##### Table of Contents



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 1934For the fiscal year ended
    February 3, 2007oro

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
  DelawareState of
    Incorporation

56-0484485I.R.S. Employer
    Identification Number8100 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
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2 þ o o
  Rule 12b-2).  Yes o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




---



##### 



THE CATO
    CORPORATION
  FORM 10-K
  TABLE OF
    CONTENTS
  PagePART
    IItem 1.


Business


3  7Item 1A.


Risk
    Factors


7  9Item 1B.


Unresolved Staff
    Comments


9Item 2.


Properties


9Item 3.


Legal
    Proceedings


9Item 4.


Submission of
    Matters to a Vote of Security Holders


9Item 4A.


Executive Officers
    of the Registrant


10PART
    IIItem 5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


11  12Item 6.


Selected Financial
    Data


13Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


14  20Item 7A.


Quantitative and
    Qualitative Disclosures about Market Risk


20Item 8.


Financial
    Statements and Supplementary Data


21  44Item 9.


Changes in and
    Disagreements with Independent Registered Public Accounting Firm
    on Accounting and Consolidated Financial Disclosure


45Item 9A.


Controls and
    Procedures


45Item 9B.


Other
    Information


45PART
    IIIItem 10.


Directors,
    Executive Officers and Corporate Governance


45Item 11.


Executive
    Compensation


45Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


46Item 13.


Certain
    Relationships and Related Transactions and Director
    Independence


46Item 14.


Principal
    Accountant Fees and Services


46PART
    IVItem 15.


Exhibits and
    Financial Statement Schedule


47  56Exhibit 21Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2   1




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##### Table of Contents



Forward-looking
    Information
  Form 10-K Form 10-K
  www.catocorp.com. Form 10-K, Form 10-Q, Form 8-K, 28273-5975.
 2




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##### Table of Contents



PART I  Item 1.
    Business:  General
    Business
    Merchandise Assortment.
  Value Pricing.
  Strip Shopping Center Locations.
  Customer Service.
  Credit and Layaway Programs.
  Expansion.
  Merchandising
  Merchandising
   3




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##### Table of Contents



Purchasing,
    Allocation and Distribution
    Point-of-sale store-by-store
    Advertising
   4




---



##### Table of Contents



Store
    Operations
      Store
    Locations
        Store
    Development
  Number of StoresBeginning of


Number


Number


Number of StoresFiscal Year

Year


Opened


Closed


End of Year2002


937



90



5



1,0222003


1,022



87



7



1,1022004


1,102



80



5



1,1772005


1,177



82



15



1,2442006


1,244



58



26



1,276        5




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##### Table of Contents



Credit
    and Layaway
  Credit
    Card Program
      Layaway
    Plan
    Management
    Information Systems
      Competition
    Seasonality
   6




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##### Table of Contents



Regulation
    Associates
    Item 1A.
    Risk
    Factors:    Risks
    Relating To Our Business:
  If we
    are unable to anticipate, identify and respond to rapidly
    changing fashion trends and customer demands in a timely manner,
    our business and results of operations could materially
    suffer.
    Unusual
    weather, natural disasters or similar events may adversely
    affect our sales or operations.
   7




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##### Table of Contents



Changes
    or other disruptions in the Companys merchandise supply
    chain, including those affecting the pricing or importation of
    goods from the foreign markets that supply a significant amount
    of the Companys merchandise, could materially and
    adversely affect the Companys costs and results of
    operations.
    Our
    costs are affected by foreign currency
    fluctuations.
    An
    actual or perceived decline in general economic conditions or
    outlook may reduce consumer demand for our apparel and
    accessories.
    A
    disruption or shutdown of our centralized distribution center
    could materially and adversely affect our business and results
    of operations.
    A
    delay in the successful opening of the number of new stores we
    have planned could adversely affect our business and results of
    operations.
   8




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##### Table of Contents



Risks
    Relating To Our Common Stock:
  Our
    operating results are subject to seasonal and quarterly
    fluctuations, which could adversely affect the market price of
    our common stock.
    The
    interests of a principal shareholder may limit the ability of
    other shareholders to influence the direction of the
    Company.
    Item 1B.
    Unresolved
    Staff Comments:    Item 2.
    Properties:  15-acre 2-acre
    Item 3.
    Legal
    Proceedings:    Item 4.
    Submission
    of Matters to a Vote of Security Holders:   9




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##### Table of Contents



Item 4A.
    Executive
    Officers of the Registrant:    Name

Age

PositionJohn P. D. Cato


56


Chairman, President and
    Chief Executive OfficerMichael T. Greer


44


Executive Vice President,
    Director of StoresHoward A. Severson


59


Executive Vice President, Chief
    Real Estate and
    Store Development OfficerThomas W. Stoltz


46


Executive Vice President,
    Chief Financial OfficerStuart L. Uselton


46


Executive Vice President,
    Chief Administrative OfficerB. Allen Weinstein


60


Executive Vice President,
    Chief Merchandising Officer   John P. D. Cato
  Michael T. Greer
  Howard A. Severson
  Thomas W. Stoltz
  Stuart L. Uselton
  B. Allen Weinstein
 10




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##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities:  Market &
    Dividend Information
  three-for-two
  Price2006

High


Low


DividendFirst quarter

$
23.86


$
19.80


$

.13Second quarter


26.25



21.86




.15Third quarter


25.52



21.91




.15Fourth quarter


24.94



21.70




.15   Price2005

High


Low


DividendFirst quarter

$
22.17


$
17.09


$

.117Second quarter


21.80



17.07




.13Third quarter


21.45



18.51




.13Fourth quarter


23.35



19.52




.13      11




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##### Table of Contents



Stock
    Performance Graph
    The Cato Corporation
 Stock Performance Graph
  
   STOCK PERFORMANCE TABLE
 (BASE 100  IN DOLLARS)
  DOW JONESLAST TRADING DAY

THE CATO

U.S. RETAILERS

RUSSELL 2000OF THE FISCAL YEAR

CORPORATION

APPL INDEX

INDEX2/01/02

100

100

1001/31/03

88

87

791/30/04

103

116

1241/28/05

148

140

1331/27/06

160

160

1602/02/07

169

193

179    12




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##### Table of Contents



Item 6.
    Selected
    Financial Data:    three-for-two
  Fiscal Year

2006


2005


2004


2003


2002(Dollars in thousands, except per share data and selected
    operating data)STATEMENT OF OPERATIONS
    DATA:Retail sales

$
862,813


$
821,639


$
773,809


$
731,770


$
732,742Other income


13,072



14,742



15,795



15,497



15,589Total revenues


875,885



836,381



789,604



747,267



748,331Cost of goods sold (exclusive of
    depreciation shown below)


572,712



546,955



528,916



508,991



496,954Gross margin


290,101



274,684



244,893



222,779



235,788Gross margin percent


33.6
%


33.4
%


31.6
%


30.4
%


32.2
%Selling, general and administrative


212,157



203,156



187,618



174,202



168,914Selling, general and
    administrative percent of retail sales


24.6
%


24.7
%


24.2
%


23.8
%


23.1
%Depreciation


20,941



20,275



20,397



18,695



14,913Interest expense


41



183



717



306



21Interest and other income


(9,597
)


(4,563
)


(2,739
)


(3,614
)


(3,701
)Income before income taxes


79,631



70,375



54,695



48,687



71,230Income tax expense


28,181



25,546



19,854



17,673



25,785Net income

$
51,450


$
44,829


$
34,841


$
31,014


$
45,445Basic earnings per share

$
1.64


$
1.44


$
1.13


$
.89


$
1.19Diluted earnings per share

$
1.62


$
1.41


$
1.11


$
.88


$
1.17Cash dividends paid per share

$
.58


$
.507


$
.457


$
.42


$
.39SELECTED OPERATING
    DATA:Stores open at end of year


1,276



1,244



1,177



1,102



1,022Average sales per store(1)

$
685,000


$
684,000


$
682,000


$
692,000


$
753,000Average sales per square foot of
    selling space

$
175


$
173


$
170


$
171


$
184Comparable store sales increase
    (decrease)


(2
)%


1
%


0
%


(7
)%


0
%BALANCE SHEET DATA (at period
    end):Cash, cash equivalents and
    short-term investments

$
123,542


$
107,819


$
107,228


$
71,402


$
106,936Working capital


176,464



139,114



136,980



117,403



166,264Total assets


432,322



406,636



397,323



356,284



387,272Total stockholders equity


276,793



239,948



211,175



186,075



262,505     (1)
    
    Calculated using actual sales volume for stores open for the
    full year and an estimated annual sales volume for new stores
    opened during the year.(2)
    
    The fiscal year ended February 3, 2007 contained
    53 weeks versus 52 weeks in the prior fiscal years
    2005-2002. 13




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations:  Results
    of Operations
    February 3,


January 28,


January 29,Fiscal Year Ended

2007


2006


2005Retail sales


100.0
%


100.0
%


100.0
%Other income


1.5



1.8



2.0Total revenues


101.5



101.8



102.0Cost of goods sold


66.4



66.6



68.4Selling, general and administrative


24.6



24.7



24.2Depreciation


2.4



2.5



2.6Interest expense


0.0



0.0



0.1Interest and other income


(1.1
)


(0.6
)


(0.4
)Income before income taxes


9.2



8.6



7.1Net income


6.0
%


5.5
%


4.5
%   Fiscal
    2006 Compared to Fiscal 2005
           14




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##### Table of Contents



Fiscal
    2005 Compared to Fiscal 2004
             15




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##### Table of Contents



Off
    Balance Sheet Arrangements
    Critical
    Accounting Policies
      Allowance
    for Doubtful Accounts
    Merchandise
    Inventories
  (first-in,
 16




---



##### Table of Contents



Lease
    Accounting
  Accounting for Leases
  Impairment
    of Long-Lived Assets
    Insurance
    Liabilities
   17




---



##### Table of Contents



Tax
    Reserves
    Revenue
    Recognition
      Liquidity,
    Capital Resources and Market Risk
           18




---



##### Table of Contents



available-for-sale
    Payments Due During One Year Fiscal Period EndingContractual Obligations

Total


2007


2008


2009


2010


2011


ThereafterMerchandise letters of credit

$
4,533


$
4,533


$



$



$



$



$
Operating leases


141,734



51,001



39,103



26,462



16,904



8,235



29Total Contractual Obligations

$
146,267


$
55,534


$
39,103


$
26,462


$
16,904


$
8,235


$
29   Recent
    Accounting Pronouncements
  Share-Based Payment Accounting for Stock Issued to
    Employees
 19




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##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk:   20




---



##### 



Item 8.  Financial
    Statements and Supplementary Data:



INDEX TO
    FINANCIAL STATEMENTS AND SCHEDULE PageReport of
    Independent Registered Public Accounting Firm


22  23Consolidated
    Statements of Income and Comprehensive Income for the fiscal
    years ended
    February 3, 2007, January 28, 2006 and
    January 29, 2005


24Consolidated
    Balance Sheets at February 3, 2007 and January 28,
    2006


25Consolidated
    Statements of Cash Flows for the fiscal years ended
    February 3, 2007, 
    January 28, 2006 and January 29, 2005


26Consolidated
    Statements of Stockholders Equity for the fiscal years
    ended February 3, 2007, January 28, 2006 and
    January 29, 2005


27Notes to
    Consolidated Financial Statements


28Schedule II 
    Valuation and Qualifying Accounts for the fiscal years ended
    February 3, 2007, January 28, 2006 and
    January 29, 2005


S-2   21




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##### Table of Contents



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
 22




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING
    FIRM  (Continued)
         
 23




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##### Table of Contents



THE CATO
    CORPORATION
 CONSOLIDATED
    STATEMENTS OF INCOME AND
    COMPREHENSIVE INCOME  Fiscal Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005(Dollars in thousands, except per share data)REVENUESRetail sales

$
862,813


$
821,639


$
773,809Other income (principally finance
    charges, late fees and layaway charges)


13,072



14,742



15,795Total revenues


875,885



836,381



789,604COSTS AND EXPENSES,
    NETCost of goods sold (exclusive of
    depreciation shown below)


572,712



546,955



528,916Selling, general and administrative


212,157



203,156



187,618Depreciation


20,941



20,275



20,397Interest expense


41



183



717Interest and other income


(9,597
)


(4,563
)


(2,739
)796,254



766,006



734,909Income before income taxes


79,631



70,375



54,695Income tax expense


28,181



25,546



19,854Net income

$
51,450


$
44,829


$
34,841Basic earnings per share

$
1.64


$
1.44


$
1.13Basic weighted average shares


31,281,163



31,117,214



30,876,393Diluted earnings per share

$
1.62


$
1.41


$
1.11Diluted weighted average shares


31,815,332



31,789,887



31,478,061Dividends per share

$
.580


$
.507


$
.457Comprehensive income:Net income

$
51,450


$
44,829


$
34,841Unrealized gains on
    available-for-sale
    securities, net of 
    deferred income tax liability or benefit


147



7



13Net comprehensive income

$
51,597


$
44,836


$
34,854    24




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##### Table of Contents



THE CATO
    CORPORATION
 CONSOLIDATED
    BALANCE SHEETS  February 3,


January 28,2007


2006(Dollars in thousands)ASSETSCurrent Assets:Cash and cash equivalents

$
24,833


$
21,734Short-term investments


98,709



86,085Accounts receivable, net of
    allowance for doubtful accounts of $3,554 at
    February 3, 2007 and $3,694 at January 28, 2006


45,958



49,644Merchandise inventories


115,918



103,370Deferred income taxes


7,508



8,526Prepaid expenses


6,587



2,318Total Current Assets


299,513



271,677Property and equipment 
    net


128,461



124,104Other assets


4,348



10,855Total Assets

$
432,322


$
406,636LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable

$
77,046


$
78,036Accrued expenses


29,526



31,967Accrued bonus and benefits


10,756



17,570Accrued income taxes


5,721



4,990Total Current Liabilities


123,049



132,563Deferred income taxes


8,817



9,261Other noncurrent liabilities
    (primarily deferred rent)


23,663



24,864Commitments and contingenciesStockholders 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; 35,955,815 and 35,622,516 shares issued at
    February 3, 2007 and
    January 28, 2006, respectively


1,199



1,188Convertible Class B common
    stock, $.033 par value per share, 15,000,000 shares
    authorized; issued 690,525 shares at February 3, 2007
    and January 28, 2006, respectively


23



23Additional paid-in capital


42,475



39,244Retained earnings


327,684



294,462Accumulated other comprehensive
    income


225



78Unearned compensation 
    restricted stock awards






(229
)371,606



334,766Less Class A common stock in
    treasury, at cost (5,093,609 shares at
    February 3, 2007 and 5,093,840 shares at
    January 28, 2006, respectively)


(94,813
)


(94,818
)Total Stockholders Equity


276,793



239,948Total Liabilities and
    Stockholders Equity

$
432,322


$
406,636    25




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##### Table of Contents



THE CATO
    CORPORATION
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Fiscal Year EndedFebruary 3,


January 28,


January 29,2007


2006


2005(Dollars in thousands)OPERATING ACTIVITIESNet income

$
51,450


$
44,829


$
34,841Adjustments to reconcile net
    income to net cash provided by
    operating activities:Depreciation


20,941



20,275



20,397Provision for doubtful accounts


2,633



4,650



5,096Share  based
    compensation


1,326



682



682Excess tax benefits from
    share-based compensation


(768
)






Deferred income taxes


574



(3,656
)


(817
)Loss on disposal of property and
    equipment


2,079



1,757



1,554Changes in operating assets and
    liabilities which provided
    (used) cash:Accounts receivable


1,053



(3,405
)


(3,271
)Merchandise inventories


(12,548
)


(2,832
)


(3,246
)Prepaid and other assets


2,238



(1,065
)


3,406Accrued income taxes


1,499



525



(41
)Accounts payable, accrued expenses
    and other liabilities


(11,776
)


9,183



21,250Net cash provided by operating
    activities


58,701



70,943



79,851INVESTING ACTIVITIESExpenditures for property and
    equipment


(27,547
)


(28,512
)


(25,301
)Purchases of short-term investments


(180,463
)


(94,845
)


(122,380
)Sales of short-term investments


167,985



97,355



81,350Net cash used in investing
    activities


(40,025
)


(26,002
)


(66,331
)FINANCING ACTIVITIESChange in cash overdrafts included
    in accounts payable


500



(3,100
)


(2,800
)Dividends paid


(18,228
)


(15,867
)


(14,134
)Purchases of treasury stock






(3,536
)


Payments to settle long term debt






(22,000
)


(5,500
)Proceeds from employee stock
    purchase plan


413



430



478Excess tax benefits from
    share-based compensation


768







Proceeds from stock options
    exercised


970



2,226



3,219Net cash used in financing
    activities


(15,577
)


(41,847
)


(18,737
)Net increase (decrease) in cash
    and cash equivalents


3,099



3,094



(5,217
)Cash and cash equivalents at
    beginning of year


21,734



18,640



23,857Cash and cash equivalents at end
    of year

$
24,833


$
21,734


$
18,640    26




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##### Table of Contents



THE CATO
    CORPORATION
 CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY  Convertible








Accumulated


UnearnedClass A


Class B


Additional





Other


Compensation





TotalCommon


Common


Paid-in


Retained


Comprehensive


Restricted


Treasury


StockholdersStock


Stock


Capital


Earnings


Income


Stock Awards


Stock


Equity(Dollars in thousands)Balance 
    January 31, 2004


867



187



99,676



244,792



58



(1,593
)


(157,912
)


186,075*Comprehensive income:Net income














34,841















34,841Unrealized gains on
    available-for-sale
    securities, net of deferred income tax liability of $7


















13











13Dividends paid ($.457 per
    share)














(14,134
)














(14,134
)Class A common stock sold
    through employee stock purchase plan 
    40,965 shares


1







477



















478Class A common stock sold
    through stock option plans  294,000 shares


7







2,354



















2,361Income tax benefit from stock
    options exercised










859



















859Unearned compensation 
    restricted stock awards






















682







682Balance 
    January 29, 2005


875



187



103,366



265,499



71



(911
)


(157,912
)


211,175*Comprehensive income:Net income














44,829















44,829Unrealized gains on
    available-for-sale
    securities, net of deferred income tax liability of $3


















7











7Dividends paid ($.507 per
    share)














(15,866
)














(15,866
)Class A common stock sold
    through employee stock purchase plan 
    28,684 shares


1







429



















430Class A common stock sold
    through stock option plans  172,025 shares


5







1,310



















1,315Income tax benefit from stock
    options exercised










912



















912Purchase of treasury
    shares  186,531


























(3,536
)


(3,536
)Cancellation of treasury
    shares  6,136,354


143







(66,773
)














66,630



Shares reclassified from
    Class B to Class A  4,907,309 shares
    (see Note 8)


164



(164
)






















Unearned compensation 
    restricted stock awards






















682







682Balance 
    January 28, 2006


1,188



23



39,244



294,462



78



(229
)


(94,818
)


239,948*Comprehensive income:Net income














51,450















51,450Unrealized gains on
    available-for-sale
    securities, net of deferred income tax liability of $78


















147











147Dividends paid ($.58 per share)














(18,228
)














(18,228
)Class A common stock sold
    through employee stock purchase plan 
    22,873 shares


1







484



















485Class A common stock sold
    through stock option plans  95,775 shares


3







1,127



















1,130Class A common stock issued
    through restricted stock grant plans 214,882 shares


7







857



















864Income tax benefit from stock
    options exercised










768



















768Cancellation of treasury
    shares  231 shares










(5
)














5



Unearned compensation 
    restricted stock awards






















229







229Balance 
    February 3, 2007


1,199



23



42,475



327,684



225







(94,813
)


276,793     *
    
    Total comprehensive income for the years ended February 3,
    2007, January 28, 2006 and January 29, 2005 was
    $51,597, $44,836 and $34,854, respectively.   27




---



##### 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:
  Cash and Cash Equivalents and Short-Term
    Investments:
  available-for-sale. Available-for-sale
  Concentration of Credit Risk:
  Supplemental Cash Flow Information:
  Inventories: (first-in,
 28




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Property and Equipment: 98-1,
  EstimatedClassification

Useful LivesLand improvements


10 yearsBuildings


30-40 yearsLeasehold improvements


5-10 yearsFixtures and equipment


3-10 yearsInformation Technology equipment
    and software


3-10 years   Impairment
    of Long-Lived Assets
    Leases
  Accounting for
    Leases
     29




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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:
  Three Months Ended


Twelve Months EndedFebruary 3,


January 28,


February 3,


January 28,2007


2006


2007


2006Weighted-average shares outstanding


31,326,640



31,049,631



31,281,163



31,117,214Dilutive effect of:Stock options


545,350



542,423



512,814



547,891Restricted stock


37,464



138,163



21,355



124,782Employee stock purchase plan














Weighted-average shares and common
    stock equivalents outstanding


31,909,454



31,730,217



31,815,332



31,789,887  30




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Vendor Allowances: 02-16,
  Income Taxes:
  Store Opening and Closing Costs:
  Closed Store Lease Obligations:
  Insurance:
  Fair Value of Financial Instruments: and/or
  Recent
    Accounting Pronouncements
  Share-Based Payment Accounting for Stock Issued to
    Employees
 31




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         2.  Interest
    and Other Income:
    February 3,


January 28,


January 29,2007


2006


2005Dividend income

$
(23
)

$
(17
)

$
(20
)Interest income


(4,221
)


(2,593
)


(1,499
)Hurricane claims settlement


(2,384
)






Visa/Mastercard claims settlement


(470
)






Miscellaneous income


(2,100
)


(1,836
)


(1,473
)(Gain)/loss investment sales


(399
)


(117
)


253Interest and other income

$
(9,597
)

$
(4,563
)

$
(2,739
)   3.
    Short-Term
    Investments:    February 3, 2007


January 28, 2006Unrealized


Estimated





Unrealized


EstimatedSecurity Type:

Cost


Gain/(Loss)


Fair Value


Cost


Gain/(Loss)


Fair ValueDebt Securities issued by
    states of the United States
    and political subdivisions of 
    the states:With unrealized (loss)

$
98,761


$
(52
)

$
98,709


$
86,207


$
(122
)

$
86,085Total

$
98,761


$
(52
)

$
98,709


$
86,207


$
(122
)

$
86,085  32




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            EstimatedSecurity Type

Cost


Fair ValueDue in one year or less

$
98,761


$
98,709Total

$
98,761


$
98,709   4.
    Accounts
    Receivable:    February 3,


January 28,2007


2006Customer accounts 
    principally deferred payment accounts

$
43,939


$
47,581Miscellaneous trade receivables


5,573



5,757Total


49,512



53,338Less allowance for doubtful
    accounts


3,554



3,694Accounts receivable  net

$
45,958


$
49,644      33




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   5.
    Property
    and Equipment:    February 3,


January 28,2007


2006Land and improvements

$
3,266


$
3,266Buildings


17,990



17,758Leasehold improvements


51,308



48,084Fixtures and equipment


158,614



145,965Information Technology equipment
    and software


45,594



43,276Construction in progress


2,833



2,186Total


279,605



260,535Less accumulated depreciation


151,144



136,431Property and equipment 
    net

$
128,461


$
124,104   point-of-sale
  6.
    Accrued
    Expenses:    February 3,


January 28,2007


2006Accrued payroll and related items

$
5,524


$
7,728Accrued advertising


504



1,013Property and other taxes


11,446



10,825Accrued insurance


5,227



6,059Other


6,825



6,342Total

$
29,526


$
31,967   7.
    Financing
    Arrangements:       34




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   8.
    Stockholders
    Equity:            5-year
     35




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    WeightedRange of


AverageOptions


Option Prices


PriceOutstanding options,January 31, 2004


1,731,600


$
3.42  $17.84


$
7.69Granted


113,625



13.09  15.42



14.37Exercised


(294,000
)


3.42  14.01



7.98Cancelled


(45,900
)


6.39  14.60



11.51Outstanding options,January 29, 2005


1,505,325



5.13  17.84



8.05Granted


22,250



18.96  21.75



20.05Exercised


(172,025
)


5.13  17.84



7.63Cancelled


(12,150
)


11.50  20.50



14.62Outstanding options,January 28, 2006


1,343,400



5.50  21.75



8.23Granted










Exercised


(95,775
)


5.50  21.37



10.12Cancelled


(10,950
)


13.47  21.37



17.24Outstanding options,February 3, 2007


1,236,675


$
5.50  $21.75


$
8.01     Options Outstanding


Options ExercisableWeighted Average


Weighted





WeightedRange of





Remaining


Average





AverageExercise Prices


Options


Contractual Life


Exercise Price


Options


Exercise Price$
5.50  $ 9.42



1,119,850



1.32 years


$
7.35



1,119,850


$
7.3511.10   14.79



87,000



6.58 years



13.28



36,000



12.8315.08   19.99



28,325



7.77 years



17.19



9,550



17.0121.75   21.75



1,500



8.88 years



21.75



300



21.75$
5.50  $21.75



1,236,675



1.84 years


$
8.01



1,165,700


$
7.61       9.
    Employee
    Benefit Plans:   36




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        10.
    Leases:      Fiscal Year2007

$
51,0012008


39,1032009


26,4622010


16,9042011


8,235Thereafter


29Total minimum lease payments

$
141,734     February 3,


January 28,


January 29,Fiscal Year Ended

2007


2006


2005Minimum rentals

$
49,169


$
47,278


$
44,493Contingent rent


106



74



85Total rental expense

$
49,275


$
47,352


$
44,578   11.
    Related
    Party Transactions:   37




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      12.
    Income
    Taxes:    February 3,


January 28,


January 29,Fiscal Year Ended

2007


2006


2005Current income taxes:Federal

$
26,480


$
27,895


$
20,142State


1,205



1,311



535Total


27,685



29,206



20,677Deferred income taxes:Federal


443



(3,271
)


(735
)State


53



(389
)


(88
)Total


496



(3,660
)


(823
)Total income tax expense

$
28,181


$
25,546


$
19,854     February 3,


January 28,2007


2006Deferred tax assets:Bad debt reserve

$
1,364


$
1,417Inventory valuation


1,830



1,870Restricted stock options


184



941Deferred lease liability


5,277



5,325Capital loss carryover


393



393Reserves


4,828



4,815Total deferred tax assets


13,876



14,761Deferred tax liabilities:Fixed assets


13,489



14,048Unrealized gains on short-term
    investments


123



44Other


1,573



1,404Total deferred tax liabilities


15,185



15,496Net deferred tax liabilities

$
1,309


$
735  38




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      February 3,


January 28,


January 29,Fiscal Year Ended

2007


2006


2005Federal income tax rate


35.0
%


35.0
%


35.0
%State income taxes


2.4



3.2



2.1Other


(2.0
)


(1.9
)


(0.8
)Effective income tax rate


35.4
%


36.3
%


36.3
%   and/or
  13.
    Quarterly
    Financial Data (Unaudited):    Fiscal 2006

First


Second


Third


FourthRetail sales

$
229,741


$
214,633


$
187,727


$
230,712Total revenues


233,060



217,845



190,882



234,097Cost of goods sold (exclusive of
    depreciation)


142,113



143,746



127,229



159,625Income before income taxes


32,754



19,044



9,133



18,698Net income


20,799



12,093



5,861



12,696Basic earnings per share

$
0.67


$
0.39


$
0.19


$
0.41Diluted earnings per share

$
0.65


$
0.38


$
0.18


$
0.40   Fiscal 2005

First


Second


Third


FourthRetail sales

$
215,064


$
208,316


$
177,762


$
220,497Total revenues


218,927



211,964



181,354



224,136Cost of goods sold (exclusive of
    depreciation)


136,434



140,426



119,869



150,226Income before income taxes


28,911



16,809



6,385



18,270Net income


18,416



10,707



4,067



11,638Basic earnings per share

$
0.59


$
0.34


$
0.13


$
0.37Diluted earnings per share

$
0.58


$
0.34


$
0.13


$
0.37  39




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  14.
    Reportable
    Segment Information:      Fiscal 2006

Retail


Credit


TotalRevenues

$
864,987


$
10,898


$
875,885Depreciation


20,849



92



20,941Interest and other income


(9,597
)


0



(9,597
)Income before taxes


74,772



4,859



79,631Total assets


368,786



63,536



432,322Capital expenditures


27,483



64



27,547   Fiscal 2005

Retail


Credit


TotalRevenues

$
823,685


$
12,696


$
836,381Depreciation


20,173



102



20,275Interest and other income


(4,563
)


0



(4,563
)Income before taxes


65,682



4,693



70,375Total assets


339,788



66,848



406,636Capital expenditures


28,477



35



28,512   Fiscal 2004

Retail


Credit


TotalRevenues

$
775,421


$
14,183


$
789,604Depreciation


20,320



77



20,397Interest and other income


(2,739
)


0



(2,739
)Income before taxes


49,268



5,427



54,695Total assets


332,199



65,124



397,323Capital expenditures


25,102



199



25,301       February 3,


January 28,


January 29,2007


2006


2005Bad debt expense

$
2,633


$
4,650


$
5,096Payroll


1,008



1,043



1,142Postage


1,034



1,061



1,075Other expenses


1,272



1,147



1,366Total expenses

$
5,947


$
7,901


$
8,679  40




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  15.
    Stock
    Based Compensation:  Share-Based Payment Accounting for Stock Issued to
    Employees
      1987


1999


2004Plan


Plan


Plan


TotalOptions
    and/or
    restricted stock initially authorized


5,850,000



1,000,000



1,350,000



8,200,000Options
    and/or
    restricted stock available for grant:January 28, 2006


5,227







1,300,500



1,305,727February 3, 2007


9,277







1,091,618



1,100,895       Weighted Average


AggregateWeighted Average


Remaining Contractual


IntrinsicShares


Exercise Price


Term


Value(a)Options outstanding at
    January 28, 2006


1,343,400


$
8.23



3.05 yearsGranted










Forfeited or expired


(10,950
)Exercised


(95,775
)Outstanding at February 3,
    2007


1,236,675


$
8.01



1.86 years


$
18,363,084Vested and exercisable at
    February 3, 2007


1,165,700


$
7.61



1.52 years


$
17,784,759     (a)
    
    The intrinsic value of a stock option is the amount by which the
    market value of the underlying stock exceeds the exercise price
    of the option. 41




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Twelve Months EndedJanuary 28,2006Risk free interest rate


4.27
%Expected life


5.0
yearsExpected volatility


37.04
%Expected dividend yield


2.49
%Weighted-average grant date fair
    value per share


$6.20         Fiscal Year EndedJanuary 28,


January 29,2006


2005Net Income as Reported

$
44,829


$
34,841Add: Stock-based employee
    compensation expense included in reported net income, net of
    related tax effects


435



435Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards, net of related tax effects


(513
)


(499
)Pro forma Net Income

$
44,751


$
34,777Earnings per share:Basic  as reported

$
1.44


$
1.13Basic  pro forma

$
1.44


$
1.13Diluted  as reported

$
1.41


$
1.11Diluted  pro forma

$
1.41


$
1.11    42




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Weighted AverageGrant Date FairNumber of Shares


Value Per ShareRestricted stock awards at
    January 28, 2006


150,000


$
18.21Granted


235,754



22.88Vested


(150,000
)


18.21Forfeited


(20,872
)


22.43Restricted stock awards at
    February 3, 2007


214,882


$
22.92   16.
    Commitments
    and Contingencies:   43




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        44




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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
  Rule 13a-15(e),
  Managements
    Report on Internal Control Over Financial Reporting
  Rule 13a-15(f). Internal
    Control  Integrated Framework
    Changes
    in Internal Control Over Financial Reporting
  Rule 13a-15(f))
  Item 9B.
    Other
    Information:   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance:    Item 11.
    Executive
    Compensation:   45




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##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters:  Equity
    Compensation Plan Information.
    (c)Number of securitiesremaining available for(a)

(b)

future issuance underNumber of securities to be

Weighted-average

equity compensationissued upon exercise of

exercise price of

plans (excludingoutstanding options,

outstanding options,

securities reflected inPlan Category

warrants and rights(1)

warrants and rights(1)

column (a) (2)Equity compensation plans approved
    by security holder


1,236,675


$
8.01



1,381,969Equity compensation plans not
    approved by security holders


Total


1,236,675


$
8.01



1,381,969     (1)
    
    This column contains information regarding employee stock
    options only; there are no outstanding warrants or stock
    appreciation rights.(2)
    
    Includes the following:1,091,618 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,
    9,227 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; and281,074 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.Information contained under Security Ownership of Certain
    Beneficial Owners and Management in the 2007 Proxy Statement is
    incorporated by reference in response to this Item.  Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence:    Item 14.
    Principal
    Accountant Fees and Services:   46




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##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules:      PageReport of
    Independent Registered Public Accounting Firm


22  23Consolidated
    Statements of Income and Comprehensive Income for the fiscal
    years ended February 3, 2007, January 28, 2006 and
    January 29, 2005


24Consolidated
    Balance Sheets at February 3, 2007 and January 28,
    2006


25Consolidated
    Statements of Cash Flows for the fiscal years ended
    February 3, 2007, January 28, 2006 and
    January 29, 2005


26Consolidated
    Statements of Stockholders Equity for the fiscal years
    ended February 3, 2007, January 28, 2006 and
    January 29, 2005


27Notes to
    Consolidated Financial Statements


28(2) Financial Statement Schedule:
    The following report and financial statement schedule is filed
    herewith:Schedule II 
    Valuation and Qualifying Accounts


S-2     http://www.sec.gov.
  ExhibitNumber

Description of Exhibit3
.1

Registrants Restated
    Certificate of Incorporation of the Registrant dated
    March 6, 1987, incorporated by reference to
    Exhibit 4.1 to
    Form S-8
    of the Registrant filed February 7, 2000 (SEC File
    No. 333  96283).3
.2

Registrants By Laws
    incorporated by reference to Exhibit 4.2 to
    Form S-8
    of the Registrant filed February 7, 2000 (SEC File
    No. 333  96283).4
.1

Rights Agreement dated
    December 18, 2003, incorporated by reference to
    Exhibit 4.1 to
    Form 8-A12G
    of the Registrant filed December 22, 2003 and as amended in
    Form 8-A12B/A
    filed on January 6, 2004.10
.2*

1999 Incentive Compensation Plan
    dated August 26, 1999, incorporated by reference to
    Exhibit 4.3 to
    Form S-8
    of the Registrant filed February 7, 2000 (SEC File
    No. 333  96283).10
.3*

Form of Agreement, dated as of
    August 29, 2003, between the Registrant and Wayland H.
    Cato, Jr., incorporated by reference to Exhibit 99(c)
    to
    Form 8-K
    of the Registrant filed on July 22, 2003.10
.4*

Form of Agreement, dated as of
    August 29, 2003, between the Registrant and Edgar T. Cato,
    incorporated by reference to Exhibit 99(d) to
    Form 8-K
    of the Registrant filed on July 22, 2003.10
.5*

Retirement Agreement between
    Registrant and Wayland H. Cato, Jr. dated August 29,
    2003 incorporated by reference to Exhibit 10.1 to
    Form 10-Q
    of the Registrant for quarter ended August 2, 2003.10
.6*

Retirement Agreement between
    Registrant and Edgar T. Cato dated August 29, 2003,
    incorporated by reference to Exhibit 10.2 to
    Form 10-Q
    of the Registrant for the quarter ended August 2, 2003. 47




---



##### Table of Contents



ExhibitNumber

Description of Exhibit10
.7*

Letter Agreement between
    Registrant and Reynolds C. Faulkner dated as of March 21,
    2006, incorporated by reference to Exhibit 99.1 to
    Form 8-K
    of the Registrant filed March 22, 2006.10
.8*

Resignation Agreement between
    Registrant and Reynolds C. Faulkner dated as of October 30,
    2006, incorporated by reference to Exhibit 99.1 to
    Form 8-K
    of the Registrant filed November 1, 2006.10
.9*

Letter Agreement between
    Registrant and Thomas W. Stoltz dated as of December 4,
    2006, incorporated by reference to Exhibit 99.1 to
    Form 8-K
    of the Registrant filed December 5, 2006.10
.10*

Summary of Named Executive Officer
    Compensation Determinations incorporated by reference to
    Exhibit 99.1 to
    Form 8-K
    filed April 12, 2006.10
.11

Summary of Named Executive Officer
    Restricted Stock Grants, incorporated by reference to
    Exhibit 99.1 to
    Form 8-K
    filed May 2, 2006.21


Subsidiaries of Registrant.23
.1

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.     *
    
    Management contract or compensatory plan required to be filed
    under Item 15 of this report and Item 601 of
    Regulation S-K. 48




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##### Table of Contents



EXHIBIT INDEX
  Designationof Exhibit



Page21


Subsidiaries of the Registrant


5023
.1

Consent of Independent Registered
    Public Accounting Firm


5131
.1

Rule 13a-14(a)/15d-14(a)
    Certification of Chief Executive Officer


5331
.2

Rule 13a-14(a)/15d-14(a)
    Certification of Chief Financial Officer


5432
.1

Section 1350 Certification of
    Chief Executive Officer


5532
.2

Section 1350 Certification of
    Chief Financial Officer


56  49




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##### Table of Contents



EXHIBIT 21
  SUBSIDIARIES
    OF THE REGISTRANT
  State of

Name under which Subsidiary doesName of Subsidiary

Incorporation/Organization

BusinessCHW LLC

Delaware

CHW LLCProvidence Insurance Company,
    Limited

A Bermudian Company

Providence Insurance Company,
    LimitedCatoSouth LLC

North Carolina

CatoSouth LLCCato of Texas L.P.

Texas

Cato of Texas L.P.Cato Southwest, Inc.

Delaware

Cato Southwest, Inc.CaDel LLC

Delaware

CaDel LLCCatoWest LLC

Nevada

CatoWest LLCCedar Hill National Bank

A Nationally Chartered Bank

Cedar Hill National Bankcatocorp.com, LLC

Delaware

catocorp.com, LLC  50




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##### Table of Contents



EXHIBIT 23.1
  CONSENT
    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  No. 333-119300 Form S-8 No. 333-119299 No. 333-96283 Form S-8 No. 33-41314 Form S-8 No. 33-41315 Form S-8 33-69844 333-96285 Forms S-8 Form 10-K.
  PricewaterhouseCoopers
    LLP
    51




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##### Table of Contents



SIGNATURES
    The Cato
    Corporation
  By

/s/  JOHN
    P. D. CATOJohn
    P. D. Cato
    Chairman, President and
    Chief Executive Officer

By

/s/  THOMAS
    W. STOLTZThomas
    W. Stoltz
    Executive Vice President
    Chief Financial OfficerBy

/s/  ROBERT
    M. SANDLERRobert
    M. Sandler
    Senior Vice President
    Controller       /s/  JOHN
    P. D. CATO

/s/  GRANT
    L. HAMRICKJohn
    P. D. Cato
    (President and Chief Executive Officer
    (Principal Executive Officer) and Director)

Grant
    L. Hamrick
    (Director)/s/  THOMAS
    W. STOLTZ

/s/  JAMES
    H. SHAWThomas
    W. Stoltz
    (Executive Vice President
    (Chief Financial Officer))

James
    H. Shaw
    (Director)/s/  ROBERT
    W.
    BRADSHAW, JR.

/s/  A.F.
    (PETE) SLOANRobert
    W. Bradshaw, Jr.
    (Director)

A.F.
    (Pete) Sloan
    (Director)/s/  GEORGE
    S. CURRIN

/s/  D.
    HARDING STOWEGeorge
    S. Currin
    (Director)

D.
    Harding Stowe
    (Director)/s/  WILLIAM
    H. GRIGGWilliam
    H. Grigg
    (Director)  52