##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 2
 [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
 For the fiscal year ended February 1, 2003
 OR
 [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
 THE CATO CORPORATION  COMMISSION FILE NUMBER 1-31340 State of Incorporation: Delaware
    
    I.R.S. Employer Identification Number:56-0484485Address of Principal Executive Offices:
    
    Registrants Telephone Number:8100 Denmark Road
Charlotte, North Carolina 28273-5975
    
    704/554-8510SECURITIES REGISTERED
PURSUANT TO
SECTION 12(b) OF THE ACT:
    
    SECURITIES REGISTERED
PURSUANT TO
SECTION 12(g) OF THE ACT:NONE
    
    CLASS A COMMON STOCK
 Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of The Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X]   No [   ] Indicate by check mark, if disclosure of delinquent filers pursuant to Item 405
of the Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 126-2 of the Act). YES [X]   No [   ] As of March 21, 2003, there were 19,312,500 shares of Class A Common Stock and
6,085,149 shares of Convertible Class B Common Stock outstanding. The
aggregate market value of the Registrants Class A Common Stock held by
Non-affiliates of the Registrant as of August 2, 2002, the last business day of
the Companys most recent second quarter, was $319,132,510 based on the last
reported sale price per share on the New York Stock Exchange (NYSE) on that
date. Documents incorporated by reference: Portions of the proxy statement dated April 30, 2003, relating to the 2003
annual meeting of shareholders are incorporated by reference into the following
part of this annual report: Part III  Items 10, 11, 12, 13, 14 and 15




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Page 2 EXPLANATORY NOTE Amendment No. 2  April 19, 2004 The Cato Corporation (the Company) is hereby amending this Annual Report
on Form 10-K for the fiscal year ended February 1, 2003 for the sole purpose of
indicating that Exhibits 31.1 and 31.2 Certificates of the Companys Chief
Executive Officer and Chief Financial Officer comply with Item 601 (B)(31) of
Regulation S-K pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities and
Exchange Act of 1934. Amendment No. 1  April 8, 2004 The Cato Corporation (the Company) is hereby amending this Annual Report
on Form 10-K for the fiscal year ended February 1, 2003 (a) to refile the
Independent Auditors Report, dated April 21, 2003 (the Auditors Report) for
the sole purpose of indicating the signature of Deloitte & Touche LLP, as
independent auditors, which indication was previously inadvertently omitted,
and (b) to refile Exhibit 23 (Independent Auditors Consent) for the sole
purpose of indicating the signature of Deloitte & Touche LLP, as independent
auditors, which indication was previously inadvertently omitted. This
amendment also includes new Certifications by John P. Derham Cato, as Chairman,
President and Chief Executive Officer, and by Michael O. Moore, as Executive
Vice President and Chief Financial Officer and Secretary of the Company, as
required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended,
for amendments to an Annual Report on Form 10-K. Except for the foregoing
matters, no other information included in the original Annual Report on Form
10-K is amended by this amendment.




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Page 3


Item 15. Exhibits, Financial Statement Schedules, Reports on Form 8-K:

(a) 1. & 2. LIST OF FINANCIAL STATEMENTS AND SCHEDULEThe response to this portion of Item 14 is submitted as a separate section
of this report.(a) 3.
    
    LIST OF EXHIBITSSee
Exhibit Index at page 25 of this annual report.*3 (a) (i)
    
    Exhibit Form 8-K dated August 24, 1995 relating to a
change in the Registrants Certifying Accountant from Ernst & Young
LLP to Deloitte & Touche LLP.*3 (a) (ii)
    
    Exhibit index designation of exhibit page 10.5.0
Loan Agreement dated December 16, 1994 between The Cato Corporation
and NationsBank of North Carolina and Wachovia Bank of North
Carolina, N.A., incorporated by reference to Form 10-K of the
Registrant for the fiscal year ended January 28, 1995.*3 (a) (iii)
    
    Exhibit index designation of Exhibit 10 
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.*3 (a) (iv)
    
    Exhibit Form 8-K dated September 3, 2002 relating to
Exhibit Number 99.1, Statement Under Oath of Principal Executive
Officer Regarding Facts and Circumstances to Exchange Act Filings
and Exhibit Number 99.2, Statement Under Oath of Principal Financial
Officer Regarding Facts and Circumstances to Exchange Act Filings.*21
    
    Subsidiaries of the Registrant23
    
    Consent of Independent Auditors31.1

    
    Certification of Chief Executive Officer pursuant to Rule
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2

    
    Certification of Chief Financial Officer pursuant to Rule
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1

    
    Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 of Chief Executive Officer, incorporated by reference to Form 10-Q
of the Registrant for the quarterly period ended August 3, 2002.32.2

    
    Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 of
Chief Financial Officer, incorporated by reference to Form 10-Q
of the Registrant for the quarterly period ended August 3, 2002.(b)
    
    REPORTS ON FORM 8-KNo reports on Form 8-K were filed during the quarter ended February 1, 2003.


*Previously Filed



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Page 4


ANNUAL REPORT ON FORM 10-K

ITEM 8, ITEM 14(a), (1) AND (2), (c) AND (d)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

LIST OF FINANCIAL STATEMENTS

CERTAIN EXHIBITS

FINANCIAL STATEMENT SCHEDULE

YEAR ENDED FEBRUARY 1, 2003

THE CATO CORPORATION

CHARLOTTE, NORTH CAROLINA



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Page 5


Item 14(a) 1. And 2. List of Financial Statements and Financial Statement Schedule:

THE CATO CORPORATION

The following consolidated financial statements of The Cato Corporation are
included in Item 8:

Independent Auditors Report
    
    Page 6Consolidated Statements of Income
    
    Page 7Consolidated Balance Sheets
    
    Page 8Consolidated Statements of Cash Flows
    
    Page 9Consolidated Statements of Stockholders Equity
    
    Page 10Notes to Consolidated Financial Statements
    
    Pages 11


The following consolidated financial statement schedule of the Cato Corporation
is included in Item 14 (d):

SCHEDULE II  Valuation and qualifying accounts
    
    Page 23




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Page 6


INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of
The Cato Corporation

We have audited the accompanying consolidated balance sheets of The Cato
Corporation and subsidiaries (the Company) as of February 1, 2003 and February
2, 2002, and the related consolidated statements of income, stockholders
equity, and cash flows for each of the three years in the period ended February
1, 2003. Our audits also included the financial statement schedule listed in
the index at Item 14(a). These financial statements and the financial
statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at February 1, 2003
and February 2, 2002, and the results of its operations and its cash flows for
each of the three years in the period ended February 1, 2003, in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth herein.

/s/ Deloitte & Touche LLP

Charlotte, North Carolina
April 21, 2003



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##### 



Page 7


The Cato Corporation
Consolidated Statements of Income

Fiscal Year Ended
    
    February 1,
    
    February 2,
    
    February 3,(Dollars in thousands, except per share data)
    
    2003
    
    2002
    
    2001REVENUESRetail sales
    
    $
    732,742
    
    
    $
    685,653
    
    
    $
    648,482Other income (principally
finance charges, late fees
and layaway charges)
    
    
    15,589
    
    
    
    13,668
    
    
    
    14,055Total revenues
    
    
    748,331
    
    
    
    699,321
    
    
    
    662,537COSTS AND EXPENSES, NETCost of goods sold
    
    
    496,345
    
    
    
    466,366
    
    
    
    445,407Selling, general and
administrative
    
    
    168,914
    
    
    
    162,082
    
    
    
    154,150Depreciation
    
    
    14,913
    
    
    
    10,886
    
    
    
    9,492Interest and other income,
net
    
    
    (3,680
    )
    
    
    (6,299
    )
    
    
    (6,554
    )676,492
    
    
    
    633,035
    
    
    
    602,495Income before income taxes
    
    
    71,839
    
    
    
    66,286
    
    
    
    60,042Income tax expense
    
    
    26,006
    
    
    
    23,200
    
    
    
    21,015Net income
    
    $
    45,833
    
    
    $
    43,086
    
    
    $
    39,027Basic earnings per share
    
    $
    1.80
    
    
    $
    1.71
    
    
    $
    1.56Basic weighted average shares
    
    
    25,465,543
    
    
    
    25,193,610
    
    
    
    24,988,844Diluted earnings per share
    
    $
    1.77
    
    
    $
    1.66
    
    
    $
    1.53Diluted weighted average
shares
    
    
    25,947,457
    
    
    
    25,888,636
    
    
    
    25,465,232Dividends per share
    
    $
    .585
    
    
    $
    .53
    
    
    $
    .425


See notes to consolidated financial statements.



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Page 8


The Cato Corporation
Consolidated Balance Sheets

February 1,
    
    February 2,(Dollars in thousands)
    
    2003
    
    2002ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    32,065
    
    
    $
    41,772Short-term investments
    
    
    74,871
    
    
    
    42,923Accounts receivable, net of allowance for
doubtful accounts of $6,099 at February 1,
2003 and $5,968 at February 2, 2002
    
    
    54,116
    
    
    
    52,293Merchandise inventories
    
    
    93,457
    
    
    
    80,407Deferred income taxes
    
    
    1,392
    
    
    
    777Prepaid expenses
    
    
    4,990
    
    
    
    5,036Total Current Assets
    
    
    260,891
    
    
    
    223,208Property and equipment  net
    
    
    113,307
    
    
    
    100,137Other assets
    
    
    9,212
    
    
    
    8,696Total Assets
    
    $
    383,410
    
    
    $
    332,041LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    66,620
    
    
    $
    57,495Accrued expenses
    
    
    28,776
    
    
    
    25,260Accrued income taxes
    
    
    2,886
    
    
    
    820Total Current Liabilities
    
    
    98,282
    
    
    
    83,575Deferred income taxes
    
    
    6,310
    
    
    
    5,177Other noncurrent liabilities (primarily
deferred rent)
    
    
    8,654
    
    
    
    8,591Commitments 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;
25,218,678 and 25,011,732 shares issued at
February 1, 2003 and February 2, 2002,respectively
    
    
    840
    
    
    
    833Convertible Class B common stock, $.033 par
value per share, 15,000,000 shares
authorized; 6,085,149 and 5,812,649 shares
issued at February 1, 2003 and February 2,
2002, respectively
    
    
    203
    
    
    
    194Additional paid-in capital
    
    
    94,947
    
    
    
    86,948Retained earnings
    
    
    235,904
    
    
    
    204,961Accumulated other comprehensive gains (losses)
    
    
    253
    
    
    
    (567
    )Unearned compensation  restricted stock
awards
    
    
    (2,375
    )
    
    
    (394
    )329,772
    
    
    
    291,975Less Class A common stock in treasury, at
cost (5,741,179 and 5,626,498 shares at
February 1, 2003 and February 2, 2002,
respectively)
    
    
    (59,608
    )
    
    
    (57,277
    )Total Stockholders Equity
    
    
    270,164
    
    
    
    234,698Total Liabilities and
Stockholders Equity
    
    $
    383,410
    
    
    $
    332,041


See notes to consolidated financial statements.



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Page 9


The Cato Corporation
Consolidated Statements of Cash Flows

Fiscal Year Ended
    
    February 1,
    
    February 2,
    
    February 3,(Dollars in thousands)
    
    2003
    
    2002
    
    2001OPERATING ACTIVITIESNet income
    
    $
    45,833
    
    
    $
    43,086
    
    
    $
    39,027Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    14,913
    
    
    
    10,886
    
    
    
    9,492Amortization of investment premiums
    
    
    66
    
    
    
    160
    
    
    
    126Provision for doubtful accounts
    
    
    4,764
    
    
    
    5,913
    
    
    
    5,292Write-down of investments
    
    
    1,800
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    70
    
    
    
    422
    
    
    
    1,600Compensation expense related to
restricted stock awards
    
    
    750
    
    
    
    295
    
    
    
    295Loss on disposal of property and equipment
    
    
    870
    
    
    
    480
    
    
    
    1,257Changes in operating assets and
liabilities which provided (used) cash:Accounts receivable
    
    
    (6,587
    )
    
    
    (11,234
    )
    
    
    (6,806
    )Merchandise inventories
    
    
    (13,050
    )
    
    
    (1,246
    )
    
    
    (9,664
    )Prepaid and other assets
    
    
    (470
    )
    
    
    367
    
    
    
    (3,971
    )Accrued income taxes
    
    
    2,066
    
    
    
    (1,525
    )
    
    
    2,025Accounts payable, accrued expenses
and other liabilities
    
    
    12,704
    
    
    
    (547
    )
    
    
    5,420Net cash provided by operating activities
    
    
    63,729
    
    
    
    47,057
    
    
    
    44,093INVESTING ACTIVITIESExpenditures for property and equipment
    
    
    (28,953
    )
    
    
    (25,684
    )
    
    
    (27,230
    )Purchases of short-term investments
    
    
    (46,281
    )
    
    
    (35,878
    )
    
    
    (11,906
    )Sales of short-term investments
    
    
    13,735
    
    
    
    51,194
    
    
    
    12,166Net cash used in investing activities
    
    
    (61,499
    )
    
    
    (10,368
    )
    
    
    (26,970
    )FINANCING ACTIVITIESDividends paid
    
    
    (14,890
    )
    
    
    (13,400
    )
    
    
    (10,633
    )Purchases of treasury stock
    
    
    (1,187
    )
    
    
    (11,729
    )
    
    
    (15,449
    )Proceeds from employee stock purchase plan
    
    
    509
    
    
    
    443
    
    
    
    448Proceeds from stock options exercised
    
    
    3,631
    
    
    
    4,568
    
    
    
    3,323Net cash used in financing activities
    
    
    (11,937
    )
    
    
    (20,118
    )
    
    
    (22,311
    )Net increase (decrease) in cash and cash
equivalents
    
    
    (9,707
    )
    
    
    16,571
    
    
    
    (5,188
    )Cash and cash equivalents at beginning of year
    
    
    41,772
    
    
    
    25,201
    
    
    
    30,389Cash and cash equivalents at end of year
    
    $
    32,065
    
    
    $
    41,772
    
    
    $
    25,201


See notes to consolidated financial statements.



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Page 10


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(Dollars in thousands)
    
    Stock
    
    Stock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    Stock Awards
    
    Stock
    
    EquityBalance  January 29, 2000
    
    $
    805
    
    
    $
    179
    
    
    $
    71,974
    
    
    $
    146,881
    
    
    $
    (1,801
    )
    
    $
    (984
    )
    
    $
    (28,274
    )
    
    $
    188,780*Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,027
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,027Unrealized gains on
available-for-sale securities, net of
deferred income taxes of $494
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    917
    
    
    
    
    
    
    
    
    
    
    
    917Dividends paid ($.425 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,633
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,633
    )Class A common stock sold through
employee stock purchase plan 
44,590 shares
    
    
    2
    
    
    
    
    
    
    
    446
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    448Class A common stock sold through
stock option plans  425,350 shares
    
    
    14
    
    
    
    
    
    
    
    3,309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,323Income tax benefit from stock
options exercised
    
    
    
    
    
    
    
    
    
    
    1,049
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,049Purchase of treasury shares 
1,468,800 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,449
    )
    
    
    (15,449
    )Unearned compensation  restricted
stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    
    
    
    
    295Balance  February 3, 2001
    
    
    821
    
    
    
    179
    
    
    
    76,778
    
    
    
    175,275
    
    
    
    (884
    )
    
    
    (689
    )
    
    
    (43,723
    )
    
    
    207,757*Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,086
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,086Unrealized gains on
available-for-sale securities, net of
deferred income taxes of $171
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    317
    
    
    
    
    
    
    
    
    
    
    
    317Dividends paid ($.53 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,400
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,400
    )Class A common stock sold through
employee stock purchase plan 
38,463 shares
    
    
    1
    
    
    
    
    
    
    
    442
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    443Class A common stock sold through
stock option plans  329,850 shares
    
    
    11
    
    
    
    
    
    
    
    2,961
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,972Class B common stock sold through
stock option plans  448,332 shares
    
    
    
    
    
    
    15
    
    
    
    3,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,421Income tax benefit from stock
options exercised
    
    
    
    
    
    
    
    
    
    
    3,361
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,361Purchase of treasury shares 
774,750 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,729
    )
    
    
    (11,729
    )Surrender of shares for stock
options  92,600 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,825
    )
    
    
    (1,825
    )Unearned compensation  restricted
stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    
    
    
    
    295Balance  February 2, 2002
    
    
    833
    
    
    
    194
    
    
    
    86,948
    
    
    
    204,961
    
    
    
    (567
    )
    
    
    (394
    )
    
    
    (57,277
    )
    
    
    234,698*Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,833
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,833Unrealized gains on
available-for-sale securities, net of
deferred income taxes of $448
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    820
    
    
    
    
    
    
    
    
    
    
    
    820Dividends paid ($.585 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,890
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,890
    )Class A common stock sold through
employee stock purchase plan 
32,487 shares
    
    
    1
    
    
    
    
    
    
    
    508
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    509Class A common stock sold through
stock option plans  171,600 shares
    
    
    6
    
    
    
    
    
    
    
    1,547
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,553Class B common stock sold through
stock option plans  172,500 shares
    
    
    
    
    
    
    6
    
    
    
    1,310
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,316Income tax benefit from stock
options exercised
    
    
    
    
    
    
    
    
    
    
    1,906
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,906Purchase 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
    
    
    
    
    
    
    
    750Balance  February 1, 2003
    
    $
    840
    
    
    $
    203
    
    
    $
    94,947
    
    
    $
    235,904
    
    
    $
    253
    
    
    $
    (2,375
    )
    
    $
    (59,608
    )
    
    $
    270,164


See notes to consolidated financial statements.

* Total comprehensive income for the years ended February 1, 2003, February 2,
2002 and February 3, 2001 was $46,653, $43,403 and $39,944, respectively.



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Page 11


The Cato Corporation
Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation:The consolidated financial statements include the
accounts of The Cato Corporation and its wholly-owned subsidiaries (the
Company). All significant intercompany accounts and transactions have been
eliminated.

Description of Business and Fiscal Year:The Company has two business segments
- the operation of womens fashion specialty stores and a credit card division.
The apparel specialty stores operate under the names Cato, Cato Fashions,
Cato Plus and Its Fashion! and are located primarily in strip shopping
centers in the Southeast.

The Companys fiscal year ends on the Saturday nearest January 31. Fiscal years
2002 and 2001 each included 52 weeks. Fiscal year 2000 included 53 weeks.

Use of Estimates:The preparation of the Companys financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant accounting estimates reflected in the
Companys financial statements include the allowance for doubtful accounts
receivable, reserves relating to workers compensation, general and auto
insurance liabilities and reserves for inventory markdowns.

Cash and Cash Equivalents and Short-Term Investments:Cash equivalents consist
of highly liquid investments with original maturities of three months or less.
Investments with original maturities beyond three months are classified as
short-term investments. The fair values of short-term investments are based on
quoted market prices.

The Companys short-term investments are classified as available-for-sale. As
they are available for current operations, they are classified in consolidated
balance sheets as current assets. Available-for-sale securities are carried at
fair value, with unrealized gains and temporary losses, net of income taxes,
reported as a component of accumulated other comprehensive income. Other than
temporary declines in fair value of investments are recorded as a reduction in
the cost of the investments in the accompanying Consolidated Balance Sheets and
a reduction of interest and other income, net in the accompanying Statements of
Consolidated Income. The cost of debt securities is adjusted for amortization
of premiums and accretion of discounts to maturity. The amortization of
premiums, accretion of discounts and realized gains and losses are included in
other income.

Concentration of Credit Risk:Financial instruments that potentially subject
the Company to a concentration of credit risk principally consist of cash
equivalents and accounts receivable. The Company places its cash equivalents
with high credit qualified institutions and, by practice, limits the amount of
credit exposure to any one institution. Concentrations of credit risks with
respect to accounts receivable are limited due to the dispersion across
different geographies of the Companys customer base.

Supplemental Cash Flow Information:Income tax payments, net of refunds
received, for the fiscal years ended February 1, 2003, February 2, 2002 and
February 3, 2001 were $21,982,000, $24,841,000 and $17,435,000, respectively.
Additionally, for the fiscal years ended February 1, 2003 and February 2, 2002,
the Company accepted in an option transaction from an officer for payment of an
option exercise,48,681 mature shares of Class A Common Stock for $1,144,500 or
$23.51 per share, the average fair market value on the date of exchange and
92,600 mature shares of Class A Common Stock for $1,825,000 or $19.71 per
share, the average fair market value on the date of exchange, respectively.

Inventories:Merchandise inventories are stated at the lower of cost (first-in,
first-out method) or market as determined by the retail method.

Property and Equipment:Property and equipment are recorded at cost.
Maintenance and repairs are charged to operations as incurred; renewals and
betterments are capitalized. The Company accounts for its software development
costs in accordance with the American Institute of Certified Public Accountants
Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. Depreciation is provided on
the straight-line method over the estimated useful lives of the related assets,
as follows:



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Page 12


Classification
    
    Estimated Useful LivesLand improvements
    
    10 yearsBuildings
    
    30-40 yearsLeasehold improvements
    
    5-10 yearsFixtures, equipment and software
    
    3-10 years


Retail Sales:Revenues from retail sales, net of returns, are recognized upon
delivery of the merchandise to the customer and exclude sales taxes.

Advertising:Advertising costs are expensed in the period in which they are
incurred. Advertising expense was $5,299,000, $4,563,000 and $5,812,000 for the
fiscal years ended February 1, 2003, February 2, 2002 and February 3, 2001,
respectively.

Earnings Per Share:Basic earnings per share excludes dilution of stock options
and is computed by dividing net earnings by the weighted-average number of
Class A and Class B common shares outstanding for the respective periods. The
weighted-average number of shares used in the basic earnings per share
computations was 25,465,543, 25,193,610 and 24,988,844 for the fiscal years
ended February 1, 2003, February 2, 2002 and February 3, 2001, respectively.
The weighted-average number of shares representing the dilutive effect of stock
options was 481,914, 695,026 and 476,388 for the fiscal years ended February 1,
2003, February 2, 2002 and February 3, 2001, respectively. The weighted-average
number of shares used in the diluted earnings per share computations was
25,947,457, 25,888,636 and 25,465,232 for the fiscal years ended February 1,
2003, February 2, 2002 and February 3, 2001, respectively.

Vendor Allowances:The Company receives certain allowances from vendors
primarily related to purchase discounts and markdown allowances. These
allowances are reflected in gross margin at the time they are earned.

Income Taxes:The Company files a consolidated federal income tax return.
Income taxes are provided based on the asset and liability method of
accounting, whereby deferred income taxes are provided for temporary
differences between the financial reporting basis and the tax basis of the
Companys assets and liabilities.

Store Opening and Closing Costs:Costs relating to the opening of new stores or
the relocating or expanding of existing stores are expensed as incurred. The
Company evaluates all long-lived assets for impairment. Impairment losses are
recognized when expected future cash flows from the use of the asset groups are
less than the asset groups carrying values.

Closed Store Lease Obligations:At the time stores are closed, provisions are
made for the rentals required to be paid over the remaining lease terms.
Rentals due the Company under non-cancelable subleases are offset against the
related obligations in the year the sublease is signed. There is no offset for
assumed sublease revenues.

Insurance:The Company is self-insured with respect to employee health, workers
compensation and general liability claims. Employee health claims are funded
through a VEBA trust to which the Company makes periodic contributions. The
Company has stop-loss insurance coverage for individual claims in excess of
$250,000.

Fair Value of Financial Instruments:The Companys carrying values of financial
instruments, such as cash and cash equivalents, approximate their fair values
due to their short terms to maturity and/or their variable interest rates.

Stock-based Compensation:The Company applies APB Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for
its stock option plans. Accordingly, no compensation expense has been
recognized for stock-based compensation where the option price of the stock
approximated the fair market value of the stock on the date of grant. Had
compensation expense for fiscal 2002, 2001 and 2000 stock options granted been
determined consistent with SFAS No. 123, Accounting for Stock-Based
Compensation, the Companys net income and basic and diluted earnings per
share amounts for fiscal 2002, 2001 and 2000 would approximate the following
proforma amounts (dollars in thousands, except per share data):



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Page 13


Stock-BasedEmployeeCompensationAs Reported
    
    Cost*
    
    ProformaNet income  Fiscal 2002
    
    $
    45,833
    
    
    $
    (740
    )
    
    $
    45,093Basic earnings per share
    
    $
    1.80
    
    
    $
    (0.03
    )
    
    $
    1.77Diluted earnings per share
    
    $
    1.77
    
    
    $
    (0.03
    )
    
    $
    1.74Net income  Fiscal 2001
    
    $
    43,086
    
    
    $
    (1,593
    )
    
    $
    41,493Basic earnings per share
    
    $
    1.71
    
    
    $
    (0.06
    )
    
    $
    1.65Diluted earnings per share
    
    $
    1.66
    
    
    $
    (0.06
    )
    
    $
    1.60Net income  Fiscal 2000
    
    $
    39,027
    
    
    $
    (1,596
    )
    
    $
    37,431Basic earnings per share
    
    $
    1.56
    
    
    $
    (0.06
    )
    
    $
    1.50Diluted earnings per share
    
    $
    1.53
    
    
    $
    (0.06
    )
    
    $
    1.47


* determined using fair value method

Recent Accounting Pronouncements:In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
In June 2000, the FASB issued SFAS No. 138, which amended certain provisions of
SFAS 133. The Company adopted SFAS 133 and the corresponding amendments under
SFAS 138 on February 4, 2001, and the adoption of this statement had no impact
on the Companys consolidated results of operations and financial position.

In July 2001, the FASB issued Statement of Financial Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. SFAS 142 includes requirements to test
goodwill and indefinite lived intangible assets for impairment rather than
amortize them. The Company adopted SFAS No. 142 on February 3, 2002, and the
adoption of this statement had no impact on the Companys consolidated results
of operations and financial position, as the Company had no goodwill or other
indefinite lived intangible assets.

In August 2001, the FASB issued Statement of Financial Standards (SFAS) No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No.
144 supercedes SFAS No. 121, Accounting for Impairment of Long-Lived Assets to
be Disposed Of and Accounting Principles Bulletin (APB) No. 30, Reporting the
Results of Operations  Reporting the Effects of Disposal of a Segment of
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. Along with establishing a single accounting model, based on the
framework established in SFAS No. 121 for impairment of long-lived assets, this
standard retains the basic provisions of APB No. 30 for the presentation of
discontinued operations in the income statement, but broadens that presentation
to include a component of the entity. The Company adopted SFAS No. 144 on
February 3, 2002, and the adoption of this statement had no impact on the
Companys consolidated results of operations and financial position.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Correction.
SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that statement, SFAS No. 64,
Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements. Because of
the rescission of SFAS No. 4, the gains and losses from the extinguishments of
debt are no longer required to be classified as extraordinary items. SFAS No.
145 amends SFAS No. 13, Accounting for Leases, to require sale-leaseback
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. The amendment of SFAS No. 13 is
effective for transactions occurring after May 15, 2002. There has been no
impact to the Company due to the Amendment of SFAS No. 13. Lastly, SFAS No. 145
makes various technical corrections to existing pronouncements that are not
substantive in nature. The Company adopted SFAS No. 145 in fiscal 2002 and the
impact on its financial position and results of operations of the adoption was
not material.

In July 2002, the FASB issued SFAS no. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement is effective for exit or
disposal activities initiated after December 31, 2002. Liabilities for costs
associated with an exit activity should be initially measured at fair value,
when incurred. This statement applies to costs associated with an exit activity
that does not involve the entity newly acquired in a business combination or a
disposal activity covered by SFAS No. 144. The Company adopted SFAS No. 146 on
December 31, 2002, and the adoption of this statement had no impact on the
Companys consolidated results of operations and financial position.



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Page 14


On November 25, 2002 the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, which elaborates on the disclosures to
be made by a guarantor about its obligations under certain guarantees issued.
It also clarifies that a guarantor is required to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The interpretation expands on the accounting guidance of
SFAS No. 5, Accounting for Contingencies, SFAS No. 57, Related Party
Disclosures, and SFAS No. 107, Disclosures about Fair Value of Financial
Instruments. The interpretation also incorporates, without change, the
provisions of FASB Interpretation No. 34, Disclosure of Indirect Guarantees of
Indebtedness of Others, which it supersedes. The initial recognition and
measurement provisions of Interpretation No. 45 apply on a prospective basis to
guarantees issued or modified after December 31, 2002, regardless of the
guarantors fiscal year-end. The disclosures are effective for financial
statements of interim or annual periods ending after December 31, 2002.
Although the Company has some guarantees with its subsidiaries, the Company
does not believe the impact of this Interpretation on its financial position or
result of operations will be material or that additional disclosure is
required.

On December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide for alternative methods
of transition to SFAS No. 123s fair value method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure provisions of
SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting, to require
disclosure in the summary of significant policies of the effects of an entitys
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per-share in annual and interim financial statements.
While SFAS No. 148 does not amend SFAS No. 123 to require companies to account
for employee stock options using the fair value method, the disclosure
provisions of SFAS No. 148 are applicable to all companies with stock-based
compensation, regardless of whether they account for that compensation using
the fair value method of SFAS No. 123 or the intrinsic value method of APB
Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 148s
amendment of the transition and annual disclosure requirements of SFAS No. 123
are effective for fiscal years ending after December 15, 2002. The
implementation of this Statement did not materially affect the Companys
financial position or results of operations.

In 2002, the Emerging Issues Task Force (EITF) reached a consensus on Issue No.
02-16, Accounting by a Customer (Including a Reseller) for Cash Considerations
Received from a Vendor. EITF Issue No. 02-16 provides guidance on how cash
considerations received by a customer or reseller should be classified in the
customers statement of earnings. EITF Issue No. 02-16 is effective for all
transactions with vendors after December 31, 2002. The adoption of EITF Issue
No. 02-16 did not have a material impact on our consolidated financial position
or results of operations.

In January 2003, the FASB issued Interpretation No. 46 Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements. This interpretation applies
immediately to variable interest entities created after January 31, 2003 and to
variable interest entities in which an enterprise obtains an interest after
that date. It applies in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise holds
a variable interest it acquired before February 1, 2003. This interpretation
may be applied prospectively with a cumulative-effect adjustment as of the date
on which it is first applied or by restating previously issued financial
statements for one or more years with a cumulative-effect adjustment as of the
beginning of the first year restated. The implementation of this interpretation
will not materially affect the Companys financial position or results of
operations.

Reclassifications:Certain reclassifications have been made to the consolidated
financial statements for prior fiscal years to conform with presentation for
fiscal 2002.

2. SHORT-TERM INVESTMENTS:

Short-term investments at February 1, 2003 include the following (in
thousands):

Unrealized
    
    EstimatedSecurity Type
    
    Cost
    
    Gains
    
    Fair ValueObligations of federal, state and
political subdivisions
    
    $
    74,457
    
    
    $
    414
    
    
    $
    74,871


Short-term investments at February 2, 2002 include the following (in
thousands):



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Page 15


Unrealized
    
    EstimatedSecurity Type
    
    Cost
    
    (Losses)
    
    Fair ValueObligations of federal, state and
political subdivisions
    
    $
    43,795
    
    
    $
    (872
    )
    
    $
    42,923


The accumulated unrealized gains in short-term investments at February 1, 2003
of $265,000 net of a deferred income tax liability of $149,000 offset by the
accumulated unrealized losses in equity investments of $12,000 net of a
deferred income tax benefit of $6,000 and the accumulated unrealized losses of
February 2, 2002 of $567,000, net of a deferred income tax benefit of $305,000,
are reflected in accumulated other comprehensive gains (losses) in the
Consolidated Balance Sheets.

In fiscal 2002, the Company recorded a write-down of $1.8 million in market
value on investments with other than temporary declines in fair value.

The amortized cost and estimated fair value of debt securities at February 1,
2003, by contractual maturity, are shown below (in thousands):

EstimatedSecurity Type
    
    Cost
    
    Fair ValueDue in one year or less
    
    $
    58,426
    
    
    $
    58,483Due in one year through three years
    
    
    16,031
    
    
    
    16,388Total
    
    $
    74,457
    
    
    $
    74,871


Additionally, the Company had $1.7 million invested in privately managed
investment funds at February 1, 2003, which are reported under other assets in
the Consolidated Balance Sheets.

3. ACCOUNTS RECEIVABLE:

Accounts receivable consist of the following (in thousands):

February 1,
    
    February 2,2003
    
    2002Customer accounts  principally deferred
payment accounts
    
    $
    56,853
    
    
    $
    53,012Miscellaneous trade receivables
    
    
    3,362
    
    
    
    5,249Total
    
    
    60,215
    
    
    
    58,261Less allowance for doubtful accounts
    
    
    6,099
    
    
    
    5,968Accounts receivable  net
    
    $
    54,116
    
    
    $
    52,293


Finance charge and late charge revenue on customer deferred payment accounts
totaled $13,672,000, $12,951,000 and $13,689,000 for the fiscal years ended
February 1, 2003, February 2, 2002 and February 3, 2001, respectively, and the
provision for doubtful accounts was $4,764,000, $5,913,000 and $5,292,000, for
the fiscal years ended February 1, 2003, February 2, 2002 and February 3, 2001,
respectively. The provision for doubtful accounts is classified as a component
of selling, general and administrative expenses in the accompanying
Consolidated Statements of Income.

4. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following (in thousands):



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Page 16


February 1,
    
    February 2,2003
    
    2002Land and improvements
    
    $
    2,019
    
    
    $
    2,019Buildings
    
    
    17,751
    
    
    
    17,751Leasehold improvements
    
    
    34,697
    
    
    
    30,546Fixtures, equipment and software
    
    
    143,080
    
    
    
    100,138Construction in progress
    
    
    2,246
    
    
    
    23,333Total
    
    
    199,793
    
    
    
    173,787Less accumulated depreciation
    
    
    86,486
    
    
    
    73,650Property and equipment  net
    
    $
    113,307
    
    
    $
    100,137


As of February 1, 2003, the Company has capitalized $25.7 million for an
enterprise-wide merchandise and finance system in accordance with SOP 98-1.

Construction in progress primarily represents investments in technology and
ongoing store development activities scheduled to be implemented over the next
12 months.

5. ACCRUED EXPENSES:

Accrued expenses consist of the following (in thousands):

February 1,
    
    February 2,2003
    
    2002Accrued bonus and retirement savings plan
contributions
    
    $
    6,233
    
    
    $
    7,605Accrued payroll and related items
    
    
    4,265
    
    
    
    4,216Closed store lease obligations
    
    
    1,004
    
    
    
    1,077Property and other taxes
    
    
    7,593
    
    
    
    4,211Accrued health care plan
    
    
    4,347
    
    
    
    3,558Other
    
    
    5,334
    
    
    
    4,593Total
    
    $
    28,776
    
    
    $
    25,260


6. FINANCING ARRANGEMENTS:

At February 1, 2003, the Company had an unsecured revolving credit agreement
which provided for borrowings of up to $35 million. The revolving credit
agreement is committed until October 2004. The credit agreement contains
various financial covenants and limitations, including the maintenance of
specific financial ratios with which the Company was in compliance. There were
no borrowings outstanding during the fiscal year ended February 1, 2003 or
February 2, 2002.

The Company had approximately $6,496,000 and $4,314,000 at February 1, 2003 and
February 2, 2002, respectively, of outstanding irrevocable letters of credit
relating to purchase commitments.

7. STOCKHOLDERS EQUITY:

The holders of Class A Common Stock are entitled to one vote per share, whereas
the holders of Class B Common Stock are entitled to ten votes per share. Each
share of Class B Common Stock may be converted at any time into one share of
Class A Common Stock. Subject to the rights of the holders of any shares of
Preferred Stock that may be outstanding at the time, in the event of
liquidation, dissolution or winding up of the Company, holders of Class A
Common Stock are entitled to receive a preferential distribution of $1.00 per
share of the net assets of the Company. Cash dividends on the Class B Common
Stock cannot be paid unless cash dividends of at least an equal amount are paid
on the Class A Common Stock.

The Companys charter provides that shares of Class B Common Stock may be
transferred only to certain Permitted Transferees consisting generally of the
lineal descendants of holders of Class B Stock, trusts for their benefit,
corporations and partnerships



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##### 



Page 17


controlled by them and the Companys employee benefit plans. Any transfer of
Class B Common Stock in violation of these restrictions, including a transfer
to the Company, results in the automatic conversion of the transferred shares
of Class B Common Stock held by the transferee into an equal number of shares
of Class A Common Stock.

In October 1993, the Company registered 250,000 shares of Class A Common Stock
available for issuance under an Employee Stock Purchase Plan (the Plan). In
May 1998, the shareholders approved an amendment to the Plan to increase the
maximum number of Class A shares of Common Stock authorized to be issued from
250,000 to 500,000 shares. In February 2003, the Board of Directors recommended
a new plan be adopted effective October 2003 and that an additional 250,000
shares be registered, subject to shareholder approval. Under the terms of the
Plan, substantially all employees may purchase Class A Common Stock through
payroll deductions of up to 10% of their salary. The Class A Common Stock is
purchased at the lower of 85% of market value on the first or last business day
of a six-month payment period. Additionally, each April 15, employees are given
the opportunity to make a lump sum purchase of up to $10,000 of Class A Common
Stock at 85% of market value. The number of shares purchased by participants
through the plan were 32,487 shares, 38,463 shares and 44,500 shares for the
years ended February 1, 2003, February 2, 2002 and February 3, 2001,
respectively.

The Company has an Incentive Stock Option Plan and a Non- Qualified Stock
Option Plan for key employees of the Company. Total shares issuable under the
plans are 3,900,000, of which 825,000 shares are issuable under the Incentive
Stock Option Plan and 3,075,000 shares are issuable under the Non-Qualified
Stock Option Plan. The purchase price of the shares under the option must be at
least 100 percent of the fair market value of Class A Common Stock at the date
of the grant. Options granted under these plans vest over a 5-year period and
expire 10 years after the date of the grant unless otherwise expressly
authorized by the Board of Directors.

In August 1999, the Board of Directors adopted the 1999 Incentive Compensation
Plan, of which 1,000,000 shares are issuable. No awards may be granted after
July 31, 2004 and shares must be exercised within 10 years of the grant date
unless otherwise authorized by the Board of Directors.

In August 1999, the Board of Directors granted under the 1999 Incentive
Compensation Plan, restricted stock awards of 100,000 shares of Class B Common
Stock, with a per share fair value of $11.81 to a key executive. In May 2002,
the Board of Directors approved and granted under the 1999 Incentive
Compensation Plan restricted stock awards of 100,000 shares of Class B Common
Stock, with a per share fair value of $27.31 to a key executive. These stock
awards cliff vest after four years and the unvested portion is included in
stockholders equity as unearned compensation in the accompanying financial
statements. The charge to compensation expense for these stock awards was
$750,000, $295,000 and $295,000 in fiscal 2002, 2001 and 2000, respectively.

Option plan activity for the three fiscal years ended February 1, 2003 is set
forth below:

WeightedRange of
    
    AverageOptions
    
    Option Prices
    
    PriceOutstanding options,
January 29, 2000
    
    
    2,972,782
    
    
    $
    1.50
    
    
    
    
    
    
    $
    14.59
    
    
    $
    9.39Granted
    
    
    46,250
    
    
    
    9.59
    
    
    
    
    
    
    
    14.38
    
    
    
    11.66Exercised
    
    
    (425,350
    )
    
    
    4.94
    
    
    
    
    
    
    
    13.44
    
    
    
    7.82Cancelled
    
    
    (56,300
    )
    
    
    6.94
    
    
    
    
    
    
    
    13.44
    
    
    
    10.23Outstanding options,
February 3, 2001
    
    
    2,537,382
    
    
    
    4.94
    
    
    
    
    
    
    
    14.59
    
    
    
    9.68Granted
    
    
    21,750
    
    
    
    12.66
    
    
    
    
    
    
    
    18.91
    
    
    
    16.17Exercised
    
    
    (778,182
    )
    
    
    4.94
    
    
    
    
    
    
    
    14.59
    
    
    
    8.20Cancelled
    
    
    (25,700
    )
    
    
    7.69
    
    
    
    
    
    
    
    14.59
    
    
    
    11.61Outstanding options,
February 2, 2002
    
    
    1,755,250
    
    
    
    4.94
    
    
    
    
    
    
    
    18.91
    
    
    
    10.39Granted
    
    
    45,500
    
    
    
    18.05
    
    
    
    
    
    
    
    26.76
    
    
    
    20.89Exercised
    
    
    (344,100
    )
    
    
    4.94
    
    
    
    
    
    
    
    17.63
    
    
    
    8.11Cancelled
    
    
    (14,700
    )
    
    
    8.25
    
    
    
    
    
    
    
    12.28
    
    
    
    11.27Outstanding options,
February 1, 2003
    
    
    1,441,950
    
    
    $
    4.94
    
    
    
    
    
    
    $
    26.76
    
    
    $
    11.20




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##### 



Page 18


The following tables summarize stock option information at February 1, 2003:

Options OutstandingWeighted AverageRemaining
    
    WeightedRange of
    
    
    
    
    
    Contractual
    
    AverageExercise Prices
    
    Options
    
    Life
    
    Exercise Price$
    4.94
    
    


    
    $
    7.69
    
    
    
    93,600
    
    
    
    2.37
    years
    
    $
    7.52$
    8.00
    
    
    
    
    $
    9.59
    
    
    
    493,400
    
    
    
    4.72
    years
    
    $
    8.28$
    10.66
    
    
    
    
    $
    12.72
    
    
    
    418,150
    
    
    
    6.73
    years
    
    $
    12.40$
    13.06
    
    
    
    
    $
    26.76
    
    
    
    436,800
    
    
    
    6.22
    years
    
    $
    14.14$
    4.94
    
    
    
    
    $
    26.76
    
    
    
    1,441,950
    
    
    
    5.60
    years
    
    $
    11.20


Options ExercisableWeightedRange of
    
    
    
    
    
    AverageExercise Prices
    
    Options
    
    Exercise Price$
    4.94
    
    
    
    
    $
    7.69
    
    
    
    93,600
    
    
    $
    7.52$
    8.00
    
    
    
    
    $
    9.59
    
    
    
    483,600
    
    
    $
    8.26$
    10.66
    
    
    
    
    $
    12.72
    
    
    
    211,750
    
    
    $
    12.42$
    13.06
    
    
    
    
    $
    26.76
    
    
    
    275,450
    
    
    $
    13.35$
    4.94
    
    
    
    
    $
    26.76
    
    
    
    1,064,400
    
    
    $
    10.34


Outstanding options at February 1, 2003 covered 717,000 shares of Class B
Common Stock and 724,950 shares of Class A Common Stock. Outstanding options at
February 2, 2002 covered 889,500 shares of Class B Common Stock and 865,750
shares of Class A Common Stock. Options available to be granted under the
option plans were 421,618 at February 1, 2003 and 452,418 at February 2, 2002.

The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option
plans. Accordingly, no compensation expense has been recognized for stock-based
compensation where the option price of the stock approximated the fair market
value of the stock on the date of grant. Had compensation expense for fiscal
2002, 2001 and 2000 stock options granted been determined consistent with SFAS
No. 123, Accounting for Stock-Based Compensation, the Companys net income
and basic and diluted earnings per share amounts for fiscal 2002, 2001 and 2000
would approximate the following proforma amounts (dollars in thousands, except
per share data):

Stock-BasedEmployeeCompensationAs Reported
    
    Cost*
    
    ProformaNet income  Fiscal 2002
    
    $
    45,833
    
    
    $
    (740
    )
    
    $
    45,093Basic earnings per share
    
    $
    1.80
    
    
    $
    (0.03
    )
    
    $
    1.77Diluted earnings per share
    
    $
    1.77
    
    
    $
    (0.03
    )
    
    $
    1.74Net income  Fiscal 2001
    
    $
    43,086
    
    
    $
    (1,593
    )
    
    $
    41,493Basic earnings per share
    
    $
    1.71
    
    
    $
    (0.06
    )
    
    $
    1.65Diluted earnings per share
    
    $
    1.66
    
    
    $
    (0.06
    )
    
    $
    1.60Net income  Fiscal 2000
    
    $
    39,027
    
    
    $
    (1,596
    )
    
    $
    37,431Basic earnings per share
    
    $
    1.56
    
    
    $
    (0.06
    )
    
    $
    1.50Diluted earnings per share
    
    $
    1.53
    
    
    $
    (0.06
    )
    
    $
    1.47


* determined using fair value method

The weighted-average fair value of each option granted during fiscal 2002, 2001
and 2000 is estimated at $8.29, $8.19 and $5.45 per share, respectively. The
fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following assumptions for grants issued in 2002,
2001 and 2000, respectively: expected dividend yield of 3.29%, 2.62% and 2.42%;
expected volatility of 57.06%, 59.84% and 60.34%, adjusted for expected
dividends; risk-free interest rate of 2.60%, 4.36% and 4.71%; and an expected
life of 5 years for 2002, 2001 and 2000. The effects of applying SFAS 123 in
this proforma disclosure are not indicative of



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##### 



Page 19


future amounts.

In May 2002, the Board of Directors increased the quarterly dividend by 11%
from $.135 per share to $.15 per share.

Total comprehensive income for the years ended February 1, 2003, February 2,
2002 and February 3, 2001 is as follows (in thousands):

February 1,
    
    February 2,
    
    February 3,Fiscal Year Ended
    
    2003
    
    2002
    
    2001Net income
    
    $
    45,833
    
    
    $
    43,086
    
    
    $
    39,027Unrealized gains on
available-for-sale
securities
    
    
    1,268
    
    
    
    488
    
    
    
    1,411Income tax effect
    
    
    (448
    )
    
    
    (171
    )
    
    
    (494
    )Unrealized gains net of taxes
    
    
    820
    
    
    
    317
    
    
    
    917Total comprehensive income
    
    $
    46,653
    
    
    $
    43,403
    
    
    $
    39,944


8. EMPLOYEE BENEFIT PLANS:

The Company has a defined contribution retirement savings plan (401(k)) which
covers all employees who meet minimum age and service requirements. The 401(k)
plan allows participants to contribute up to 60% of their annual compensation
up to the maximum elective deferral, designated by the IRS. The Company is
obligated to make a minimum contribution to cover plan administrative expenses.
Further Company contributions are at the discretion of the Board of Directors.
The Companys contributions for the years ended February 1, 2003, February 2,
2002 and February 3, 2001 were approximately $1,906,000, $2,596,000 and
$2,348,000, respectively.

The Company has an Employee Stock Ownership Plan (ESOP), which covers
substantially all employees who meet minimum age and service requirements. The
Board of Directors determines contributions to the ESOP. No contributions were
made to the ESOP for the years ended February 1, 2003, February 2, 2002 or
February 3, 2001.

The Company is self-insured with respect to employee health, workers
compensation and general liability claims. The Company has stop-loss insurance
coverage for individual claims in excess of $250,000 for workers compensation
and employee health and $100,000 for general liability. Employee health claims
are funded through a VEBA trust to which the Company makes periodic
contributions. Contributions to the VEBA trust were $8,970,000, $9,090,000 and
$6,964,000 in fiscal 2002, 2001 and 2000, respectively.

9. LEASES:

The Company has operating lease arrangements for store facilities and
equipment. Facility leases generally are for periods of five years with renewal
options and most provide for additional contingent rentals based on a
percentage of store sales in excess of stipulated amounts. Equipment leases are
generally for three to seven year periods.

The minimum rental commitments under non-cancelable operating leases are (in
thousands):

Fiscal Year2003
    
    $
    37,3082004
    
    
    28,5812005
    
    
    21,7112006
    
    
    15,4062007
    
    
    8,177Total minimum lease payments
    
    $
    111,183


The following schedule shows the composition of total rental expense
for all leases (in thousands):



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##### 



Page 20


February 1,
    
    February 2,
    
    February 3,Fiscal Year Ended
    
    2003
    
    2002
    
    2001Minimum rentals
    
    $
    37,848
    
    
    $
    37,117
    
    
    $
    34,449Contingent rent
    
    
    389
    
    
    
    471
    
    
    
    479Total rental expense
    
    $
    38,237
    
    
    $
    37,588
    
    
    $
    34,928


10. RELATED PARTY TRANSACTIONS:

The Company leases certain of its stores from entities in which Mr. George S.
Currin, a director of the Company, has an ownership interest. Rent expense and
related charges totaling $883,367, $785,936 and $523,853 were paid in fiscal
2002, 2001 and 2000, respectively, under these leases.

During 2000, 2001, 2002 and the first quarter of 2003, the Company made
payments totaling $59,017, $70,651, $115,069 and $92,122 for the benefit of
entities in which Mr. Wayland H. Cato, Jr., Chairman of the Board, and Mr.
Edgar T. Cato, Former Vice Chairman of the Board and Co-Founder and Director,
have a material interest. These payments were charged to expense in the periods
indicated. The Company subsequently determined these payments were unrelated to
the business of the Company. In April 2003, $362,557, including interest of
$25,698, was reimbursed to the Company.

11. INCOME TAXES:

The provision for income taxes consists of the following (in thousands):

February 1,
    
    February 2,
    
    February 3,Fiscal Year Ended
    
    2003
    
    2002
    
    2001Current income taxes:Federal
    
    $
    24,572
    
    
    $
    22,309
    
    
    $
    18,461State
    
    
    1,364
    
    
    
    469
    
    
    
    954Total
    
    
    25,936
    
    
    
    22,778
    
    
    
    19,415Deferred income taxes:Federal
    
    
    63
    
    
    
    376
    
    
    
    1,319State
    
    
    7
    
    
    
    46
    
    
    
    281Total
    
    
    70
    
    
    
    422
    
    
    
    1,600Total income tax expense
    
    $
    26,006
    
    
    $
    23,200
    
    
    $
    21,015


Significant components of the Companys deferred tax assets and liabilities as
of February 1, 2003 and February 2, 2002 are as follows (in thousands):

February 1,
    
    February 2,2003
    
    2002Deferred tax assets:Bad debt reserve
    
    $
    2,338
    
    
    $
    2,288Inventory valuation
    
    
    1,739
    
    
    
    1,282Write-down of short-term investments
    
    
    669
    
    
    
    Restricted stock options
    
    
    407
    
    
    
    296Unrealized losses on short-term
investments
    
    
    
    
    
    
    305Other, net
    
    
    2,972
    
    
    
    936Total deferred tax
assets
    
    
    8,125
    
    
    
    5,107Deferred tax liabilities:Tax over book depreciation
    
    
    11,682
    
    
    
    5,898Unrealized gains on short-term
investments
    
    
    143
    
    
    
    Other, net
    
    
    1,218
    
    
    
    3,609Total deferred tax
liabilities
    
    
    13,043
    
    
    
    9,507Net deferred tax liabilities
    
    $
    4,918
    
    
    $
    4,400




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##### 



Page 21


The reconciliation of the Companys effective income tax rate with the
statutory rate is as follows:

February 1,
    
    February 2,
    
    February 3,Fiscal Year Ended
    
    2003
    
    2002
    
    2001Federal income tax
rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income taxes
    
    
    1.2
    
    
    
    0.9
    
    
    
    1.6Other
    
    
    0.0
    
    
    
    (0.9
    )
    
    
    (1.6
    )Effective income
tax rate
    
    
    36.2
    %
    
    
    35.0
    %
    
    
    35.0
    %


12. QUARTERLY FINANCIAL DATA (UNAUDITED):

Summarized quarterly financial results are as follows (in thousands, except per
share data):

Fiscal 2002
    
    First
    
    Second
    
    Third
    
    FourthRetail sales
    
    $
    196,617
    
    
    $
    186,900
    
    
    $
    158,217
    
    
    $
    191,008Total revenues(1)
    
    
    200,491
    
    
    
    190,715
    
    
    
    162,228
    
    
    
    194,897Cost of goods sold
    
    
    124,460
    
    
    
    125,854
    
    
    
    110,188
    
    
    
    135,843Gross margin
    
    
    72,157
    
    
    
    61,046
    
    
    
    48,029
    
    
    
    55,165Income before income
taxes
    
    
    28,683
    
    
    
    19,213
    
    
    
    8,507
    
    
    
    15,436Net income
    
    
    18,300
    
    
    
    12,258
    
    
    
    5,427
    
    
    
    9,848Basic earnings per share
    
    $
    .72
    
    
    $
    .48
    
    
    $
    .21
    
    
    $
    .39Diluted earnings per
share
    
    $
    .71
    
    
    $
    .47
    
    
    $
    .21
    
    
    $
    .38


Fiscal 2001
    
    First
    
    Second
    
    Third
    
    FourthRetail sales
    
    $
    180,347
    
    
    $
    172,444
    
    
    $
    147,619
    
    
    $
    185,243Total revenues(2)
    
    
    183,946
    
    
    
    175,790
    
    
    
    151,043
    
    
    
    188,542Cost of goods sold
    
    
    116,391
    
    
    
    118,093
    
    
    
    101,743
    
    
    
    130,139Gross margin
    
    
    63,956
    
    
    
    54,351
    
    
    
    45,876
    
    
    
    55,104Income before income
taxes
    
    
    24,485
    
    
    
    16,867
    
    
    
    7,746
    
    
    
    17,188Net income
    
    
    15,916
    
    
    
    10,963
    
    
    
    5,035
    
    
    
    11,172Basic earnings per share
    
    $
    .63
    
    
    $
    .43
    
    
    $
    .20
    
    
    $
    .45Diluted earnings per
share
    
    $
    .61
    
    
    $
    .42
    
    
    $
    .20
    
    
    $
    .43




|(1) |  | For the first three quarters of 2002, the Company reported interest and
dividend income of $1,150, $1,673 and $1,147, respectively, as part of
total revenues. Such amounts have been reclassified outside of total
revenues. This reclassification had no impact on Income before income
taxes or Net Income.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | For the four quarters of 2001, the Company reported interest and dividend
income of $1,784, $1,611, $1,827 and $1,115, respectively, as part of
total revenues. Such amounts have been reclassified outside of total
revenues. This reclassification had no impact on Income before income
taxes or Net Income.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13. REPORTABLE SEGMENT INFORMATION:

The Company has two reportable segments: retail and credit. The Company
operates its womens fashion specialty retail stores in 26 states, principally
in the Southeast. The Company offers its own credit card to its customers and
all credit authorizations, payment processing, and collection efforts are
performed by a separate subsidiary of the Company.



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##### 



Page 22


The following schedule summarizes certain segment information (in thousands):

Fiscal 2002
    
    Retail
    
    Credit
    
    TotalRevenues
    
    $
    734,352
    
    
    $
    13,979
    
    
    $
    748,331Depreciation
    
    
    14,851
    
    
    
    62
    
    
    
    14,913Interest and other income, net
    
    
    (3,680
    )
    
    
    
    
    
    
    (3,680
    )Income before taxes
    
    
    66,375
    
    
    
    5,464
    
    
    
    71,839Total assets
    
    
    310,173
    
    
    
    73,237
    
    
    
    383,410Capital expenditures
    
    
    28,953
    
    
    
    
    
    
    
    28,953


Fiscal 2001
    
    Retail
    
    Credit
    
    TotalRevenues
    
    $
    686,092
    
    
    $
    13,229
    
    
    $
    699,321Depreciation
    
    
    10,821
    
    
    
    65
    
    
    
    10,886Interest and other income, net
    
    
    (6,299
    )
    
    
    
    
    
    
    (6,299
    )Income before taxes
    
    
    62,786
    
    
    
    3,500
    
    
    
    66,286Total assets
    
    
    263,909
    
    
    
    68,132
    
    
    
    332,041Capital expenditures
    
    
    25,684
    
    
    
    
    
    
    
    25,684


Fiscal 2000
    
    Retail
    
    Credit
    
    TotalRevenues
    
    $
    648,552
    
    
    $
    13,985
    
    
    $
    662,537Depreciation
    
    
    9,426
    
    
    
    66
    
    
    
    9,492Interest and other income, net
    
    
    (6,554
    )
    
    
    
    
    
    
    (6,554
    )Income before taxes
    
    
    55,278
    
    
    
    4,764
    
    
    
    60,042Total assets
    
    
    244,199
    
    
    
    66,543
    
    
    
    310,742Capital expenditures
    
    
    27,195
    
    
    
    35
    
    
    
    27,230


The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on profit or loss from operations before income taxes. The Company does
not allocate certain corporate expenses or income taxes to the segments.

14. COMMITMENTS AND CONTINGENCIES:

Workers compensation and general liability claims are settled through a claims
administrator and are limited by stop-loss insurance coverage for individual
claims in excess of $250,000 and $100,000, respectively. The Company paid
claims of $1,652,000, $1,379,000 and $1,486,000 in fiscal 2002, 2001 and 2000,
respectively. The Company had no outstanding letters of credit relating to such
claims at February 1, 2003 or at February 2, 2002. See Note 6 for letters of
credit related to purchase commitments, Note 8 for 401(k) plan contribution
obligations and Note 9 for lease commitments.

The Company is a defendant in legal proceedings considered to be in the normal
course of business and none of which, singularly or collectively, are
considered to be material to the Company as a whole.



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##### 



Page 23


SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

Allowance
    
    Reservefor
    
    forDoubtful
    
    RentalAccounts (a)
    
    Commitments (b)(In thousands)Balance at January 29, 2000
    
    $
    5,101
    
    
    $
    1,771Additions charged
to costs and
expenses
    
    
    5,292
    
    
    
    1,710Additions charged
to other accounts
    
    
    878
    (d)
    
    
    Deductions
    
    
    (5,849
    )(c)
    
    
    (1,832
    )Balance at February 3, 2001
    
    
    5,422
    
    
    
    1,649Additions charged
to costs and
expenses
    
    
    5,913
    
    
    
    691Additions charged
to other accounts
    
    
    1,052
    (d)
    
    
    Deductions
    
    
    (6,419
    )(c)
    
    
    (1,263
    )Balance at February 2, 2002
    
    
    5,968
    
    
    
    1,077Additions charged
to costs and
expenses
    
    
    4,763
    
    
    
    1,000Additions charged
to other accounts
    
    
    887
    (d)
    
    
    Deductions
    
    
    (5,519
    )(c)
    
    
    (1,121
    )Balance at February 1, 2003
    
    $
    6,099
    
    
    $
    956




|(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) |  | Uncollectible accounts written off.
|--- |  | -----------------------------------



|(d) |  | Recoveries of amounts previously written off.
|--- |  | ---------------------------------------------



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##### 



Page 24


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, The Cato Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

The Cato Corporation

By
    
    /s/ John P. Derham Cato
    
    By
    
    /s/ Michael O. MooreJohn P. Derham Cato
    
    
    
    Michael O. MooreChairman, President and
    
    
    
    Executive Vice PresidentChief Executive Officer
    
    
    
    Chief Financial Officer and SecretaryBy:
    
    /s/ Robert M. SandlerRobert M. SandlerSenior Vice PresidentController


Date: April 19, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:

/s/ Robert W. Bradshaw, Jr.
    
    April 19, 2004Robert W. Bradshaw, Jr.(Director)/s/ John P. Derham Cato
    
    April 19, 2004John P. Derham Cato(Director)/s/ Thomas E. Cato
    
    April 19, 2004Thomas E. Cato(Director)/s/ George S. Currin
    
    April 19, 2004George S. Currin(Director)/s/ Grant L. Hamrick
    
    April 19, 2004Grant L. Hamrick(Director)/s/ Michael O. Moore
    
    April 19, 2004Michael O. Moore(Director)/s/ James H. Shaw
    
    April 19, 2004James H. Shaw(Director)/s/ A.F. (Pete) Sloan
    
    April 19, 2004A.F. (Pete) Sloan(Director)




---



##### 



Page 25


EXHIBIT INDEX

Designation ofExhibit
    
    
    
    Page21
    
    
    *Subsidiaries of the Registrant23
    
    
    Consent of Independent Auditors
    
    
    2631.1
    
    
    Chairman, President and Chief Executive Officers
Certification
    
    
    2731.2
    
    
    Executive Vice President, Chief Financial Officer and Secretarys
Certification
    
    
    2832.1
    
    
    Chairman, President and Chief Executive Officers
Certification of Periodic Report
    
    
    2932.2
    
    
    Executive Vice President, Chief Financial Officer and Secretarys
Certification of Periodic Report
    
    
    30


*Previously Filed