
|ASSETS                                                                                                                                                                                             
|Current Assets:                                                                                                                                                                                     |                           |                                            |          |            |             |   |          |        
|Cash and cash equivalents                                                                                                                                                                           |                           | $                                          | 18,640   |            |             | $ | 23,857   |        
|Short-term investments                                                                                                                                                                              |                           |                                            | 88,588   |            |             |   | 47,545   |        
|Accounts receivable, net of allowance for doubtful accounts of
    $6,122 at January 29, 2005 and $6,335 at January 31,
    2004                                                                    |                           |                                            | 50,889   |            |             |   | 52,714   |        
|Merchandise inventories                                                                                                                                                                             |                           |                                            | 100,538  |            |             |   | 97,292   |        
|Deferred income taxes                                                                                                                                                                               |                           |                                            | 5,781    |            |             |   | 4,995    |        
|Prepaid expenses                                                                                                                                                                                    |                           |                                            | 1,986    |            |             |   | 5,708    |        
|                                                                                                                                                                                                    |                           |                                            |          |            |             |  
|                                                                                                                                                                                                    | Total Current Assets      |                                            |          | 266,422    |             |   |          | 232,111 |        
|Property and equipment  net                                                                                                                                                                        |                           |                                            | 117,590  |            |             |   | 114,367  |        
|Other assets                                                                                                                                                                                        |                           |                                            | 10,122   |            |             |   | 9,806    |        
|                                                                                                                                                                                                    |                           |                                            |          |            |             |  
|                                                                                                                                                                                                    | Total Assets              |                                            | $        | 394,134    |             |   | $        | 356,284 |        
|                                                                                                                                                                                                    |                           |                                            |          |            |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                               
|Current Liabilities:                                                                                                                                                                                |                           |                                            |          |            |             |   |          |        
|Accounts payable                                                                                                                                                                                    |                           | $                                          | 82,828   |            |             | $ | 76,387   |        
|Accrued expenses                                                                                                                                                                                    |                           |                                            | 39,338   |            |             |   | 27,815   |        
|Accrued income taxes                                                                                                                                                                                |                           |                                            | 4,465    |            |             |   | 4,506    |        
|Current portion of long-term debt                                                                                                                                                                   |                           |                                            | 6,000    |            |             |   | 6,000    |        
|                                                                                                                                                                                                    |                           |                                            |          |            |             |  
|                                                                                                                                                                                                    | Total Current Liabilities |                                            |          | 132,631    |             |   |          | 114,708 |        
|Deferred income taxes                                                                                                                                                                               |                           |                                            | 10,172   |            |             |   | 10,203   |        
|Long-term debt                                                                                                                                                                                      |                           |                                            | 16,000   |            |             |   | 21,500   |        
|Other noncurrent liabilities (primarily deferred rent)                                                                                                                                              |                           |                                            | 24,156   |            |             |   | 23,798   |        
|                                                                                                                                                                                                   
|Commitments 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; 26,249,178 and 26,015,868 shares issued at
    January 29, 2005 and January 31, 2004, respectively               |                           |                                            | 875      |            |             |   | 867      |        
|Convertible Class B common stock, $.033 par value per
    share, 15,000,000 shares authorized; 5,597,834 and 5,607,834
    shares issued at January 29, 2005 and January 31,
    2004, respectively |                           |                                            | 187      |            |             |   | 187      |        
|Additional paid-in capital                                                                                                                                                                          |                           |                                            | 103,366  |            |             |   | 99,676   |        
|Retained earnings                                                                                                                                                                                   |                           |                                            | 265,499  |            |             |   | 244,792  |        
|Accumulated other comprehensive income                                                                                                                                                              |                           |                                            | 71       |            |             |   | 58       |        
|Unearned compensation  restricted stock awards                                                                                                                                                     |                           |                                            | (911     | )          |             |   | (1,593   | )      
|                                                                                                                                                                                                    |                           |                                            |          |            |             |  
|                                                                                                                                                                                                    |                           |                                            | 369,087  |            |             |   | 343,987  |        
|Less Class A and Class B common stock in treasury, at
    cost (5,906,179 Class A and 5,137,484 Class B shares
    at January 29, 2005 and January 31, 2004, respectively)                          |                           |                                            | (157,912 | )          |             |   | (157,912 | )      
|                                                                                                                                                                                                    |                           |                                            |          |            |             |  
|                                                                                                                                                                                                    |                           | Total Stockholders Equity                 |          |            | 211,175     |   |          |         | 186,075 | 
|                                                                                                                                                                                                    |                           |                                            |          |            |             |  
|                                                                                                                                                                                                    |                           | Total Liabilities and Stockholders Equity |          | $          | 394,134     |   |          | $       | 356,284 | 
|                                                                                                                                                                                                    |                           |                                            |          |            |             |  



24



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##### Table of Contents



THE CATO CORPORATION


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                      |                                                                             |                                                          |          |            |             |   |            |             |        |   |         |        |         |  
|------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------------------- | -------- | ---------- | ----------- | - | ---------- | ----------- | ------ | - | ------- | ------ | ------- | -
|                                                                                      |                                                                             | Fiscal Year Ended                                        |         
|                                                                                      |                                                                             |                                                          |         
|                                                                                      |                                                                             | January 29,                                              |          |            | January 31, |   |            | February 1, |       
|                                                                                      |                                                                             | 2005                                                     |          |            | 2004        |   |            | 2003        |       
|                                                                                      |                                                                             |                                                          |          |            |             |   |            |             |       
|                                                                                      |                                                                             |                                                          |          | (Restated) |             |   | (Restated) |            
|                                                                                      |                                                                             | (Dollars in thousands)                                   |         
|OPERATING ACTIVITIES                                                                  |                                                                             |                                                          |          |            |             |   |            |             |        |   |         |       
|Net income                                                                            |                                                                             | $                                                        | 34,841   |            |             | $ | 31,014     |             |        | $ | 45,445  |       
|Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                                             |                                                          |          |            |             |   |            |             |        |   |         |       
|                                                                                      | Depreciation                                                                |                                                          |          | 20,397     |             |   |            | 18,695      |        |   |         | 14,913 |        
|                                                                                      | Amortization of investment premiums                                         |                                                          |          |           |             |   |            | 4           |        |   |         | 66     |        
|                                                                                      | Provision for doubtful accounts                                             |                                                          |          | 5,096      |             |   |            | 6,098       |        |   |         | 4,764  |        
|                                                                                      | Write-down of investments                                                   |                                                          |          |           |             |   |            |            |        |   |         | 1,800  |        
|                                                                                      | Deferred income taxes                                                       |                                                          |          | (817       | )           |   |            | 4,779       |        |   |         | (159   | )      
|                                                                                      | Compensation expense related to restricted stock awards                     |                                                          |          | 682        |             |   |            | 782         |        |   |         | 750    |        
|                                                                                      | Loss on disposal of property and equipment                                  |                                                          |          | 1,554      |             |   |            | 798         |        |   |         | 870    |        
|                                                                                      | Changes in operating assets and liabilities which provided
    (used) cash: |                                                          |          |            |             |   |            |             |        |   |         |        |        
|                                                                                      |                                                                             | Accounts receivable                                      |          |            | (3,271      | ) |            |             | (4,696 | ) |         |        | (6,587  | )
|                                                                                      |                                                                             | Merchandise inventories                                  |          |            | (3,246      | ) |            |             | (4,463 | ) |         |        | (13,016 | )
|                                                                                      |                                                                             | Prepaid and other assets                                 |          |            | 3,406       |   |            |             | (1,312 | ) |         |        | (470    | )
|                                                                                      |                                                                             | Accrued income taxes                                     |          |            | (41         | ) |            |             | 1,412  |   |         |        | 2,074   |  
|                                                                                      |                                                                             | Accounts payable, accrued expenses and other liabilities |          |            | 21,250      |   |            |             | 6,236  |   |         |        | 13,279  |  
|                                                                                      |                                                                             |                                                          |          |            |             |   |            |             |       
|Net cash provided by operating activities                                             |                                                                             |                                                          | 79,851   |            |             |   | 59,347     |             |        |   | 63,729  |       
|                                                                                      |                                                                             |                                                          |          |            |             |   |            |             |       
|INVESTING ACTIVITIES                                                                  |                                                                             |                                                          |          |            |             |   |            |             |        |   |         |       
|Expenditures for property and equipment                                               |                                                                             |                                                          | (25,301  | )          |             |   | (20,553    | )           |        |   | (28,953 | )     
|Purchases of short-term investments                                                   |                                                                             |                                                          | (122,380 | )          |             |   | (18,462    | )           |        |   | (46,281 | )     
|Sales of short-term investments                                                       |                                                                             |                                                          | 81,350   |            |             |   | 45,589     |             |        |   | 13,735  |       
|                                                                                      |                                                                             |                                                          |          |            |             |   |            |             |       
|Net cash provided (used) in investing activities                                      |                                                                             |                                                          | (66,331  | )          |             |   | 6,574      |             |        |   | (61,499 | )     
|                                                                                      |                                                                             |                                                          |          |            |             |   |            |             |       
|FINANCING ACTIVITIES                                                                  |                                                                             |                                                          |          |            |             |   |            |             |        |   |         |       
|Cash overdrafts included in accounts payable                                          |                                                                             |                                                          | (2,800   | )          |             |   | 6,400      |             |        |   |        |       
|Dividends paid                                                                        |                                                                             |                                                          | (14,134  | )          |             |   | (14,465    | )           |        |   | (14,890 | )     
|Purchases of treasury stock                                                           |                                                                             |                                                          |         |            |             |   | (98,304    | )           |        |   | (1,187  | )     
|Proceeds of long term debt                                                            |                                                                             |                                                          |         |            |             |   | 30,000     |             |        |   |        |       
|Payments to settle long term debt                                                     |                                                                             |                                                          | (5,500   | )          |             |   | (2,500     | )           |        |   |        |       
|Proceeds from employee stock purchase plan                                            |                                                                             |                                                          | 478      |            |             |   | 507        |             |        |   | 509     |       
|Proceeds from stock options exercised                                                 |                                                                             |                                                          | 3,219    |            |             |   | 4,233      |             |        |   | 3,631   |       
|                                                                                      |                                                                             |                                                          |          |            |             |   |            |             |       
|Net cash used in financing activities                                                 |                                                                             |                                                          | (18,737  | )          |             |   | (74,129    | )           |        |   | (11,937 | )     
|                                                                                      |                                                                             |                                                          |          |            |             |   |            |             |       
|Net (decrease) in cash and cash equivalents                                           |                                                                             |                                                          | (5,217   | )          |             |   | (8,208     | )           |        |   | (9,707  | )     
|Cash and cash equivalents at beginning of year                                        |                                                                             |                                                          | 23,857   |            |             |   | 32,065     |             |        |   | 41,772  |       
|                                                                                      |                                                                             |                                                          |          |            |             |   |            |             |       
|Cash and cash equivalents at end of year                                              |                                                                             | $                                                        | 18,640   |            |             | $ | 23,857     |             |        | $ | 32,065  |       
|                                                                                      |                                                                             |                                                          |          |            |             |   |            |             |       



25



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##### Table of Contents



THE CATO CORPORATION


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                                   |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  |         |        |  
|---------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ---------------------- | --- | ----------- | ------- |  | --- | ---------- |  |  | ----------- |  | ----- | ------------- | ------- | ------------ | ------------ |  | ---- | -------- | ----- |  | ------------- | - |  |  | -------- | - |  |  | ------- | ------ | -
|                                                                                   |                                                                                                     |                        |     | Convertible |         |  |     |            |  |  | Accumulated |  |       | Unearned      |         |              |              |  |     
|                                                                                   |                                                                                                     | Class A                |     |             | Class B |  |     | Additional |  |  |             |  | Other |               |         | Compensation |              |  |      |          | Total | 
|                                                                                   |                                                                                                     | Common                 |     |             | Common  |  |     | Paid-in    |  |  | Retained    |  |       | Comprehensive |         |              | Restricted   |  |      | Treasury |       |  | Stockholders |  
|                                                                                   |                                                                                                     | Stock                  |     |             | Stock   |  |     | Capital    |  |  | Earnings    |  |       | Income (Loss) |         |              | Stock Awards |  |      | Stock    |       |  | Equity        |  
|                                                                                   |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               |         |              |              |  |      |          |       |  |               |  
|                                                                                   |                                                                                                     |                        |     |             |         |  |     | (Restated) |  |  |             |  |       |               |         |              | (Restated)   | 
|                                                                                   |                                                                                                     | (Dollars in thousands) |    
|Balance  February 2, 2002.                                                        |                                                                                                     |                        | 833 |             |         |  | 194 |            |  |  | 86,948      |  |       |               | 204,961 |              |              |  | (567 | )        |       |  | (394          | ) |  |  | (57,277  | ) |  |  | 234,698 |       
|Restatement                                                                        |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               | (7,273  | )            |              |  |      |          |       |  |               |   |  |  |          |   |  |  | (7,273  | )     
|                                                                                  
|Balance  February 2, 2002 (Restated)                                              |                                                                                                     |                        | 833 |             |         |  | 194 |            |  |  | 86,948      |  |       |               | 197,688 |              |              |  | (567 | )        |       |  | (394          | ) |  |  | (57,277  | ) |  |  | 227,425 |       
|*Comprehensive income:                                                             |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  |         |       
|                                                                                   | Net income (Restated)                                                                               |                        |     |             |         |  |     |            |  |  |             |  |       |               |         | 45,445       |              |  |      |          |       |  |               |   |  |  |          |   |  |  |         | 45,445 |  
|                                                                                   | Unrealized gains on available-for-sale securities, net of
    deferred income tax liability of $448 |                        |     |             |         |  |     |            |  |  |             |  |       |               |         |              |              |  |      | 820      |       |  |               |   |  |  |          |   |  |  |         | 820    |  
|Dividends paid ($.585 per share)                                                   |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               | (14,890 | )            |              |  |      |          |       |  |               |   |  |  |          |   |  |  | (14,890 | )     
|Class A common stock sold through employee stock purchase
    plan  32,487 shares |                                                                                                     |                        | 1   |             |         |  |     |            |  |  | 508         |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  | 509     |       
|Class A common stock sold through stock option
    plans  171,600 shares          |                                                                                                     |                        | 6   |             |         |  |     |            |  |  | 1,547       |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  | 1,553   |       
|Class B common stock sold through stock option
    plans  172,500 shares          |                                                                                                     |                        |     |             |         |  | 6   |            |  |  | 1,310       |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  | 1,316   |       
|Income tax benefit from stock options exercised                                    |                                                                                                     |                        |     |             |         |  |     |            |  |  | 1,906       |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  | 1,906   |       
|Purchase of treasury shares  66,000 shares                                        |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  | (1,187   | ) |  |  | (1,187  | )     
|Surrender of shares for stock options  48,681 shares                              |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  | (1,144   | ) |  |  | (1,144  | )     
|Restricted stock awards  100,000 shares                                           |                                                                                                     |                        |     |             |         |  | 3   |            |  |  | 2,728       |  |       |               |         |              |              |  |      |          |       |  | (2,731        | ) |  |  |          |   |  |  |        |       
|Unearned compensation  restricted stock awards                                    |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               |         |              |              |  |      |          |       |  | 750           |   |  |  |          |   |  |  | 750     |       
|                                                                                  
|Balance  February 1, 2003 (Restated)                                              |                                                                                                     |                        | 840 |             |         |  | 203 |            |  |  | 94,947      |  |       |               | 228,243 |              |              |  | 253  |          |       |  | (2,375        | ) |  |  | (59,608  | ) |  |  | 262,503 |       
|*Comprehensive income:                                                             |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  |         |       
|                                                                                   | Net income (Restated)                                                                               |                        |     |             |         |  |     |            |  |  |             |  |       |               |         | 31,014       |              |  |      |          |       |  |               |   |  |  |          |   |  |  |         | 31,014 |  
|                                                                                   | Unrealized losses on available-for-sale securities, net of
    deferred income tax benefit of $111  |                        |     |             |         |  |     |            |  |  |             |  |       |               |         |              |              |  |      | (195     | )     |  |               |   |  |  |          |   |  |  |         | (195   | )
|Dividends paid ($.63 per share)                                                    |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               | (14,465 | )            |              |  |      |          |       |  |               |   |  |  |          |   |  |  | (14,465 | )     
|Class A common stock sold through employee stock purchase
    plan  28,306 shares |                                                                                                     |                        | 1   |             |         |  |     |            |  |  | 506         |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  | 507     |       
|Class A common stock sold through stock option
    plans  288,250 shares          |                                                                                                     |                        | 10  |             |         |  |     |            |  |  | 2,857       |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  | 2,867   |       
|Income tax benefit from stock options exercised                                    |                                                                                                     |                        |     |             |         |  |     |            |  |  | 1,366       |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  | 1,366   |       
|Purchase of treasury shares  5,302,484 shares                                     |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  | (98,304  | ) |  |  | (98,304 | )     
|Shares reclassified from Class B to
    Class A  477,315 shares                   |                                                                                                     |                        | 16  |             |         |  | (16 | )          |  |  |             |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  |        |       
|Unearned compensation  restricted stock awards                                    |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               |         |              |              |  |      |          |       |  | 782           |   |  |  |          |   |  |  | 782     |       
|                                                                                  
|Balance  January 31, 2004 (Restated)                                              |                                                                                                     |                        | 867 |             |         |  | 187 |            |  |  | 99,676      |  |       |               | 244,792 |              |              |  | 58   |          |       |  | (1,593        | ) |  |  | (157,912 | ) |  |  | 186,075 |       
|*Comprehensive income:                                                             |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  |         |       
|                                                                                   | Net income                                                                                          |                        |     |             |         |  |     |            |  |  |             |  |       |               |         | 34,841       |              |  |      |          |       |  |               |   |  |  |          |   |  |  |         | 34,841 |  
|                                                                                   | Unrealized gains on available-for-sale securities, net of
    deferred income tax liability of $7   |                        |     |             |         |  |     |            |  |  |             |  |       |               |         |              |              |  |      | 13       |       |  |               |   |  |  |          |   |  |  |         | 13     |  
|Dividends paid ($.685 per share)                                                   |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               | (14,134 | )            |              |  |      |          |       |  |               |   |  |  |          |   |  |  | (14,134 | )     
|Class A common stock sold through employee stock purchase
    plan  27,310 shares |                                                                                                     |                        | 1   |             |         |  |     |            |  |  | 477         |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  | 478     |       
|Class A common stock sold through stock option
    plans  196,000 shares          |                                                                                                     |                        | 7   |             |         |  |     |            |  |  | 2,354       |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  | 2,361   |       
|Income tax benefit from stock options exercised                                    |                                                                                                     |                        |     |             |         |  |     |            |  |  | 859         |  |       |               |         |              |              |  |      |          |       |  |               |   |  |  |          |   |  |  | 859     |       
|Unearned compensation  restricted stock awards                                    |                                                                                                     |                        |     |             |         |  |     |            |  |  |             |  |       |               |         |              |              |  |      |          |       |  | 682           |   |  |  |          |   |  |  | 682     |       
|                                                                                  
|Balance  January 29, 2005                                                         |                                                                                                     |                        | 875 |             |         |  | 187 |            |  |  | 103,366     |  |       |               | 265,499 |              |              |  | 71   |          |       |  | (911          | ) |  |  | (157,912 | ) |  |  | 211,175 |       






|  |                                                                                                                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Total comprehensive income for the year ended January 29,
    2005 was $34,854. Total restated comprehensive income for the
    years ended January 31, 2004 and February 1, 2003 was
    $30,819 and $46,265, respectively.



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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.     Summary of Significant
Accounting Policies:


Principles of Consolidation:


Description of Business and Fiscal Year:


Use of Estimates:


Restatement of Prior Financial Information: Accounting for leases, Issues Relating to Accounting for
Leases, Accounting for Operating Leases with Scheduled Rent
Increases






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THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                           |  |               |         |  |             |   |             |      |  |   |         | 
|------------------------------------------ |  | ------------- | ------- |  | ----------- | - | ----------- | ---- |  | - | ------- | 
|                                           |  | As Previously |         |  |             |   |            
|                                           |  | Reported      |         |  |             |   | As Restated |     
|                                           |  |               |         |  |             |   |             |     
|                                           |  | January 31,   |         |  |             |   | January 31, |     
|                                           |  | 2004          |         |  | Adjustments |   |             | 2004 | 
|                                           |  |               |         |  |             |   |             |      | 
|Deferred income taxes                      |  | $             | 284     |  |             | $ | 4,711       |      |  | $ | 4,995   | 
|Current Assets                             |  |               | 227,400 |  |             |   | 4,711       |      |  |   | 232,111 | 
|Total Assets                               |  |               | 351,573 |  |             |   | 4,711       |      |  |   | 356,284 | 
|Accrued income tax                         |  |               | 4,290   |  |             |   | 216         |      |  |   | 4,506   | 
|Current Liabilities                        |  |               | 114,492 |  |             |   | 216         |      |  |   | 114,708 | 
|Other noncurrent liabilities               |  |               | 11,267  |  |             |   | 12,531      |      |  |   | 23,798  | 
|Total Liabilities                          |  |               | 157,462 |  |             |   | 12,747      |      |  |   | 170,209 | 
|Retained earnings                          |  |               | 252,828 |  |             |   | (8,036      | )    |  |   | 244,792 | 
|Total Stockholders Equity                 |  |               | 194,111 |  |             |   | (8,036      | )    |  |   | 186,075 | 
|Total Liabilities and Stockholders Equity |  | $             | 351,573 |  |             | $ | 4,711       |      |  | $ | 356,284 | 

|                           |                     |               |         |         |             |   |             |      |   |   |         |         | 
|-------------------------- | ------------------- | ------------- | ------- | ------- | ----------- | - | ----------- | ---- | - | - | ------- | ------- | 
|                           |                     | As Previously |         |         |             |   |            
|                           |                     | Reported      |         |         |             |   | As Restated |     
|                           |                     |               |         |         |             |   |             |     
|                           |                     | January 31,   |         |         |             |   | January 31, |     
|                           |                     | 2004          |         |         | Adjustments |   |             | 2004 |  
|                           |                     |               |         |         |             |   |             |      |  
|Revenues                   |                     | $             | 747,267 |         |             | $ | 0           |      |   | $ | 747,267 |        
|                           | Cost of Goods Sold  |               |         | 508,401 |             |   |             | 590  |   |   |         | 508,991 | 
|                           | Income before taxes |               |         | 49,277  |             |   |             | (590 | ) |   |         | 48,687  | 
|Income tax provision       |                     |               | 17,888  |         |             |   | (215        | )    |   |   | 17,673  |        
|                           | Net income (loss)   |               | $       | 31,389  |             |   | $           | (375 | ) |   | $       | 31,014  | 
|                           |                     |               |         |         |             |   |             |      |  
|Basic earnings per share   |                     | $             | 1.36    |         |             | $ | (.02        | )    |   | $ | 1.34    |        
|Diluted earnings per share |                     | $             | 1.33    |         |             | $ | (.01        | )    |   | $ | 1.32    |        

|                           |                     |               |         |         |             |   |             |      |   |   |         |         | 
|-------------------------- | ------------------- | ------------- | ------- | ------- | ----------- | - | ----------- | ---- | - | - | ------- | ------- | 
|                           |                     | As Previously |         |         |             |   |            
|                           |                     | Reported      |         |         |             |   | As Restated |     
|                           |                     |               |         |         |             |   |             |     
|                           |                     | February 1,   |         |         |             |   | February 1, |     
|                           |                     | 2003          |         |         | Adjustments |   |             | 2003 |  
|                           |                     |               |         |         |             |   |             |      |  
|Revenues                   |                     | $             | 748,331 |         |             | $ | 0           |      |   | $ | 748,331 |        
|                           | Cost of Goods Sold  |               |         | 496,345 |             |   |             | 609  |   |   |         | 496,954 | 
|                           | Income before taxes |               |         | 71,839  |             |   |             | (609 | ) |   |         | 71,230  | 
|Income tax provision       |                     |               | 26,006  |         |             |   | (221        | )    |   |   | 25,785  |        
|                           | Net income (loss)   |               | $       | 45,833  |             |   | $           | (388 | ) |   | $       | 45,445  | 
|                           |                     |               |         |         |             |   |             |      |  
|Basic earnings per share   |                     | $             | 1.80    |         |             | $ | (.02        | )    |   | $ | 1.78    |        
|Diluted earnings per share |                     | $             | 1.77    |         |             | $ | (.02        | )    |   | $ | 1.75    |        



Cash and Cash Equivalents and Short-Term Investments:


28



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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Concentration of Credit Risk:


Supplemental Cash Flow Information:


Inventories:


Property and Equipment:


|                                 |  |              |               | 
|-------------------------------- |  | ------------ | ------------- | 
|                                 |  | Estimated    |              
|Classification                   |  | Useful Lives |              
|                                 |  |              |              
|Land improvements                |  |              | 10 years      | 
|Buildings                        |  |              | 30  40 years | 
|Leasehold improvements           |  |              | 5  10 years  | 
|Fixtures, equipment and software |  |              | 3  10 years  | 

Impairment of Long-Lived Assets




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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Revenue Recognition






Cost of Goods Sold:


Credit Sales:


Advertising:


Earnings Per Share:


Vendor Allowances:


30



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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Income Taxes:


Store Opening and Closing Costs:


Closed Store Lease Obligations:


Insurance:


Fair Value of Financial Instruments:


Stock-based Compensation:


31



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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                       |                                                                                                                                                     |             |        |            |             |   |            |             |   |   |        |        |  
|---------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------ | ---------- | ----------- | - | ---------- | ----------- | - | - | ------ | ------ | -
|                       |                                                                                                                                                     | January 29, |        |            | January 31, |   |            | February 1, |  
|                       |                                                                                                                                                     | 2005        |        |            | 2004        |   |            | 2003        |  
|                       |                                                                                                                                                     |             |        |            |             |   |            |             |  
|                       |                                                                                                                                                     |             |        | (Restated) |             |   | (Restated) |            
|Net Income as Reported |                                                                                                                                                     | $           | 34,841 |            |             | $ | 31,014     |             |   | $ | 45,445 |       
|                       | Add: Stock-Based employee compensation expense included in
    reported net income, net of related tax effects                                      |             |        | 435        |             |   |            | 498         |   |   |        | 479    |  
|                       | Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |             |        | (499       | )           |   |            | (1,024      | ) |   |        | (1,219 | )
|                       |                                                                                                                                                     |             |        |            |             |   |            |             |  
|Pro forma Net Income   |                                                                                                                                                     | $           | 34,777 |            |             | $ | 30,488     |             |   | $ | 44,705 |       
|                       |                                                                                                                                                     |             |        |            |             |   |            |             |  
|Earnings per share:    |                                                                                                                                                     |             |        |            |             |   |            |             |   |   |        |       
|                       | Basic  as reported                                                                                                                                 |             | $      | 1.69       |             |   | $          | 1.34        |   |   | $      | 1.78   |  
|                       | Basic  pro forma                                                                                                                                   |             | $      | 1.69       |             |   | $          | 1.32        |   |   | $      | 1.76   |  
|                       | Diluted  as reported                                                                                                                               |             | $      | 1.66       |             |   | $          | 1.32        |   |   | $      | 1.75   |  
|                       | Diluted  pro forma                                                                                                                                 |             | $      | 1.66       |             |   | $          | 1.29        |   |   | $      | 1.72   |  



Recent Accounting Pronouncements


Share-Based
Payment, Accounting
for Stock-Based Compensation.


Inventory Costs. Inventory Pricing,


32



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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Reclassifications:


2.     Interest and Other Income:




|                             |  |             |        |   |             |   |        |             |  |   |        |  
|---------------------------- |  | ----------- | ------ | - | ----------- | - | ------ | ----------- |  | - | ------ | -
|                             |  | January 29, |        |   | January 31, |   |        | February 1, | 
|                             |  | 2005        |        |   | 2004        |   |        | 2003        | 
|                             |  |             |        |   |             |   |        |             | 
|Dividend income              |  | $           | (20    | ) |             | $ | (2     | )           |  | $ | (10    | )
|Interest income              |  |             | (1,499 | ) |             |   | (1,704 | )           |  |   | (3,046 | )
|Miscellaneous income         |  |             | (1,473 | ) |             |   | (1,235 | )           |  |   | (2,342 | )
|(Gain)/loss investment sales |  |             | 253    |   |             |   | (673   | )           |  |   | 1,697  |  
|                             |  |             |        |   |             |   |        |             | 
|Interest and other income    |  | $           | (2,739 | ) |             | $ | (3,614 | )           |  | $ | (3,701 | )
|                             |  |             |        |   |             |   |        |             | 

3.     Short-Term Investments:




|                                                                                                    |                        |                  |        |            |                  |   |           |            |   |   |        |            |  |             |           |        |            |   |      |      |   |   |        |        | 
|--------------------------------------------------------------------------------------------------- | ---------------------- | ---------------- | ------ | ---------- | ---------------- | - | --------- | ---------- | - | - | ------ | ---------- |  | ----------- | --------- | ------ | ---------- | - | ---- | ---- | - | - | ------ | ------ | 
|                                                                                                    |                        | January 29, 2005 |        |            | January 31, 2004 |  
|                                                                                                    |                        |                  |        |            |                  |  
|                                                                                                    |                        |                  |        | Unrealized |                  |   | Estimated |            |   |   |        | Unrealized |  |             | Estimated |       
|Security Type:                                                                                      |                        | Cost             |        |            | Gain/(Loss)      |   |           | Fair Value |   |   | Cost   |            |  | Gain/(Loss) |           |        | Fair Value |  
|                                                                                                    |                        |                  |        |            |                  |   |           |            |   |   |        |            |  |             |           |        |            |  
|Debt Securities issued by U.S. Treasury & other U.S.
    government corporations and agencies:      |                        |                  |        |            |                  |   |           |            |   |   |        |            |  |             |           |        |            |   |      |      |   |   |        |       
|                                                                                                    | With unrealized (loss) |                  | $      | 3,603      |                  |   | $         | (5         | ) |   | $      | 3,598      |  |             | $         |       |            |   | $    |     |   |   | $      |       | 
|Debt Securities issued by states of the United States and
    political subdivisions of the states: |                        |                  |        |            |                  |   |           |            |   |   |        |            |  |             |           |        |            |   |      |      |   |   |        |       
|                                                                                                    | With unrealized gain   |                  |        |           |                  |   |           |           |   |   |        |           |  |             |           | 37,777 |            |   |      | 146  |   |   |        | 37,923 | 
|                                                                                                    | With unrealized (loss) |                  |        | 85,087     |                  |   |           | (97        | ) |   |        | 84,990     |  |             |           | 7,500  |            |   |      | (345 | ) |   |        | 7,155  | 
|Corporate debt securities:                                                                          |                        |                  |        |            |                  |   |           |            |   |   |        |            |  |             |           |        |            |   |      |      |   |   |        |       
|                                                                                                    | With unrealized gain   |                  |        |           |                  |   |           |           |   |   |        |           |  |             |           |       |            |   |      |     |   |   |        |       | 
|                                                                                                    | With unrealized (loss) |                  |        |           |                  |   |           |           |   |   |        |           |  |             |           | 2,500  |            |   |      | (33  | ) |   |        | 2,467  | 
|                                                                                                    |                        |                  |        |            |                  |   |           |            |   |   |        |            |  |             |           |        |            |  
|Total                                                                                               |                        | $                | 88,690 |            |                  | $ | (102      | )          |   | $ | 88,588 |            |  | $           | 47,777    |        |            | $ | (232 | )    |   | $ | 47,545 |       
|                                                                                                    |                        |                  |        |            |                  |   |           |            |   |   |        |            |  |             |           |        |            |  



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THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                                    |  |      |        |           |            |   |        | 
|----------------------------------- |  | ---- | ------ | --------- | ---------- | - | ------ | 
|                                    |  |      |        | Estimated |           
|Security Type                       |  | Cost |        |           | Fair Value |  
|                                    |  |      |        |           |            |  
|Due in one year or less             |  | $    | 85,087 |           |            | $ | 84,990 | 
|Due in one year through three years |  |      | 3,603  |           |            |   | 3,598  | 
|                                    |  |      |        |           |            |  
|Total                               |  | $    | 88,690 |           |            | $ | 88,588 | 
|                                    |  |      |        |           |            |  



4.     Accounts Receivable:




|                                                              |  |             |        |  |             |   |        | 
|------------------------------------------------------------- |  | ----------- | ------ |  | ----------- | - | ------ | 
|                                                              |  | January 29, |        |  | January 31, |  
|                                                              |  | 2005        |        |  | 2004        |  
|                                                              |  |             |        |  |             |  
|Customer accounts  principally deferred payment
    accounts |  | $           | 53,337 |  |             | $ | 55,480 | 
|Miscellaneous trade receivables                               |  |             | 3,674  |  |             |   | 3,569  | 
|                                                              |  |             |        |  |             |  
|Total                                                         |  |             | 57,011 |  |             |   | 59,049 | 
|Less allowance for doubtful accounts                          |  |             | 6,122  |  |             |   | 6,335  | 
|                                                              |  |             |        |  |             |  
|Accounts receivable  net                                     |  | $           | 50,889 |  |             | $ | 52,714 | 
|                                                              |  |             |        |  |             |  



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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


5.     Property and Equipment:




|                                 |  |             |         |  |             |   |         | 
|-------------------------------- |  | ----------- | ------- |  | ----------- | - | ------- | 
|                                 |  | January 29, |         |  | January 31, |  
|                                 |  | 2005        |         |  | 2004        |  
|                                 |  |             |         |  |             |  
|Land and improvements            |  | $           | 2,019   |  |             | $ | 2,019   | 
|Buildings                        |  |             | 17,751  |  |             |   | 17,751  | 
|Leasehold improvements           |  |             | 43,317  |  |             |   | 39,354  | 
|Fixtures, equipment and software |  |             | 170,367 |  |             |   | 155,394 | 
|Construction in progress         |  |             | 4,015   |  |             |   | 2,534   | 
|                                 |  |             |         |  |             |  
|Total                            |  |             | 237,469 |  |             |   | 217,052 | 
|Less accumulated depreciation    |  |             | 119,879 |  |             |   | 102,685 | 
|                                 |  |             |         |  |             |  
|Property and equipment  net     |  | $           | 117,590 |  |             | $ | 114,367 | 
|                                 |  |             |         |  |             |  



6.     Accrued Expenses:




|                                                        |  |             |        |  |             |   |        | 
|------------------------------------------------------- |  | ----------- | ------ |  | ----------- | - | ------ | 
|                                                        |  | January 29, |        |  | January 31, |  
|                                                        |  | 2005        |        |  | 2004        |  
|                                                        |  |             |        |  |             |  
|Accrued bonus and retirement savings plan contributions |  | $           | 8,103  |  |             | $ | 2,784  | 
|Accrued payroll and related items                       |  |             | 7,189  |  |             |   | 4,348  | 
|Accrued advertising                                     |  |             | 963    |  |             |   | 976    | 
|Closed store lease obligations                          |  |             | 487    |  |             |   | 616    | 
|Property and other taxes                                |  |             | 10,539 |  |             |   | 8,719  | 
|Accrued insurance                                       |  |             | 5,572  |  |             |   | 5,348  | 
|Other                                                   |  |             | 6,485  |  |             |   | 5,024  | 
|                                                        |  |             |        |  |             |  
|Total                                                   |  | $           | 39,338 |  |             | $ | 27,815 | 
|                                                        |  |             |        |  |             |  

7.     Financing Arrangements:








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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




8.     Stockholders Equity:










1 3




36



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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|                     |                  |         |  |           |               |          |         |                |  |  |   |       | 
|-------------------- | ---------------- | ------- |  | --------- | ------------- | -------- | ------- | -------------- |  |  | - | ----- | 
|                     |                  |         |  |           |               | Weighted |        
|                     |                  |         |  | Range of  |               |          | Average |               
|                     |                  | Options |  |           | Option Prices |          |         | Price          | 
|                     |                  |         |  |           |               |          |         |                | 
|Outstanding options, |                  |         |  |           |               |          |         |                |  |  |   |      
|                     | February 2, 2002 |         |  | 1,755,250 |               |          | $       | 4.94  $18.91  |  |  | $ | 10.39 | 
|                     | Granted          |         |  | 45,500    |               |          |         | 18.05   26.76 |  |  |   | 20.89 | 
|                     | Exercised        |         |  | (344,100  | )             |          |         | 4.94   17.63  |  |  |   | 8.11  | 
|                     | Cancelled        |         |  | (14,700   | )             |          |         | 8.25   12.28  |  |  |   | 11.27 | 
|                     |                  |         |  |           |               |          |         |                | 
|Outstanding options, |                  |         |  |           |               |          |         |                |  |  |   |      
|                     | February 1, 2003 |         |  | 1,441,950 |               |          |         | 4.94   26.76  |  |  |   | 11.20 | 
|                     | Granted          |         |  | 19,500    |               |          |         | 16.65   21.29 |  |  |   | 17.66 | 
|                     | Exercised        |         |  | (288,250  | )             |          |         | 4.94   18.86  |  |  |   | 9.94  | 
|                     | Cancelled        |         |  | (18,800   | )             |          |         | 8.25   18.86  |  |  |   | 12.75 | 
|                     |                  |         |  |           |               |          |         |                | 
|Outstanding options, |                  |         |  |           |               |          |         |                |  |  |   |      
|                     | January 31, 2004 |         |  | 1,154,400 |               |          |         | 5.13   26.76  |  |  |   | 11.54 | 
|                     | Granted          |         |  | 75,750    |               |          |         | 19.64   23.13 |  |  |   | 21.55 | 
|                     | Exercised        |         |  | (196,000  | )             |          |         | 5.13   21.01  |  |  |   | 11.97 | 
|                     | Cancelled        |         |  | (30,600   | )             |          |         | 9.59   21.90  |  |  |   | 17.27 | 
|                     |                  |         |  |           |               |          |         |                | 
|Outstanding options, |                  |         |  |           |               |          |         |                |  |  |   |      
|                     | January 29, 2005 |         |  | 1,003,550 |               |          | $       | 7.69  $26.76  |  |  | $ | 12.08 | 
|                     |                  |         |  |           |               |          |         |                | 

37



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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |  |                 |                 |                     |         |                  |           |                  |          |         |                |  |  |   |       | 
| |  | --------------- | --------------- | ------------------- | ------- | ---------------- | --------- | ---------------- | -------- | ------- | -------------- |  |  | - | ----- | 
| |  |                 |                 | Options Outstanding |        
| |  |                 |                 |                     |        
| |  |                 |                 |                     |         | Weighted Average |           |                  | Weighted |        
| |  | Range of        |                 |                     |         |                  | Remaining |                  |          | Average |               
| |  | Exercise Prices |                 |                     | Options |                  |           | Contractual Life |          |         | Exercise Price | 
| |  |                 |                 |                     |         |                  |           |                  |          |         |                | 
| |  |                 | $ 7.69  $ 9.59 |                     |         |                  | 376,750   |                  |          |         | 2.30 years     |  |  | $ | 8.19  | 
| |  |                 | 12.22   14.13  |                     |         |                  | 508,750   |                  |          |         | 3.94 years     |  |  |   | 12.98 | 
| |  |                 | 16.65   19.64  |                     |         |                  | 36,700    |                  |          |         | 7.97 years     |  |  |   | 18.05 | 
| |  |                 | 20.13   26.76  |                     |         |                  | 81,350    |                  |          |         | 8.92 years     |  |  |   | 21.73 | 
| |  |                 |                 |                     |         |                  |           |                  |          |         |                | 
| |  |                 | $ 7.69  $26.76 |                     |         |                  | 1,003,550 |                  |          |         | 3.87 years     |  |  | $ | 12.08 | 
| |  |                 |                 |                     |         |                  |           |                  |          |         |                | 

| |  |                 |                |                     |         |          |         |                |  |   |       | 
| |  | --------------- | -------------- | ------------------- | ------- | -------- | ------- | -------------- |  | - | ----- | 
| |  |                 |                | Options Exercisable |        
| |  |                 |                |                     |        
| |  |                 |                |                     |         | Weighted |        
| |  | Range of        |                |                     |         |          | Average |               
| |  | Exercise Prices |                |                     | Options |          |         | Exercise Price | 
| |  |                 |                |                     |         |          |         |                | 
| |  | $               | 7.69  $ 9.59  |                     |         |          | 374,250 |                |  | $ | 8.18  | 
| |  |                 | 12.22   14.13 |                     |         |          | 503,750 |                |  |   | 12.98 | 
| |  |                 | 16.65   19.64 |                     |         |          | 7,300   |                |  |   | 17.79 | 
| |  |                 | 20.13   26.76 |                     |         |          | 5,700   |                |  |   | 22.73 | 
| |  |                 |                |                     |         |          |         |                | 
| |  | $               | 7.69  $26.76  |                     |         |          | 891,000 |                |  | $ | 11.07 | 
| |  |                 |                |                     |         |          |         |                | 







|                                                           |  |             |        |            |             |   |            |             |  |   |        |  
|---------------------------------------------------------- |  | ----------- | ------ | ---------- | ----------- | - | ---------- | ----------- |  | - | ------ | -
|                                                           |  | January 29, |        |            | January 31, |   |            | February 1, | 
|Fiscal Year Ended                                          |  | 2005        |        |            | 2004        |   |            | 2003        | 
|                                                           |  |             |        |            |             |   |            |             | 
|                                                           |  |             |        | (Restated) |             |   | (Restated) |            
|Net income                                                 |  | $           | 34,841 |            |             | $ | 31,014     |             |  | $ | 45,445 |  
|Unrealized gains (losses) on available-for-sale securities |  |             | 20     |            |             |   | (306       | )           |  |   | 1,268  |  
|Income tax effect                                          |  |             | 7      |            |             |   | (111       | )           |  |   | (448   | )
|                                                           |  |             |        |            |             |   |            |             | 
|Unrealized gains (losses) net of taxes                     |  |             | 13     |            |             |   | (195       | )           |  |   | 820    |  
|                                                           |  |             |        |            |             |   |            |             | 
|Total comprehensive income                                 |  | $           | 34,854 |            |             | $ | 30,819     |             |  | $ | 46,265 |  
|                                                           |  |             |        |            |             |   |            |             | 



9.     Employee Benefit Plans:




38



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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








10. Leases:






|                             |  |   |         | 
|---------------------------- |  | - | ------- | 
|Fiscal Year                  |  |  
|                             |  |  
|2005                         |  | $ | 46,769  | 
|2006                         |  |   | 38,375  | 
|2007                         |  |   | 28,757  | 
|2008                         |  |   | 17,370  | 
|2009                         |  |   | 6,990   | 
|2010 +                       |  |   | 229     | 
|                             |  |   |        
|Total minimum lease payments |  | $ | 138,490 | 
|                             |  |   |        



|                     |  |             |        |  |             |   |        |             |  |   |        | 
|-------------------- |  | ----------- | ------ |  | ----------- | - | ------ | ----------- |  | - | ------ | 
|                     |  | January 29, |        |  | January 31, |   |        | February 1, | 
|Fiscal Year Ended    |  | 2005        |        |  | 2004        |   |        | 2003        | 
|                     |  |             |        |  |             |   |        |             | 
|Minimum rentals      |  | $           | 44,493 |  |             | $ | 39,998 |             |  | $ | 37,848 | 
|Contingent rent      |  |             | 85     |  |             |   | 165    |             |  |   | 389    | 
|                     |  |             |        |  |             |   |        |             | 
|Total rental expense |  | $           | 44,578 |  |             | $ | 40,163 |             |  | $ | 38,237 | 
|                     |  |             |        |  |             |   |        |             | 

39



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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


11.     Related Party
Transactions:




12.     Income Taxes:




|                         |         |             |        |            |             |   |            |             |  |   |        |        |  
|------------------------ | ------- | ----------- | ------ | ---------- | ----------- | - | ---------- | ----------- |  | - | ------ | ------ | -
|                         |         | January 29, |        |            | January 31, |   |            | February 1, | 
|Fiscal Year Ended        |         | 2005        |        |            | 2004        |   |            | 2003        | 
|                         |         |             |        |            |             |   |            |             | 
|                         |         |             |        | (Restated) |             |   | (Restated) |            
|Current income taxes:    |         |             |        |            |             |   |            |             |  |   |        |       
|                         | Federal |             | $      | 20,142     |             |   | $          | 12,806      |  |   | $      | 24,529 |  
|                         | State   |             |        | 535        |             |   |            | 337         |  |   |        | 1,364  |  
|                         |         |             |        |            |             |   |            |             | 
|                         | Total   |             |        | 20,677     |             |   |            | 13,143      |  |   |        | 25,893 |  
|                         |         |             |        |            |             |   |            |             | 
|Deferred income taxes:   |         |             |        |            |             |   |            |             |  |   |        |       
|                         | Federal |             |        | (735       | )           |   |            | 4,048       |  |   |        | (91    | )
|                         | State   |             |        | (88        | )           |   |            | 482         |  |   |        | (17    | )
|                         |         |             |        |            |             |   |            |             | 
|                         | Total   |             |        | (823       | )           |   |            | 4,530       |  |   |        | (108   | )
|                         |         |             |        |            |             |   |            |             | 
|Total income tax expense |         | $           | 19,854 |            |             | $ | 17,673     |             |  | $ | 25,785 |       
|                         |         |             |        |            |             |   |            |             | 



|                             |                                            |                                |       |            |             |   |       |        |        | 
|---------------------------- | ------------------------------------------ | ------------------------------ | ----- | ---------- | ----------- | - | ----- | ------ | ------ | 
|                             |                                            | January 29,                    |       |            | January 31, |  
|                             |                                            | 2005                           |       |            | 2004        |  
|                             |                                            |                                |       |            |             |  
|                             |                                            |                                |       | (Restated) |            
|Deferred tax assets:         |                                            |                                |       |            |             |   |       |       
|                             | Allowance for doubtful accounts            |                                | $     | 2,338      |             |   | $     | 2,426  |       
|                             | Inventory valuation                        |                                |       | 1,643      |             |   |       | 946    |       
|                             | Restricted stock options                   |                                |       | 684        |             |   |       | 428    |       
|                             | Deferred rent                              |                                |       | 4,998      |             |   |       | 4,712  |       
|                             | Capital loss carryover                     |                                |       | 446        |             |   |       | 669    |       
|                             | Accrued expenses                           |                                |       | 4,856      |             |   |       | 3,872  |       
|Other                        |                                            |                                | 830   |            |             |   | 763   |       
|                             |                                            |                                |       |            |             |  
|                             |                                            | Total deferred tax assets      |       |            | 15,795      |   |       |        | 13,816 | 
|                             |                                            |                                |       |            |             |  
|Deferred tax liabilities:    |                                            |                                |       |            |             |   |       |       
|                             | Fixed assets                               |                                |       | 19,442     |             |   |       | 17,974 |       
|                             | Unrealized gains on short-term investments |                                |       | 40         |             |   |       | 33     |       
|Other                        |                                            |                                | 704   |            |             |   | 1,017 |       
|                             |                                            |                                |       |            |             |  
|                             |                                            | Total deferred tax liabilities |       |            | 20,186      |   |       |        | 19,024 | 
|                             |                                            |                                |       |            |             |  
|Net deferred tax liabilities |                                            | $                              | 4,391 |            |             | $ | 5,208 |       
|                             |                                            |                                |       |            |             |  

40



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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                          |  |             |      |   |             |  |      |             |  |  |      |  
|------------------------- |  | ----------- | ---- | - | ----------- |  | ---- | ----------- |  |  | ---- | -
|                          |  | January 29, |      |   | January 31, |  |      | February 1, | 
|Fiscal Year Ended         |  | 2005        |      |   | 2004        |  |      | 2003        | 
|                          |  |             |      |   |             |  |      |             | 
|Federal income tax rate   |  |             | 35.0 | % |             |  | 35.0 | %           |  |  | 35.0 | %
|State income taxes        |  |             | 1.3  |   |             |  | 1.3  |             |  |  | 1.2  |  
|                          |  |             |      |   |             |  |      |             | 
|Effective income tax rate |  |             | 36.3 | % |             |  | 36.3 | %           |  |  | 36.2 | %
|                          |  |             |      |   |             |  |      |             | 

13.     Quarterly Financial Data
(Unaudited):




|                           |  |            |         |                |  |            |         |                |  |            |         |                |  |   |         |  |  |   |         |  |  |   |         |  |  |   |         | 
|-------------------------- |  | ---------- | ------- | -------------- |  | ---------- | ------- | -------------- |  | ---------- | ------- | -------------- |  | - | ------- |  |  | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|Fiscal 2004                |  | First      |         | Second         |  | Third      |         | Fourth        
|                           |  |            |         |                |  |            |         |               
|                           |  |            |         | (As Previously |  |            |         | (As Previously |  |            |         | (As Previously |  |  
|                           |  | (Restated) |         | Reported)      |  | (Restated) |         | Reported)      |  | (Restated) |         | Reported)      |  |  
|Retail sales               |  | $          | 205,193 |                |  | $          | 205,193 |                |  | $          | 197,068 |                |  | $ | 197,068 |  |  | $ | 163,611 |  |  | $ | 163,612 |  |  | $ | 207,937 | 
|Total revenues             |  |            | 209,201 |                |  |            | 209,201 |                |  |            | 200,884 |                |  |   | 200,884 |  |  |   | 167,514 |  |  |   | 167,514 |  |  |   | 212,005 | 
|Cost of goods sold         |  |            | 132,398 |                |  |            | 132,344 |                |  |            | 136,185 |                |  |   | 136,051 |  |  |   | 115,640 |  |  |   | 115,481 |  |  |   | 144,693 | 
|Gross margin               |  |            | 72,795  |                |  |            | 72,849  |                |  |            | 60,883  |                |  |   | 61,017  |  |  |   | 47,971  |  |  |   | 48,131  |  |  |   | 63,244  | 
|Income before income taxes |  |            | 26,372  |                |  |            | 26,399  |                |  |            | 12,777  |                |  |   | 12,844  |  |  |   | 2,825   |  |  |   | 2,904   |  |  |   | 12,721  | 
|Net income                 |  |            | 16,799  |                |  |            | 16,816  |                |  |            | 8,139   |                |  |   | 8,182   |  |  |   | 1,800   |  |  |   | 1,850   |  |  |   | 8,103   | 
|Basic earnings per share   |  | $          | 0.82    |                |  | $          | 0.82    |                |  | $          | 0.39    |                |  | $ | 0.40    |  |  | $ | 0.09    |  |  | $ | 0.09    |  |  | $ | 0.39    | 
|Diluted earnings per share |  | $          | 0.81    |                |  | $          | 0.81    |                |  | $          | 0.38    |                |  | $ | 0.39    |  |  | $ | 0.09    |  |  | $ | 0.09    |  |  | $ | 0.38    | 

|                           |  |            |         |                |  |            |         |                |  |            |         |                |  |            |         |                |  |   |         |  |  |   |         |  |  |   |         |  |  |   |         | 
|-------------------------- |  | ---------- | ------- | -------------- |  | ---------- | ------- | -------------- |  | ---------- | ------- | -------------- |  | ---------- | ------- | -------------- |  | - | ------- |  |  | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|Fiscal 2003                |  | First      |         | Second         |  | Third      |         | Fourth        
|                           |  |            |         |                |  |            |         |               
|                           |  |            |         | (As Previously |  |            |         | (As Previously |  |            |         | (As Previously |  |            |         | (As Previously
|                           |  | (Restated) |         | Reported)      |  | (Restated) |         | Reported)      |  | (Restated) |         | Reported)      |  | (Restated) |         | Reported)     
|Retail sales               |  | $          | 197,304 |                |  | $          | 197,304 |                |  | $          | 188,218 |                |  | $          | 188,218 |                |  | $ | 153,171 |  |  | $ | 153,171 |  |  | $ | 193,077 |  |  | $ | 193,077 | 
|Total revenues             |  |            | 201,210 |                |  |            | 201,210 |                |  |            | 191,993 |                |  |            | 191,993 |                |  |   | 157,129 |  |  |   | 157,129 |  |  |   | 196,935 |  |  |   | 196,935 | 
|Cost of goods sold         |  |            | 127,316 |                |  |            | 126,998 |                |  |            | 132,782 |                |  |            | 132,616 |                |  |   | 109,003 |  |  |   | 108,557 |  |  |   | 139,890 |  |  |   | 140,230 | 
|Gross margin               |  |            | 69,988  |                |  |            | 70,306  |                |  |            | 55,436  |                |  |            | 55,602  |                |  |   | 44,168  |  |  |   | 44,614  |  |  |   | 53,187  |  |  |   | 52,847  | 
|Income before income taxes |  |            | 27,126  |                |  |            | 27,444  |                |  |            | 11,971  |                |  |            | 12,137  |                |  |   | 805     |  |  |   | 1,251   |  |  |   | 8,785   |  |  |   | 8,445   | 
|Net income                 |  |            | 17,280  |                |  |            | 17,482  |                |  |            | 7,625   |                |  |            | 7,731   |                |  |   | 513     |  |  |   | 797     |  |  |   | 5,596   |  |  |   | 5,379   | 
|Basic earnings per share   |  | $          | 0.68    |                |  | $          | 0.69    |                |  | $          | 0.30    |                |  | $          | 0.30    |                |  | $ | 0.02    |  |  | $ | 0.04    |  |  | $ | 0.27    |  |  | $ | 0.26    | 
|Diluted earnings per share |  | $          | 0.67    |                |  | $          | 0.68    |                |  | $          | 0.29    |                |  | $          | 0.30    |                |  | $ | 0.02    |  |  | $ | 0.04    |  |  | $ | 0.27    |  |  | $ | 0.26    | 

41



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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


14.     Reportable Segment
Information:






|                          |  |        |         |   |        |   |        |       |  |   |         |  
|------------------------- |  | ------ | ------- | - | ------ | - | ------ | ----- |  | - | ------- | -
|Fiscal 2004               |  | Retail |         |   | Credit |   |        | Total | 
|                          |  |        |         |   |        |   |        |       | 
|Revenues                  |  | $      | 775,421 |   |        | $ | 14,183 |       |  | $ | 789,604 |  
|Depreciation              |  |        | 20,320  |   |        |   | 77     |       |  |   | 20,397  |  
|Interest and other income |  |        | (2,739  | ) |        |   | 0      |       |  |   | (2,739  | )
|Income before taxes       |  |        | 49,268  |   |        |   | 5,427  |       |  |   | 54,695  |  
|Total assets              |  |        | 329,010 |   |        |   | 65,124 |       |  |   | 394,134 |  
|Capital expenditures      |  |        | 25,102  |   |        |   | 199    |       |  |   | 25,301  |  

|                          |  |            |         |   |        |   |            |       |  |   |         |  
|------------------------- |  | ---------- | ------- | - | ------ | - | ---------- | ----- |  | - | ------- | -
|Fiscal 2003               |  | Retail     |         |   | Credit |   |            | Total | 
|                          |  |            |         |   |        |   |            |       | 
|                          |  | (Restated) |         |   |        |   | (Restated) |      
|Revenues                  |  | $          | 732,796 |   |        | $ | 14,471     |       |  | $ | 747,267 |  
|Depreciation              |  |            | 18,617  |   |        |   | 78         |       |  |   | 18,695  |  
|Interest and other income |  |            | (3,614  | ) |        |   | 0          |       |  |   | (3,614  | )
|Income before taxes       |  |            | 43,963  |   |        |   | 4,724      |       |  |   | 48,687  |  
|Total assets              |  |            | 293,911 |   |        |   | 62,373     |       |  |   | 356,284 |  
|Capital expenditures      |  |            | 20,549  |   |        |   | 4          |       |  |   | 20,553  |  

|                          |  |            |         |   |        |   |            |       |  |   |         |  
|------------------------- |  | ---------- | ------- | - | ------ | - | ---------- | ----- |  | - | ------- | -
|Fiscal 2002               |  | Retail     |         |   | Credit |   |            | Total | 
|                          |  |            |         |   |        |   |            |       | 
|                          |  | (Restated) |         |   |        |   | (Restated) |      
|Revenues                  |  | $          | 734,352 |   |        | $ | 13,979     |       |  | $ | 748,331 |  
|Depreciation              |  |            | 14,851  |   |        |   | 62         |       |  |   | 14,913  |  
|Interest and other income |  |            | (3,701  | ) |        |   | 0          |       |  |   | (3,701  | )
|Income before taxes       |  |            | 65,766  |   |        |   | 5,464      |       |  |   | 71,230  |  
|Capital expenditures      |  |            | 28,953  |   |        |   | 0          |       |  |   | 28,953  |  





|                 |  |             |       |  |             |   |       |             |  |   |       | 
|---------------- |  | ----------- | ----- |  | ----------- | - | ----- | ----------- |  | - | ----- | 
|                 |  | January 29, |       |  | January 31, |   |       | February 1, | 
|                 |  | 2005        |       |  | 2004        |   |       | 2003        | 
|                 |  |             |       |  |             |   |       |             | 
|Bad debt expense |  | $           | 5,096 |  |             | $ | 6,098 |             |  | $ | 4,764 | 
|Payroll          |  |             | 1,142 |  |             |   | 1,101 |             |  |   | 1,117 | 
|Postage          |  |             | 1,075 |  |             |   | 1,131 |             |  |   | 1,121 | 
|Other expenses   |  |             | 1,366 |  |             |   | 1,339 |             |  |   | 1,451 | 
|                 |  |             |       |  |             |   |       |             | 
|Total expenses   |  | $           | 8,679 |  |             | $ | 9,669 |             |  | $ | 8,453 | 
|                 |  |             |       |  |             |   |       |             | 

42



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##### Table of Contents



THE CATO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


15.     Commitments and
Contingencies:








43



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##### Table of Contents








|        |                                                                                                                                             
|------- | --------------------------------------------------------------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Independent Registered
    Public Accounting Firm on Accounting and Consolidated Financial
    Disclosure:








|         |                         
|-------- | ------------------------
|Item 9A. | Controls and Procedures:

Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures




Managements Report on Internal Control Over Financial
Reporting


Internal Control  Integrated
Framework




Changes in Internal Control Over Financial Reporting




Managements Consideration of the Restatement


Materiality Interim Financial
Reporting Accounting Changes Not
Retroactively Applied Due to Immateriality


44



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##### Table of Contents






PART III







|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant:








|         |                        
|-------- | -----------------------
|Item 11. | Executive Compensation:








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters

Equity Compensation Plan Information.




|                                                           |  |                            |           |  |                        |                         |       |                         |  |  |           | 
|---------------------------------------------------------- |  | -------------------------- | --------- |  | ---------------------- | ----------------------- | ----- | ----------------------- |  |  | --------- | 
|                                                           |  | (a)                        |           |  | (b)                    |                         |       | (c)                     | 
|                                                           |  |                            |           |  |                        | Number of securities    |      
|                                                           |  |                            |           |  |                        | remaining available for |      
|                                                           |  |                            |           |  |                        | future issuance under   |      
|                                                           |  | Number of securities to be |           |  | Weighted-average       |                         |       | equity compensation     | 
|                                                           |  | issued upon exercise of    |           |  | exercise price of      |                         |       | plans (excluding        | 
|                                                           |  | outstanding options,       |           |  | outstanding options,   |                         |       | securities reflected in | 
|Plan Category                                              |  | warrants and rights(1)     |           |  | warrants and rights(1) |                         |       | column (a)(2)           | 
|                                                           |  |                            |           |  |                        |                         |       |                         | 
|Equity compensation plans approved by security holder      |  |                            | 1,003,550 |  |                        | $                       | 12.08 |                         |  |  | 1,102,086 | 
|Equity compensation plans not approved by security holders |  |                            |          |  |                        |                         |      |                         |  |  |          | 
|Total                                                      |  |                            | 1,003,550 |  |                        | $                       | 12.08 |                         |  |  | 1,102,086 | 






|    |                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This column contains information regarding employee stock
    options only; there are no outstanding warrants or stock
    appreciation rights.
|   
|(2) | Includes the following:                                                                                                                        



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 867,000 shares available for grant under the Companys
    stock incentive plan, referred to as the 2004 Incentive
    Compensation Plan. Under this plan, non-qualified stock options
    may be granted to key employees. Additionally,
    13,318 shares available for grant under the Companys
    stock incentive plan, referred to as the 1987
    Non-qualified Stock Option Plan. Stock options have terms of
    10 years, vest evenly over 5 years, and are assigned
    an exercise price of not less than the fair market value of the
    Companys stock on the date of grant; and
|
| | 221,768 shares available under the 2003 Employee Stock
    Purchase Plan. Eligible employees may participate in the
    purchase of designated shares of the Companys common
    stock. The purchase price of this stock is equal to 85% of the
    lower of the closing price at the beginning or the end of each
    semi-annual stock purchase period.                                                                                                                                                                                                                                         



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|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions:








|         |                                        
|-------- | ---------------------------------------
|Item 14. | Principal Accountant Fees and Services:






PART IV







|         |                                            
|-------- | -------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules:





|                                                                                                                                                                       |  |      |       | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | 
|                                                                                                                                                                       |  | Page |      
|                                                                                                                                                                       |  |      |      
|Report of Independent Registered Public Accounting Firm                                                                                                                |  |      | 20-21 | 
|Report of Independent Registered Public Accounting Firm                                                                                                                |  |      | 22    | 
|Consolidated Statements of Income for the fiscal years ended
    January 29, 2005, January 31, 2004 (as restated) and
    February 1, 2003 (as restated)               |  |      | 23    | 
|Consolidated Balance Sheets at January 29, 2005 and
    January 31, 2004 (as restated)                                                                                 |  |      | 24    | 
|Consolidated Statements of Cash Flows for the fiscal years ended
    January 29, 2005, January 31, 2004 (as restated) and
    February 1, 2003 (as restated)           |  |      | 25    | 
|Consolidated Statements of Stockholders Equity for the
    fiscal years ended January 29, 2005, January 31, 2004
    (as restated) and February 1, 2003 (as restated) |  |      | 26    | 
|Notes to Consolidated Financial Statements                                                                                                                             |  |      | 27    | 



|                                                                 |  |  |     | 
|---------------------------------------------------------------- |  |  | --- | 
|Independent Registered Public Accounting Firms Consent          |  |  | S-1 | 
|Schedule II  Valuation and Qualifying Accounts and
    Reserves |  |  | S-2 | 



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|        |      |  |                        |                                                                                                                                                                                                                                                                                                   
|------- | ---- |  | ---------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |                       
|Number  |      |  | Description of Exhibit
|        |      |  |                       
|        | 3.1  |  |                        | Registrants Restated Certificate of Incorporation of the
    Registrant dated March 6, 1987, incorporated by reference
    to Form S-8 of the Registrant filed February 7, 2000.                                                                                                                 
|        | 3.2  |  |                        | Registrants By Laws incorporated by reference to
    Form S-8 of the Registrant Filed February 7, 2000.                                                                                                                                                                                          
|        | 4.1  |  |                        | Share Rights Agreement dated December 18, 2003,
    incorporated by reference to Form 8-A12G of the Registrant
    filed December 22, 2003 and as amended in
    Form 8-A12B/A filed on January 6, 2004.                                                                                          
|        | 10.1 |  |                        | Employment Agreement dated May 20, 1999 between The Cato
    Corporation and John P. Derham Cato, incorporated by
    reference to Form 10-K of the Registrant for the fiscal
    year ended January 29, 2000.                                                                                    
|        | 10.2 |  |                        | 1999 Incentive Compensation Plan dated August 26, 1999,
    incorporated by reference to Form S-8 of the Registrant
    filed February 7, 2000.                                                                                                                                                   
|        | 10.3 |  |                        | Agreement, dated as of August 29, 2003, between the
    Registrant and Wayland H. Cato, Jr., incorporated by
    reference to Form 8-K of the Registrant filed on
    July 22, 2003.                                                                                                              
|        | 10.4 |  |                        | Agreement, dated as of August 29, 2003, between the
    Registrant and Edgar T. Cato, incorporated by reference to
    Form 8-K of the Registrant filed on July 22, 2003.                                                                                                                         
|        | 10.5 |  |                        | Retirement Agreements between Registrant and Wayland H.
    Cato, Jr. and Edgar T. Cato dated August 29, 2003
    incorporated by reference to Form 10-Q of the Registrant
    for quarter ended August 2, 2003.                                                                                  
|        | 16.1 |  |                        | Change in the Registrants Independent Accountants from Deloitte
    & Touche, LLP to PricewaterhouseCoopers, LLP effective
    September 16, 2003, incorporated by reference to
    Form 8-K of the Registrant filed September 23, 2003
    and as amended in Form 8-K/A filed on October 6, 2003.
|        | 21   |  |                        | Subsidiary of Registrant.                                                                                                                                                                                                                                                                         
|        | 23.1 |  |                        | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                         
|        | 23.2 |  |                        | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                         
|        | 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 Chief Financial
    Officer.                                                                                                                                                                                                                            
|        | 32.1 |  |                        | Section 1350 Certification of Chief Executive Officer.                                                                                                                                                                                                                                            
|        | 32.2 |  |                        | Section 1350 Certification of Chief Financial Officer.                                                                                                                                                                                                                                            

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EXHIBIT INDEX


|            |      |  |  |                                                                       |      |  |     | 
|----------- | ---- |  |  | --------------------------------------------------------------------- | ---- |  | --- | 
|Designation |      |  |  |                                                                       |     
|of Exhibit  |      |  |  |                                                                       | Page | 
|            |      |  |  |                                                                       |      | 
|            | 21   |  |  | Subsidiaries of the Registrant                                        |      |  | 49  | 
|            | 23.1 |  |  | Consent of Independent Registered Public Accounting Firm              |      |  | 50  | 
|            | 23.2 |  |  | Consent of Independent Registered Public Accounting Firm              |      |  | S-1 | 
|            | 31.1 |  |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer |      |  | 52  | 
|            | 31.2 |  |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer |      |  | 53  | 
|            | 32.1 |  |  | Section 1350 Certification of Chief Executive Officer                 |      |  | 54  | 
|            | 32.2 |  |  | Section 1350 Certification of Chief Financial Officer                 |      |  | 55  | 

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EXHIBIT 21


SUBSIDIARIES OF THE REGISTRANT


|                                      |  |                             |  |                                          
|------------------------------------- |  | --------------------------- |  | -----------------------------------------
|                                      |  | State of                    |  |                                          
|Name of Subsidiary                    |  | Incorporation/Organization  |  | Name under which Subsidiary does Business
|                                      |  |                             |  |                                          
|CHW LLC                               |  | Delaware                    |  | CHW LLC                                  
|Providence Insurance Company, Limited |  | A Bermudian Company         |  | Providence Insurance Company, Limited    
|CatoSouth LLC                         |  | North Carolina              |  | CatoSouth LLC                            
|Cato of Texas L.P.                    |  | Texas                       |  | Cato of Texas L.P.                       
|Cato Southwest, Inc.                  |  | Delaware                    |  | Cato Southwest, Inc.                     
|CaDel LLC                             |  | Delaware                    |  | CaDel LLC                                
|CatoWest LLC                          |  | Nevada                      |  | CatoWest LLC                             
|Cedar Hill National Bank              |  | A Nationally Chartered Bank |  | Cedar Hill National Bank                 
|catocorp.com, LLC                     |  | Delaware                    |  | catocorp.com, LLC                        

49



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EXHIBIT 23.1


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM










50



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##### Table of Contents



SIGNATURES




The Cato Corporation


|   |  |                                                                                                            |    |                                                                                                                    
|-- |  | ---------------------------------------------------------------------------------------------------------- | -- | -------------------------------------------------------------------------------------------------------------------
|  
|By |  | /s/ John P. Derham
    CatoJohn
    P. Derham Cato
    Chairman, President and
    Chief Executive Officer | By | /s/ Michael O.
    MooreMichael
    O. Moore
    Executive Vice President
    Chief Financial Officer and Secretary
|  
|By |  | /s/ Robert M.
    SandlerRobert
    M. Sandler
    Senior Vice President
    Controller                    |    |                                                                                                                    





| |  |                                                                           |  |                                                          
| |  | ------------------------------------------------------------------------- |  | ---------------------------------------------------------
| |  | /s/ John P. Derham CatoJohn
    P. Derham Cato
    (Director)             |  | /s/ Grant L. HamrickGrant
    L. Hamrick
    (Director)  
|
| |  | /s/ Michael O. MooreMichael
    O. Moore
    (Director)                   |  | /s/ James H. ShawJames
    H. Shaw
    (Director)        
|
| |  | /s/ Robert W. Bradshaw,
    Jr.Robert
    W. Bradshaw, Jr.
    (Director) |  | /s/ A.F. (Pete) SloanA.F.
    (Pete) Sloan
    (Director)
|
| |  | /s/ George S. CurrinGeorge
    S. Currin
    (Director)                   |  | /s/ D. Harding StoweD.
    Harding Stowe
    (Director)  
|
| |  | /s/ William H. GriggWilliam
    H. Grigg
    (Director)                   |  |                                                          

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EXHIBIT 23.2


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM










S-1



---



##### Table of Contents



SCHEDULE II


VALUATION AND QUALIFYING ACCOUNTS


|                            |                                         |                |       |        |                |   |       |            |   |   |     |     | 
|--------------------------- | --------------------------------------- | -------------- | ----- | ------ | -------------- | - | ----- | ---------- | - | - | --- | --- | 
|                            |                                         | Allowance      |       |        |                |   |      
|                            |                                         | for            |       |        | Reserve for    |   |       | Allowance  |  
|                            |                                         | Doubtful       |       |        | Rental         |   |       | for Sales  |  
|                            |                                         | Accounts(a)    |       |        | Commitments(b) |   |       | Returns(c) |  
|                            |                                         |                |       |        |                |   |       |            |  
|                            |                                         | (In thousands) |      
|Balance at February 2, 2002 |                                         | $              | 5,968 |        |                | $ | 1,077 |            |   | $ |    |    
|                            | Additions charged to costs and expenses |                |       | 4,763  |                |   |       | 1,000      |   |   |     | 390 | 
|                            | Additions charged to other accounts     |                |       | 887    | (d)            |   |       |           |   |   |     |    | 
|                            | Deductions                              |                |       | (5,519 | )(e)           |   |       | (1,121     | ) |   |     |    | 
|                            |                                         |                |       |        |                |   |       |            |  
|Balance at February 1, 2003 |                                         |                | 6,099 |        |                |   | 956   |            |   |   | 390 |    
|                            | Additions charged to costs and expenses |                |       | 6,098  |                |   |       | 1,062      |   |   |     | 10  | 
|                            | Additions charged to other accounts     |                |       | 858    | (d)            |   |       |           |   |   |     |    | 
|                            | Deductions                              |                |       | (6,720 | )(e)           |   |       | (1,402     | ) |   |     |    | 
|                            |                                         |                |       |        |                |   |       |            |  
|Balance at January 31, 2004 |                                         |                | 6,335 |        |                |   | 616   |            |   |   | 400 |    
|                            | Additions charged to costs and expenses |                |       | 5,096  |                |   |       | 1,373      |   |   |     | 22  | 
|                            | Additions charged to other accounts     |                |       | 1,069  | (d)            |   |       |           |   |   |     |    | 
|                            | Deductions                              |                |       | (6,378 | )(e)           |   |       | (1,502     | ) |   |     |    | 
|                            |                                         |                |       |        |                |   |       |            |  
|Balance at January 29, 2005 |                                         | $              | 6,122 |        |                | $ | 487   |            |   | $ | 422 |    
|                            |                                         |                |       |        |                |   |       |            |  






|    |                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------
|(a) | Deducted from trade accounts receivable.                                                                                        
|   
|(b) | Provision for the difference between costs and revenues from
    non-cancelable subleases over the lease terms of closed stores.
|   
|(c) | Gross margin revenue on return sales.                                                                                           
|   
|(d) | Recoveries of amounts previously written off.                                                                                   
|   
|(e) | Uncollectible accounts written off.                                                                                             

S-2