##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, 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
    January 31, 2009oro

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:
  Title of Class

Name of Exchange on Which RegisteredClass A Common Stock

New York Stock ExchangePreferred Share Purchase Rights

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
   o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company 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  13Item 6.


Selected Financial Data


14Item 7.


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


15  22Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


22Item 8.


Financial Statements and Supplementary Data


23  46Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


47Item 9A.


Controls and Procedures


47Item 9B.


Other Information


47PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


47Item 11.


Executive Compensation


47Item 12.


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


48Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


48Item 14.


Principal Accountant Fees and Services


48PART IVItem 15.


Exhibits and Financial Statement Schedule


49  57EX-21EX-23.1EX-31.1EX-31.2EX-32.1EX-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.
  Merchandising
  Merchandising
     3




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##### Table of Contents



Purchasing,
    Allocation and Distribution
    store-by-store
    Advertising
    Store
    Operations
   4




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##### Table of Contents



Store
    Locations
        Store
    Development
  Number of StoresBeginning of


Number


Number


Number of StoresFiscal Year

Year


Opened


Closed


End of Year2004


1,102



80



5



1,1772005


1,177



82



15



1,2442006


1,244



58



26



1,2762007


1,276



62



20



1,3182008


1,318



65



102



1,281         Credit
    and Layaway
  Credit
    Card Program
   5




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##### Table of Contents



Layaway
    Plan
    Management
    Information Systems
      Competition
    Seasonality
    Regulation
   6




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##### Table of Contents



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.
    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.
   7




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##### Table of Contents



Our
    costs are affected by foreign currency
    fluctuations.
    A
    continuation of, or further deterioration in, the current
    adverse conditions and the general economy or outlook and its
    related impact on consumer confidence and spending may
    materially and adversely affect consumer demand for our apparel
    and accessories and our results of operations.
    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


58


Chairman, President and Chief Executive OfficerMichael T. Greer


46


Executive Vice President, Director of StoresJohn R. Howe


46


Executive Vice President, Chief Financial OfficerHoward A. Severson


61


Executive Vice President, Chief Real Estate and Store
    Development OfficerStuart L. Uselton


48


Executive Vice President, Chief Administrative OfficerB. Allen Weinstein


62


Executive Vice President, Chief Merchandising Officer   John P. D. Cato
  Michael T. Greer
  John R. Howe
  Howard A. Severson
  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
    Price2008

High


Low


DividendFirst quarter

$
17.98


$
14.05


$
.165Second quarter


18.94



14.03



.165Third quarter


19.38



11.99



.165Fourth quarter


15.20



12.06



.165   Price2007

High


Low


DividendFirst quarter

$
24.19


$
20.38


$
.150Second quarter


25.01



20.54



.165Third quarter


22.07



17.86



.165Fourth quarter


19.85



13.49



.165    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

INDEX1/30/04

100

100

1001/28/05

143

121

1071/27/06

155

138

1292/02/07

163

167

1442/01/08

119

132

1321/30/09

106

69

81    12




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##### Table of Contents



Issuer
    Purchases of Equity Securities
    Total Number of


Maximum NumberShares Purchased as


(or Approximate DollarTotal Number





Part of Publicly


Value) of Shares that mayof Shares


Average Price


Announced Plans or


Yet be Purchased UnderPeriod

Purchased


Paid per Share(1)


Programs(2)


The Plans or Programs(2)November 2008


100


$
12.00



100December 2008










January 2009










Total


100


$
12.00



100



195,942 shares     (1)
    
    Prices include trading costs.(2)
    
    On August 30, 2007, the Companys Board of Directors
    authorized an increase in the share repurchase program of two
    million shares. At fiscal year end January 31, 2009, the
    Company had 195,942 shares remaining in open
    authorizations. There is no specified expiration date for the
    Companys repurchase program. For fiscal 2008, the Company
    has repurchased 198,718 shares under this program for
    approximately $2.4 million or an average market price per
    share of $12.25.(3)
    
    Subsequent to year end 2008, on February 26, 2009, the
    Companys Board of Directors authorized an increase in the
    share repurchase program of 500,000 shares. 13




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##### Table of Contents



Item 6.
    Selected
    Financial Data:      Fiscal Year

2008


2007


2006


2005


2004(Dollars in thousands, except per share data and selected
    operating data)STATEMENT OF OPERATIONS DATA:Retail sales

$
845,676


$
834,341


$
862,813


$
821,639


$
773,809Other income


12,042



12,096



13,072



14,742



15,795Total revenues


857,718



846,437



875,885



836,381



789,604Cost of goods sold (exclusive of depreciation shown below)


562,056



572,309



572,712



546,955



528,916Selling, general and administrative (exclusive of depreciation
    shown below)


227,645



210,892



212,157



203,156



187,618Selling, general and administrative percent of retail sales


26.9
%


25.3
%


24.6
%


24.7
%


24.2
%Depreciation


22,572



22,212



20,941



20,275



20,397Interest expense


53



9



41



183



717Interest and other income


(7,218
)


(8,218
)


(9,597
)


(4,563
)


(2,739
)Income before income taxes


52,610



49,233



79,631



70,375



54,695Income tax expense


18,976



16,914



28,181



25,546



19,854Net income

$
33,634


$
32,319


$
51,450


$
44,829


$
34,841Basic earnings per share

$
1.16


$
1.03


$
1.64


$
1.44


$
1.13Diluted earnings per share

$
1.15


$
1.03


$
1.62


$
1.41


$
1.11Cash dividends paid per share

$
.660


$
.645


$
.580


$
.507


$
.457SELECTED OPERATING DATA:Stores open at end of year


1,281



1,318



1,276



1,244



1,177Average sales per store(1)

$
640,000


$
640,000


$
685,000


$
684,000


$
682,000Average sales per square foot of selling space

$
162


$
165


$
175


$
173


$
170BALANCE SHEET DATA (at period end):Cash, cash equivalents and short-term investments

$
144,803


$
114,578


$
123,542


$
107,819


$
107,228Working capital


164,639



144,114



176,464



139,114



136,980Total assets


435,353



420,792



432,322



406,636



397,323Total stockholders equity


261,813



247,370



276,793



239,948



211,175     (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 2006 contained 53 weeks versus
    52 weeks for all other years shown. 14




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations:  Results
    of Operations
    January 31,


February 2,


February 3,Fiscal Year Ended

2009


2008


2007Retail sales


100.0
%


100.0
%


100.0
%Other income


1.4



1.4



1.5Total revenues


101.4



101.4



101.5Cost of goods sold


66.5



68.6



66.4Selling, general and administrative


26.9



25.3



24.6Depreciation


2.7



2.7



2.4Interest and other income


(0.9
)


(1.0
)


(1.1
)Income before income taxes


6.2



5.9



9.2Net income


4.0
%


3.9
%


6.0
%   Fiscal
    2008 Compared to Fiscal 2007
           15




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##### Table of Contents



Fiscal
    2007 Compared to Fiscal 2006
           16




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
    Critical
    Accounting Policies
      Allowance
    for Doubtful Accounts
   17




---



##### Table of Contents



Merchandise
    Inventories
  (first-in,
  Lease
    Accounting
  Accounting for Leases
  Impairment
    of Long-Lived Assets
    Insurance
    Liabilities
   18




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Uncertain
    Tax Positions
    Revenue
    Recognition
        Liquidity,
    Capital Resources and Market Risk
       19




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##### Table of Contents



Fair Value Measurements 157-2, Effective date of FASB Statement No. 157 SFAS No. 157-2
 20




---



##### Table of Contents



Fair Value Measurements at Reporting Date UsingQuoted MarketPrices in Active


SignificantMarket for


Other


SignificantIdentical


Observable


UnobservableJanuary 31,


Assets/Liabilities


Inputs


InputsDescription

2009


(Level 1)


(Level 2)


(Level 3)Assets:Short term investments

$
102,541


$
99,091


$
3,450



Other Assets


2,258



303



1,955



           Payments Due During One Year Fiscal Period EndingContractual Obligations

Total


2009


2010


2011


2012


2013


ThereafterMerchandise letters of credit

$
4,547


$
4,547


$



$



$



$



$
Operating leases


161,144



55,548



43,082



31,435



20,516



10,310



253Total Contractual Obligations

$
165,691


$
60,095


$
43,082


$
31,435


$
20,516


$
10,310


$
253     (1)
    
    In addition to the amounts shown in the table above,
    $15.4 million of unrecognized tax benefits have been
    recorded as liabilities in accordance with FIN 48 and we
    are uncertain as to if or when such amounts may be settled. See
    Note 13, Income Taxes, of the Consolidated Financial
    Statements. 21




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##### Table of Contents



Recent
    Accounting Pronouncements
  Fair Value Measurements
  The Fair
    Value Option for Financial Assets and Financial Liabilities
  No. 06-11, Accounting for Income Tax Benefits of Dividends on
    Share-Based Payment No. 06-11 No. 06-11 No. 06-11
  No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based
    Payment Transactions Are Participating Securities EITF 03-6-1 EITF 03-6-1 No. 03-6-1
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk:   22




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data:  INDEX TO
    FINANCIAL STATEMENTS AND SCHEDULE
   
 PageReport of Independent Registered Public
    Accounting Firm


24Consolidated Statements of Income and
    Comprehensive Income for the fiscal years ended
    January 31, 2009, February 2, 2008 and
    February 3, 2007


25Consolidated Balance Sheets at January 31,
    2009 and February 2, 2008


26Consolidated Statements of Cash Flows for the
    fiscal years ended January 31, 2009, February 2, 2008
    and February 3, 2007


27Consolidated Statements of Stockholders
    Equity for the fiscal years ended January 31, 2009,
    February 2, 2008 and February 3, 2007


28Notes to Consolidated Financial Statements


29Schedule II  Valuation and
    Qualifying Accounts for the fiscal years ended January 31,
    2009, February 2, 2008 and February 3, 2007


S-2   23




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm  To the Board
    of Directors and Stockholders of
   Internal Control 
    Integrated Framework
         24




---



##### Table of Contents



THE CATO
    CORPORATION
  CONSOLIDATED
    STATEMENTS OF INCOME AND
 COMPREHENSIVE INCOME
  Fiscal Year EndedJanuary 31,


February 2,


February 3,2009


2008


2007(Dollars in thousands, except per share data)REVENUESRetail sales

$
845,676


$
834,341


$
862,813Other income (principally finance charges, late fees and layaway
    charges)


12,042



12,096



13,072Total revenues


857,718



846,437



875,885COSTS AND EXPENSES, NETCost of goods sold (exclusive of depreciation shown below)


562,056



572,309



572,712Selling, general and administrative (exclusive of depreciation
    shown below)


227,645



210,892



212,157Depreciation


22,572



22,212



20,941Interest expense


53



9



41Interest and other income


(7,218
)


(8,218
)


(9,597
)805,108



797,204



796,254Income before income taxes


52,610



49,233



79,631Income tax expense


18,976



16,914



28,181Net income

$
33,634


$
32,319


$
51,450Basic earnings per share

$
1.16


$
1.03


$
1.64Basic weighted average shares


29,065,594



31,279,918



31,281,163Diluted earnings per share

$
1.15


$
1.03


$
1.62Diluted weighted average shares


29,151,759



31,513,202



31,815,332Dividends per share

$
.660


$
.645


$
.580Comprehensive income:Net income

$
33,634


$
32,319


$
51,450Unrealized gains (losses) on available-for-sale securities, net
    of deferred income tax liability or benefit


(296
)


484



147Comprehensive income

$
33,338


$
32,803


$
51,597    25




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##### Table of Contents



THE CATO
    CORPORATION
  CONSOLIDATED
    BALANCE SHEETS
  January 31,


February 2,2009


2008(Dollars in thousands)ASSETSCurrent Assets:Cash and cash equivalents

$
42,262


$
21,583Short-term investments


102,541



92,995Accounts receivable, net of allowance for doubtful accounts of
    $3,723 at January 31, 2009 and $3,263 at February 2,
    2008


44,136



45,282Merchandise inventories


112,290



118,679Deferred income taxes


6,403



6,756Prepaid expenses


7,737



7,755Total Current Assets


315,369



293,050Property and equipment  net


116,262



123,190Other assets


3,722



4,552Total Assets

$
435,353


$
420,792LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable

$
102,971


$
110,848Accrued expenses


29,946



27,617Accrued bonus and benefits


6,307



2,543Accrued income taxes


11,506



7,928Total Current Liabilities


150,730



148,936Deferred income taxes


2,528



1,707Other noncurrent liabilities (primarily deferred rent)


20,282



22,779Commitments 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; 36,303,922 and
    36,109,263 shares issued at January 31, 2009 and
    February 2, 2008, respectively


1,210



1,204Convertible Class B common stock, $.033 par value per
    share, 15,000,000 shares authorized; issued
    1,743,525 shares at January 31, 2009 and
    February 2, 2008


58



58Additional paid-in capital


61,608



58,685Retained earnings


354,333



340,088Accumulated other comprehensive income


413



709417,622



400,744Less Class A common stock in treasury, at cost
    (8,660,333 shares at January 31, 2009 and
    8,461,615 shares at February 2, 2008, respectively)


(155,809
)


(153,374
)Total Stockholders Equity


261,813



247,370Total Liabilities and Stockholders Equity

$
435,353


$
420,792    26




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##### Table of Contents



THE CATO
    CORPORATION
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Fiscal Year EndedJanuary 31,


February 2,


February 3,2009


2008


2007(Dollars in thousands)OPERATING ACTIVITIESNet income

$
33,634


$
32,319


$
51,450Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation


22,572



22,212



20,941Provision for doubtful accounts


3,825



2,844



2,633Share-based compensation


2,208



1,694



1,326Excess tax benefits from share-based compensation


(66
)


(5,964
)


(768
)Deferred income taxes


1,175



(6,358
)


574Loss on disposal of property and equipment


3,799



1,163



2,079Changes in operating assets and liabilities which provided
    (used) cash:Accounts receivable


(2,679
)


(2,168
)


1,053Merchandise inventories


6,389



(2,761
)


(12,548
)Prepaid and other assets


848



(1,372
)


2,238Accrued income taxes


3,644



8,533



1,499Accounts payable, accrued expenses and other liabilities


(3,782
)


24,022



(11,776
)Net cash provided by operating activities


71,567



74,164



58,701INVESTING ACTIVITIESExpenditures for property and equipment


(19,443
)


(18,330
)


(27,547
)Purchases of short-term investments


(169,979
)


(313,761
)


(180,463
)Sales of short-term investments


160,136



319,960



167,985Net cash used in investing activities


(29,286
)


(12,131
)


(40,025
)FINANCING ACTIVITIESChange in cash overdrafts included in accounts payable


(500
)


(1,000
)


500Dividends paid


(19,389
)


(20,277
)


(18,228
)Purchases of treasury stock


(2,435
)


(58,561
)


Proceeds from employee stock purchase plan


432



481



413Excess tax benefits from share-based compensation


66



5,964



768Proceeds from stock options exercised


224



8,110



970Net cash used in financing activities


(21,602
)


(65,283
)


(15,577
)Net increase (decrease) in cash and cash equivalents


20,679



(3,250
)


3,099Cash and cash equivalents at beginning of year


21,583



24,833



21,734Cash and cash equivalents at end of year

$
42,262


$
21,583


$
24,833    27




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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 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*Comprehensive income:Net income














32,319















32,319Unrealized gains on available-for-sale securities, net of
    deferred income tax liability of $247


















484











484Dividends paid ($.645 per share)














(20,277
)














(20,277
)Class A common stock sold through employee stock purchase
    plan  27,164 shares


1







565



















566Class A common stock sold through stock option
    plans  39,200 shares


1







514



















515Class B common stock sold through stock option plans
    1,053,000 shares






35



7,677



















7,712Class A common stock issued through restricted stock grant
    plans 87,085 shares


3







1,490



















1,493Income tax benefit from stock options exercised










5,964



















5,964Repurchase of treasury shares  3,368,006 shares


























(58,561
)


(58,561
)Adoption of FIN 48














362















362Balance  February 2, 2008


1,204



58



58,685



340,088



709







(153,374
)


247,370*Comprehensive income:Net income














33,634















33,634Unrealized losses on available-for-sale securities, net of
    deferred income tax benefit of ($138)


















(296
)










(296
)Dividends paid ($.66 per share)














(19,389
)














(19,389
)Class A common stock sold through employee stock purchase
    plan  32,830 shares


1







505



















506Class A common stock sold through stock option
    plans  23,875 shares


1







314



















315Class A common stock issued through restricted stock grant
    plans 137,953 shares


4







2,038



















2,042Income tax benefit from stock options exercised










66



















66Repurchase of treasury shares  198,718 shares


























(2,435
)


(2,435
)Balance  January 31, 2009

$
1,210


$
58


$
61,608


$
354,333


$
413


$



$
(155,809
)

$
261,813    28




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Summary
    of Significant Accounting Policies:  Principles of Consolidation:
  Description of Business and Fiscal Year:
  Use of Estimates:
  Cash and Cash Equivalents and Short-Term
    Investments:
    Concentration of Credit Risk:
  Supplemental Cash Flow Information:
  Inventories: (first-in,
 29




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Property and Equipment: 98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use
  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
     30




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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:
  Stock Repurchase Program:
  Earnings Per Share: Earnings Per Share
 31




---



##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Twelve Months EndedJanuary 31,


February 2,


February 3,2009


2008


2007Weighted-average shares outstanding


29,065,594



31,279,918



31,281,163Dilutive effect of :Stock options


12,916



187,593



512,814Restricted stock


73,249



45,691



21,355Weighted-average shares and common stock equivalents outstanding


29,151,759



31,513,202



31,815,332   Vendor Allowances: EITF 02-16, Accounting by a Customer (Including a Reseller) for
    Certain Consideration Received from a Vendor.
  Income Taxes:
    Accounting for Uncertainty in Income Taxes an interpretation
    of FASB Statement No. 109
  Store Opening and Closing Costs:
  Closed Store Lease Obligations:
  Insurance:
   32




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Fair Value of Financial Instruments: and/or
  Stock Based Compensation: Share-Based Payment
  Recent
    Accounting Pronouncements
  Fair Value
    Measurements
  The Fair
    Value Option for Financial Assets and Financial Liabilities
  No. 06-11, Accounting for Income Tax Benefits of Dividends on
    Share-Based Payment No. 06-11 No. 06-11 No. 06-11
  No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based
    Payment Transactions Are Participating Securities EITF 03-6-1
 33




---



##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  EITF 03-6-1 No. 03-6-1
  157-2, Effective date of FASB Statement No. 157 SFAS No. 157-2
  2.
    Interest
    and Other Income:    January 31,


February 2,


February 3,2009


2008


2007Dividend income

$
(10
)

$
(17
)

$
(23
)Interest income


(4,617
)


(5,729
)


(4,221
)Hurricane claims settlement










(2,384
)Visa/Mastercard claims settlement










(470
)Miscellaneous income


(2,709
)


(2,207
)


(2,100
)(Gain)/loss on investment sales


118



(265
)


(399
)Interest and other income

$
(7,218
)

$
(8,218
)

$
(9,597
)   3.
    Short-Term
    Investments:      January 31, 2009


February 2, 2008Unrealized


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 gain (loss)

$
101,867


$
674


$
102,541


$
92,373


$
622


$
92,995Total

$
101,867


$
674


$
102,541


$
92,373


$
622


$
92,995      34




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      4.
    Fair
    Value Measurements:  Fair Value
    Measurements 157-2, Effective date of FASB Statement No. 157 SFAS No. 157-2
    Fair Value Measurements at Reporting Date UsingQuoted MarketPrices in Active


SignificantMarket for


Other


SignificantIdentical


Observable


UnobservableJanuary 31,


Assets/Liabilities


Inputs


InputsDescription

2009


(Level 1)


(Level 2)


(Level 3)Assets:Short term investments

$
102,541


$
99,091


$
3,450



Other assets (see Note 3)


2,258



303



1,955



        35




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    5.
    Accounts
    Receivable:    January 31,


February 2,2009


2008Customer accounts  principally deferred payment
    accounts

$
40,516


$
42,007Miscellaneous trade receivables


7,343



6,538Total


47,859



48,545Less allowance for doubtful accounts


3,723



3,263Accounts receivable  net

$
44,136


$
45,282     6.
    Property
    and Equipment:    January 31,


February 2,2009


2008Land and improvements

$
3,694


$
3,681Buildings


18,926



18,518Leasehold improvements


56,224



53,938Fixtures and equipment


164,136



160,688Information Technology equipment and software


50,575



48,649Construction in progress


865



1,741Total


294,420



287,215Less accumulated depreciation


178,158



164,025Property and equipment  net

$
116,262


$
123,190    36




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  7.
    Accrued
    Expenses:    January 31,


February 2,2009


2008Accrued payroll and related items

$
4,491


$
4,476Accrued advertising


257



299Property and other taxes


11,978



11,159Accrued insurance


6,264



5,225Other


6,956



6,458Total

$
29,946


$
27,617   8.
    Financing
    Arrangements:      9.
    Stockholders
    Equity:         37




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##### Table of Contents



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


AverageOptions


Option Prices


PriceOutstanding options,January 28, 2006


1,343,400


$
5.50  $21.75


$
8.23Granted










Exercised


(95,775
)


5.50  21.37



10.12Forfeited or expired


(10,950
)


13.47  21.37



17.24Outstanding options,February 3, 2007


1,236,675



5.50  21.75



8.01Granted










Exercised


(1,092,200
)


5.50  17.84



7.41Forfeited or expired


(5,400
)


13.52  19.53



17.45Outstanding options,February 2, 2008


139,075



6.39  21.75



12.41Granted










Exercised


(23,875
)


8.19  13.97



9.36Forfeited or expired


(7,250
)


8.71  21.72



17.78Outstanding options,January 31, 2009


107,950


$
6.39  19.99


$
12.72  38




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##### Table of Contents



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


Options ExercisableWeighted Average


Weighted





WeightedRange of





Remaining


Average





AverageExercise Prices


Options


Contractual Life


Exercise Price


Options


Exercise Price$
6.39  $ 8.83



21,700



1.88 years


$
8.00



21,700


$
8.0011.10  14.79



68,850



5.64 years



13.25



57,675



13.1015.08  19.99



17,400



6.82 years



16.50



13,350



16.49$
6.39  $19.99



107,950



5.07 years


$
12.72



92,725


$
12.40       10.
    Employee
    Benefit Plans:        11.
    Leases:   39




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fiscal Year2009

$
55,5482010


43,0822011


31,4352012


20,5162013


10,310Thereafter


253Total minimum lease payments

$
161,144     January 31,


February 2,


February 3,Fiscal Year Ended

2009


2008


2007Minimum rentals

$
52,762


$
51,142


$
49,169Contingent rent


28



54



106Total rental expense

$
52,790


$
51,196


$
49,275   12.
    Related
    Party Transactions:      13.
    Income
    Taxes:  Accounting for Uncertainty in Income Taxes an interpretation
    of FASB Statement No. 109
 40




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      January 31,


February 2,2009


2008Balances, beginning

$
9,180


$
6,193Additions for tax positions of the current year


1,394



1,686Additions for tax positions prior years


35



1,301Reduction for tax positions of prior years for:Changes in judgement






Settlements during the period


(571
)


Lapses of applicable statue of limitations


(516
)


Balance, ending

$
9,522


$
9,180     January 31,


February 2,


February 3,Fiscal Year Ended

2009


2008


2007Current income taxes:Federal

$
15,895


$
23,800


$
26,480State


1,768



(280
)


1,205Total


17,663



23,520



27,685Deferred income taxes:Federal


1,173



(5,902
)


443State


140



(704
)


53Total


1,313



(6,606
)


496Total income tax expense

$
18,976


$
16,914


$
28,181  41




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    January 31,


February 2,2009


2008Deferred tax assets:Bad debt reserve

$
1,467


$
1,227Inventory valuation


2,263



2,164Capital loss carryover


232



274Deferred lease liability


10,251



9,148Reserves


1,721



3,817Other taxes


1,282



1,203Federal benefit of FIN 48


4,320



3,906Equity compensation expense


2,109



1,297Total deferred tax assets


23,645



23,036Deferred tax liabilities:Property and equipment


19,381



16,010Unrealized gains on short-term investments


233



371Other


156



1,606Total deferred tax liabilities


19,770



17,987Net deferred tax liabilities (assets)

$
(3,875
)

$
(5,049
)     January 31,


February 2,


February 3,Fiscal Year Ended

2009


2008


2007Federal income tax rate


35.0
%


35.0
%


35.0
%State income taxes


5.7



2.9



2.4Tax credits


(2.5
)


(3.1
)


(1.3
)Tax exempt interest


(2.6
)


(3.4
)


(1.5
)Effects of other permanent differences


0.5



0.4



(0.2
)Other


0.0



2.6



1.0Effective income tax rate


36.1
%


34.4
%


35.4
%   14.
    Quarterly
    Financial Data (Unaudited):    Fiscal 2008

First


Second


Third


FourthRetail sales

$
225,791


$
230,957


$
179,838


$
209,091Total revenues


228,828



233,868



182,785



212,238Cost of goods sold (exclusive of depreciation)


141,620



148,020



127,172



145,245Income before income taxes


27,182



18,320



1,274



5,834Net income


16,853



12,091



823



3,866Basic earnings per share

$
0.58


$
0.42


$
0.03


$
0.13Diluted earnings per share

$
0.58


$
0.41


$
0.03


$
0.13  42




---



##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fiscal 2007

First


Second


Third


FourthRetail sales

$
224,134


$
218,973


$
181,870


$
209,364Total revenues


227,228



221,934



184,838



212,436Cost of goods sold (exclusive of depreciation)


143,422



147,514



126,080



155,294Income before income taxes


29,172



18,650



3,947



(2,538
)Net income


18,670



12,510



2,936



(1,798
)Basic earnings per share

$
0.60


$
0.39


$
0.09


$
(0.06
)Diluted earnings per share

$
0.59


$
0.39


$
0.09


$
(0.06
)   15.
    Reportable
    Segment Information:      Fiscal 2008

Retail


Credit


TotalRevenues

$
847,606


$
10,112


$
857,718Depreciation


22,531



41



22,572Interest and other income


(7,218
)






(7,218
)Income before taxes


49,499



3,111



52,610Total assets


361,697



73,656



435,353Capital expenditures


19,443







19,443   Fiscal 2007

Retail


Credit


TotalRevenues

$
836,023


$
10,414


$
846,437Depreciation


22,112



100



22,212Interest and other income


(8,218
)






(8,218
)Income before taxes


44,983



4,250



49,233Total assets


354,001



68,491



422,492Capital expenditures


18,211



119



18,330   Fiscal 2006

Retail


Credit


TotalRevenues

$
864,987


$
10,898


$
875,885Depreciation


20,849



92



20,941Interest and other income


(9,597
)






(9,597
)Income before taxes


74,772



4,859



79,631Total assets


368,786



63,536



432,322Capital expenditures


27,483



64



27,547    43




---



##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    January 31,


February 2,


February 3,2009


2008


2007Bad debt expense

$
3,844


$
2,844


$
2,633Payroll


1,000



983



1,008Postage


979



985



1,034Other expenses


1,137



1,252



1,272Total expenses

$
6,960


$
6,064


$
5,947   16.
    Stock
    Based Compensation:      1987


1999


2004Plan


Plan


Plan


TotalOptions and/or restricted stock initially authorized


5,850,000



1,500,000



1,350,000



8,700,000Options and/or restricted stock available for grant:February 2, 2008


12,277







1,006,033



1,018,310January 31, 2009


18,627







868,078



886,705       Weighted Average


AggregateWeighted Average


Remaining Contractual


IntrinsicShares


Exercise Price


Term


Value(a)Options outstanding at February 2, 2008


139,075


$
12.41



4.64 years


$
494,087Granted














Forfeited or expired


7,250Exercised


23,875Outstanding at January 31, 2009


107,950


$
12.72



4.07 years


$
124,257Vested and exercisable at January 31, 2009


92,725


$
12.40



3.80 years


$
136,569     (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.   44




---



##### 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



22.92Granted


102,399



21.14Vested






Forfeited


(15,314
)


19.90Restricted stock awards at February 2, 2008


301,967



22.56Granted


156,795



16.88Vested






Forfeited


(18,841
)


22.55Restricted stock awards at January 31, 2009


439,921


$
20.46   17.
    Commitments
    and Contingencies:   45




---



##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         46




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    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:   47




---



##### 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 holders


107,950


$
12.72



1,107,785Equity compensation plans not approved by security holders










Total


107,950


$
12.72



1,107,785     (1)
    
    This column contains information regarding employee stock
    options only; there are no outstanding warrants or stock
    appreciation rights.(2)
    
    Includes the following:868,078 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 associates. Additionally,
    18,627 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; and221,080 shares available under the 2003 Employee Stock
    Purchase Plan. Eligible associates 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 2009 Proxy
    Statement is incorporated by reference in response to this Item.  Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence:  Matters-Director
  Item 14.
    Principal
    Accountant Fees and Services:   48




---



##### Table of Contents



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


24Consolidated Statements of Income and
    Comprehensive Income for the fiscal years ended January 31,
    2009, February 2, 2008 and February 3, 2007


25Consolidated Balance Sheets at January 31,
    2009 and February 2, 2008


26Consolidated Statements of Cash Flows for the
    fiscal years ended January 31, 2009, February 2, 2008,
    and February 3, 2007


27Consolidated Statements of Stockholders
    Equity for the fiscal years ended January 31, 2009,
    February 2, 2008, and February 3, 2007


28Notes to Consolidated Financial Statements


29(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*

2004 Incentive Compensation Plan, amended and restated as of
    May 22, 2008, incorporated by reference to Appendix A
    to Definitive Proxy Statement on Schedule 14A filed
    April 11, 2008.10
.4*

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
.5*

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
.6*

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. 49




---



##### Table of Contents



ExhibitNumber

Description of Exhibit10
.7*

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, 2003.10
.8*

Summary of Named Executive Officer Compensation Determinations,
    incorporated by reference to Item 5.02 of
    Form 8-K
    filed April 7, 2008.10
.9*

Letter Agreement between the Registrant and John R. Howe dated
    as of August 28, 2008, incorporated by Reference to
    Exhibit 99.1 to
    Form 8-K
    of the Registrant filed September 3, 2008.21


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.   EXHIBIT INDEX
  Designationof Exhibit



Page21


Subsidiaries of the Registrant


5223
.1

Consent of Independent Registered Public Accounting Firm


5331
.1

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


5431
.2

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


5532
.1

Section 1350 Certification of Chief Executive Officer


5632
.2

Section 1350 Certification of Chief Financial Officer


57  50




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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/  JOHN
    R. HOWEJohn
    R. Howe
    Executive Vice President
    Chief Financial OfficerBy /s/  JEFFREY
    R. SHOCKJeffrey
    R. Shock
    Senior Vice President
    Controller       /s/  JOHN
    P. D. CATOJohn
    P. D. Cato
    (President and Chief Executive Officer
    (Principal Executive Officer) and Director)

/s/  WILLIAM
    H. GRIGGWilliam
    H. Grigg
    (Director)/s/  JOHN
    R. HOWEJohn
    R. Howe
    (Executive Vice President
    Chief Financial Officer (Principal Financial Officer))

/s/  GRANT
    L. HAMRICKGrant
    L. Hamrick
    (Director)/s/  JEFFREY
    R. SHOCKJeffrey
    R. Shock
    (Senior Vice President
    Controller (Principal Accounting Officer))

/s/  JAMES
    H. SHAWJames
    H. Shaw
    (Director)/s/  ROBERT
    W. BRADSHAW, JR.Robert
    W. Bradshaw, Jr.
    (Director)

/s/  A.F.
    (PETE) SLOANA.F.
    (Pete) Sloan
    (Director)/s/  GEORGE
    S. CURRINGeorge
    S. Currin
    (Director)

/s/  D.
    HARDING STOWED.
    Harding Stowe
    (Director)  51




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##### Table of Contents



SCHEDULE II  VALUATION
    AND QUALIFYING ACCOUNTS
  AllowanceforDoubtful


Self Insurance


InventoryAccounts(a)


Reserves(b)


Reserves(c)Balance at January 28, 2006

$
3,694


$
4,650


$
3,570Additions charged to costs and expenses


2,633



3,971



664Additions (reductions) charged to other accounts


1,600
(d)


(690
)


Deductions


(4,373
)(e)


(3,329
)


(1,094
)Balance at February 3, 2007


3,554



4,602



3,140Additions charged to costs and expenses


2,844



4,739



1,350Additions (reductions) charged to other accounts


1,038
(d)


(1,134
)


Deductions


(4,173
)(e)


(4,080
)


(664
)Balance at February 2, 2008


3,263



4,127



3,826Additions charged to costs and expenses


3,825



4,959



747Additions (reductions) charged to other accounts


933
(d)


(809
)


Deductions


(4,298
)(e)


(3,388
)


(1,142
)Balance at January 31, 2009

$
3,723


$
4,889


$
3,431     (a)
    
    Deducted from trade accounts receivable.(b)
    
    Reserve for Workers Compensation and General Liability.(c)
    
    Reserves for inventory shortage and markdowns.(d)
    
    Recoveries of amounts previously written off.(e)
    
    Uncollectible accounts written off. S-2