##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    January 28, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   Commission File Number 1-31340
 The Cato Corporation
 Registrant
  DelawareState of
    Incorporation

56-0484485I.R.S. Employer
    Identification Number8100 Denmark Road
    Charlotte, North Carolina
    28273-5975Address of Principal
    Executive Offices

704/554-8510Registrants
    Telephone Number   Securities registered pursuant to Section 12(b) of the
    Act:
    Securities registered pursuant to Section 12(g) of the
    Act:
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  o þ 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  6Item 1A.


Risk Factors


7  8Item 1B.


Unresolved Staff
    Comments


8Item 2.


Properties


8Item 3.


Legal
    Proceedings


8Item 4.


Submission of
    Matters to a Vote of Security Holders


8Item 4A.


Executive Officers
    of the Registrant


8  9PART IIItem 5.


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


10Item 6.


Selected Financial
    Data


11Item 7.


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


12  18Item 7A.


Quantitative and
    Qualitative Disclosures about Market Risk


18Item 8.


Financial
    Statements and Supplementary Data


19  41Item 9.


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


42Item 9A.


Controls and
    Procedures


42PART IIIItem 10.


Directors and
    Executive Officers of the Registrant


42Item 11.


Executive
    Compensation


42Item 12.


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


43Item 13.


Certain
    Relationships and Related Transactions


43Item 14.


Principal
    Accountant Fees and Services


43PART IVItem 15.


Exhibits and
    Financial Statement Schedule


44  53Ex-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
  www.catocorp.com. Form 10-K, Form 10-Q, Form 8-K,
 2




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##### Table of Contents



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




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##### Table of Contents



Purchasing,
    Allocation and Distribution
    Point-of-sale store-by-store
    Advertising
    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 Year2001


859



85



7



9372002


937



90



5



1,0222003


1,022



87



7



1,1022004


1,102



80



5



1,1772005


1,177



82



15



1,244         Credit
    and Layaway
  Credit
    Card Program
     5




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##### Table of Contents



Layaway
    Plan
    Management
    Information Systems
      Competition
    Regulation
    Associates
   6




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##### Table of Contents



Item 1A.
    Risk
    Factors:    Risks
    Relating To Our Business:
  Our
    ability to identify fashion trends as well as to react to
    changing customer demand in a timely manner.
    Unusual
    weather or natural disasters that may impact sales and or
    operations.
  and/or
  Merchandise
    supply and pricing and the interruption of and dependence on
    imports.
  and/or
  A
    decline in general economic conditions that may lead to reduced
    consumer demand for our apparel and accessories.
    A
    disruption or shut down of our distribution
    center.
   7




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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:   Item 4A.  Executive
    Officers of the Registrant:    Name

Age

PositionJohn P. D. Cato


55


Chairman, President and
    Chief Executive OfficerB. Allen Weinstein


59


Executive Vice President,
    Chief Merchandising OfficerHoward A. Severson


58


Executive Vice President, Chief
    Real Estate and
    Store Development OfficerMichael T. Greer


43


Senior Vice President,
    Director of StoresRobert C. Brummer


61


Senior Vice President,
    Human Resources  8




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##### Table of Contents



John P. D. Cato
  B. Allen Weinstein
  Howard A. Severson
  Michael T. Greer
  Robert C. Brummer
 9




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##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities:  Market &
    Dividend Information
  three-for-two
  Price2005

High

Low

DividendFirst quarter

$
22.17


$
17.09


$

.117Second quarter


21.80



17.07




.13Third quarter


21.45



18.51




.13Fourth quarter


23.35



19.52




.13   Price2004

High

Low

DividendFirst quarter

$
14.40


$
12.98


$
.106Second quarter


15.21



12.60



.117Third quarter


15.57



13.57



.117Fourth quarter


20.07



15.69



.117     Rule 10b-18(a)(3)
  Total Number of

Maximum Number ofShares Purchased as

Shares that May YetPart of Publicly

be Purchased UnderTotal Number of

Average Price

Announced Plans or

the Plans orPeriod

Shares Purchased

Paid per Share

Programs

ProgramsNovember 2005


38,000


$
19.04



38,000



1,556,544    10




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##### Table of Contents



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

2005


2004


2003


2002


2001(Dollars in thousands, except
    per share data and selected operating data)STATEMENT OF OPERATIONS
    DATA:Retail sales

$
821,639


$
773,809


$
731,770


$
732,742


$
685,653Other income


14,742



15,795



15,497



15,589



13,668Total revenues


836,381



789,604



747,267



748,331



699,321Cost of goods sold (exclusive of
    depreciation shown below)


546,955



528,916



508,991



496,954



467,338Gross margin


274,684



244,893



222,779



235,788



218,315Gross margin percent


33.4
%


31.6
%


30.4
%


32.2
%


31.8
%Selling, general and administrative


203,156



187,618



174,202



168,914



162,082Selling, general and
    administrative percent of retail sales


24.7
%


24.2
%


23.8
%


23.1
%


23.6
%Depreciation


20,275



20,397



18,695



14,913



10,886Interest expense


183



717



306



21



38Interest and other income


(4,563
)


(2,739
)


(3,614
)


(3,701
)


(6,337
)Income before income taxes


70,375



54,695



48,687



71,230



65,314Income tax expense


25,546



19,854



17,673



25,785



22,852Net income

$
44,829


$
34,841


$
31,014


$
45,445


$
42,462Basic earnings per share

$
1.44


$
1.13


$
.89


$
1.19


$
1.13Diluted earnings per share

$
1.41


$
1.11


$
.88


$
1.17


$
1.09Cash dividends paid per share

$
.507


$
.457


$
.42


$
.39


$
.353SELECTED OPERATING
    DATA:Stores open at end of year


1,244



1,177



1,102



1,022



937Average sales per store(1)

$
684,000


$
682,000


$
692,000


$
753,000


$
767,000Average sales per square foot of
    selling space

$
173


$
170


$
171


$
184


$
186Comparable store sales increase
    (decrease)


1
%


0
%


(7
)%


0
%


1
%BALANCE SHEET DATA:Cash, cash equivalents and
    short-term investments

$
107,819


$
107,228


$
71,402


$
106,936


$
84,695Working capital


139,114



136,980



117,403



166,264



143,101Total assets


406,636



397,323



356,284



387,272



335,708Total stockholders equity


239,948



211,175



186,075



262,505



227,428     (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. 11




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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 28,

January 29,

January 31,Fiscal Year Ended

2006

2005

2004Retail sales


100.0
%


100.0
%


100.0
%Other income


1.8



2.0



2.1Total revenues


101.8



102.0



102.1Cost of goods sold


66.6



68.4



69.6Selling, general and administrative


24.7



24.2



23.8Depreciation


2.5



2.6



2.6Interest expense


0.0



0.1



0.0Interest and other income


(0.6
)


(0.4
)


(0.5
)Income before income taxes


8.6



7.1



6.6Net income


5.5
%


4.5
%


4.2
%   Fiscal
    2005 Compared to Fiscal 2004
           12




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Fiscal
    2004 Compared to Fiscal 2003
       13




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##### Table of Contents



Off
    Balance Sheet Arrangements
    Critical
    Accounting Policies
      Allowance
    for Doubtful Accounts
   14




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##### Table of Contents



Merchandise
    Inventories
  (first-in,
  Lease
    Accounting
    Impairment
    of Long-Lived Assets
    Insurance
    Liabilities
   15




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##### Table of Contents



Tax
    Reserves
  and/or
  Revenue
    Recognition
      Liquidity,
    Capital Resources and Market Risk
           16




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##### Table of Contents



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

Total


2006


2007


2008


2009


2010


2011+Merchandise letters of credit

$
2,790


$
2,790


$



$



$



$



$
Operating leases


140,716



49,599



39,213



27,726



16,100



8,021



57Total Contractual Obligations

$
143,506


$
52,389


$
39,213


$
27,726


$
16,100


$
8,021


$
57   Recent
    Accounting Pronouncements
   17




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##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk:   18




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##### Table of Contents



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


20-21Consolidated
    Statements of Income for the fiscal years ended January 28,
    2006, January 29, 2005 and January 31, 2004


22Consolidated
    Balance Sheets at January 28, 2006 and January 29,
    2005


23Consolidated
    Statements of Cash Flows for the fiscal years ended
    January 28, 2006, January  29, 2005 and
    January 31, 2004


24Consolidated
    Statements of Stockholders Equity for the fiscal years
    ended January 28, 2006, January 29, 2005 and
    January 31, 2004


25Notes to
    Consolidated Financial Statements


26Schedule II  Valuation
    and Qualifying Accounts and Reserves for the fiscal years ended
    January 28, 2006, January 29, 2005 and
    January 31, 2004


S-2  19




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  To the Board of Directors and Stockholders of
 The Cato Corporation:
    Consolidated
    financial statements and financial statement schedule
    Internal
    control over financial reporting
  Internal Control  Integrated Framework Internal
    Control  Integrated Framework
  20




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING
    FIRM  (Continued)
           21




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##### Table of Contents



THE CATO
    CORPORATION
  CONSOLIDATED STATEMENTS OF INCOME
  Fiscal Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004(Dollars in thousands, except
    per share data)REVENUESRetail sales

$
821,639


$
773,809


$
731,770Other income (principally finance
    charges, late fees and layaway charges)


14,742



15,795



15,497Total revenues


836,381



789,604



747,267COSTS AND EXPENSES,
    NETCost of goods sold (exclusive of
    depreciation shown below)


546,955



528,916



508,991Selling, general and administrative


203,156



187,618



174,202Depreciation


20,275



20,397



18,695Interest expense


183



717



306Interest and other income


(4,563
)


(2,739
)


(3,614
)766,006



734,909



698,580Income before income taxes


70,375



54,695



48,687Income tax expense


25,546



19,854



17,673Net income

$
44,829


$
34,841


$
31,014Basic earnings per share

$
1.44


$
1.13


$
.89Basic weighted average shares


31,117,214



30,876,393



34,710,872Diluted earnings per share

$
1.41


$
1.11


$
.88Diluted weighted average shares


31,789,887



31,478,061



35,339,312Dividends per share

$
.507


$
.457


$
.42Comprehensive income:Net income

$
44,829


$
34,841


$
31,014Unrealized gains (losses) on
    available-for-sale
    securities, net of deferred income tax liability or benefit


7



13



(195
)Net comprehensive income

$
44,836


$
34,854


$
30,819    22




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##### Table of Contents



THE CATO
    CORPORATION
  CONSOLIDATED BALANCE SHEETS
  January 28,


January 29,2006


2005(Dollars in thousands)ASSETSCurrent Assets:Cash and cash equivalents

$
21,734


$
18,640Short-term investments


86,085



88,588Accounts receivable, net of
    allowance for doubtful accounts of $3,694 at
    January 28, 2006 and $6,122 at January 29, 2005


49,644



50,889Merchandise inventories


103,370



100,538Deferred income taxes


8,526



8,970Prepaid expenses


2,318



1,986Total Current Assets


271,677



269,611Property and
    equipment  net


124,104



117,590Other assets


10,855



10,122Total Assets

$
406,636


$
397,323LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable

$
78,036


$
82,828Accrued expenses


31,967



31,217Accrued bonus and benefits


17,570



8,121Accrued income taxes


4,990



4,465Current portion of long-term debt






6,000Total Current Liabilities


132,563



132,631Deferred income taxes


9,261



13,361Long-term debt






16,000Other noncurrent liabilities
    (primarily deferred rent)


24,864



24,156Commitments and contingenciesStockholders Equity:Preferred stock, $100 par
    value per share, 100,000 shares authorized, none issued






Class A common stock,
    $.033 par value per share, 50,000,000 shares
    authorized; 35,622,516 and 26,249,178 shares issued at
    January 28, 2006 and
    January 29, 2005, respectively


1,188



875Convertible Class B common
    stock, $.033 par value per share, 15,000,000 shares
    authorized; 690,525 and 5,597,834 shares issued at
    January 28, 2006 and January 29, 2005, respectively


23



187Additional paid-in capital


39,244



103,366Retained earnings


294,462



265,499Accumulated other comprehensive
    income


78



71Unearned
    compensation  restricted stock awards


(229
)


(911
)334,766



369,087Less Class A and Class B
    common stock in treasury, at cost (5,093,840 Class A and
    -0- Class B shares at January 28, 2006 and 5,906,179
    Class A and 5,137,484 Class B at January 29,
    2005, respectively)


(94,818
)


(157,912
)Total Stockholders Equity


239,948



211,175Total Liabilities and
    Stockholders Equity

$
406,636


$
397,323    23




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##### Table of Contents



THE CATO
    CORPORATION
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  Fiscal Year EndedJanuary 28,


January 29,


January 31,2006


2005


2004(Dollars in thousands)OPERATING ACTIVITIESNet income

$
44,829


$
34,841


$
31,014Adjustments to reconcile net
    income to net cash provided by
    operating activities:Depreciation


20,275



20,397



18,695Amortization of investment premiums










4Provision for doubtful accounts


4,650



5,096



6,098Deferred income taxes


(3,656
)


(817
)


4,779Compensation expense related to
    restricted stock awards


682



682



782Loss on disposal of property and
    equipment


1,757



1,554



798Changes in operating assets and
    liabilities which provided
    (used) cash:Accounts receivable


(3,405
)


(3,271
)


(4,696
)Merchandise inventories


(2,832
)


(3,246
)


(4,463
)Prepaid and other assets


(1,065
)


3,406



(1,312
)Accrued income taxes


525



(41
)


1,412Accounts payable, accrued expenses
    and other liabilities


9,183



21,250



6,236Net cash provided by operating
    activities


70,943



79,851



59,347INVESTING ACTIVITIESExpenditures for property and
    equipment


(28,512
)


(25,301
)


(20,553
)Purchases of short-term investments


(94,845
)


(122,380
)


(18,462
)Sales of short-term investments


97,355



81,350



45,589Net cash (used in) provided by
    investing activities


(26,002
)


(66,331
)


6,574FINANCING ACTIVITIESCash overdrafts included in
    accounts payable


(3,100
)


(2,800
)


6,400Dividends paid


(15,867
)


(14,134
)


(14,465
)Purchases of treasury stock


(3,536
)






(98,304
)Proceeds of long term debt










30,000Payments to settle long term debt


(22,000
)


(5,500
)


(2,500
)Proceeds from employee stock
    purchase plan


430



478



507Proceeds from stock options
    exercised


2,226



3,219



4,233Net cash used in financing
    activities


(41,847
)


(18,737
)


(74,129
)Net increase (decrease) in cash
    and cash equivalents


3,094



(5,217
)


(8,208
)Cash and cash equivalents at
    beginning of year


18,640



23,857



32,065Cash and cash equivalents at end
    of year

$
21,734


$
18,640


$
23,857    24




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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 (Loss)


Stock Awards


Stock


Equity(Dollars in thousands)Balance  February 1,
    2003


840



203



94,947



228,243



253



(2,375
)


(59,608
)


262,503*Comprehensive income:Net income














31,014















31,014Unrealized losses on
    available-for-sale
    securities, net of deferred income tax benefit of $111


















(195
)










(195
)Dividends paid ($.42 per share)














(14,465
)














(14,465
)Class A common stock sold
    through employee stock purchase
    plan  42,459 shares


1







506



















507Class A common stock sold
    through stock option plans  432,375 shares


10







2,857



















2,867Income tax benefit from stock
    options exercised










1,366



















1,366Purchase of treasury
    shares  5,302,484 shares


























(98,304
)


(98,304
)Shares reclassified from
    Class B to Class A  477,315 shares


16



(16
)






















Unearned
    compensation  restricted stock awards






















782







782Balance  January 31,
    2004


867



187



99,676



244,792



58



(1,593
)


(157,912
)


186,075*Comprehensive income:Net income














34,841















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


















13











13Dividends paid ($.457 per
    share)














(14,134
)














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


1







477



















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


7







2,354



















2,361Income tax benefit from stock
    options exercised










859



















859Unearned
    compensation  restricted stock awards






















682







682Balance  January 29,
    2005


875



187



103,366



265,499



71



(911
)


(157,912
)


211,175*Comprehensive income:Net income














44,829















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


















7











7Dividends paid ($.507 per
    share)














(15,866
)














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


1







429



















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


5







1,310



















1,315Income tax benefit from stock
    options exercised










912



















912Purchase of treasury
    shares  186,531


























(3,536
)


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


143







(66,773
)














66,630



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


164



(164
)






















Unearned
    compensation  restricted stock awards






















682







682Balance  January 28,
    2006


1,188



23



39,244



294,462



78



(229
)


(94,818
)


239,948     *
    
    Total comprehensive income for the years ended January 28,
    2006, January 29, 2005 and January 31, 2004 was
    $44,836, $34,854 and $30,819, respectively.   25




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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:
  available-for-sale. Available-for-sale
  Concentration of Credit Risk:
  Supplemental Cash Flow Information:
  Inventories: (first-in,
  Property and Equipment:
 26




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    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
      Revenue
    Recognition
   27




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Cost of Goods Sold:
  Credit Sales:
  Advertising:
  Earnings Per Share:
  Vendor Allowances: EITF 02-16,
  Income Taxes:
  Store Opening and Closing Costs:
 28




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Closed Store Lease Obligations:
  Insurance:
  Fair Value of Financial Instruments: and/or
  Stock-based Compensation: three-for-two
  January 28,


January 29,


January 31,2006


2005


2004Net Income as Reported

$
44,829


$
34,841


$
31,014Add: Stock-Based employee
    compensation expense included in reported net income, net of
    related tax effects


435



435



498Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards, net of related tax effects


(513
)


(499
)


(1,024
)Pro forma Net Income

$
44,751


$
34,777


$
30,488Earnings per share:Basic  as reported

$
1.44


$
1.13


$
.89Basic  pro forma

$
1.44


$
1.13


$
.88Diluted  as
    reported

$
1.41


$
1.11


$
.88Diluted  pro forma

$
1.41


$
1.11


$
.86  29




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Recent
    Accounting Pronouncements
    Reclassifications and Revisions:
  2.
    Interest
    and Other Income:    January 28,


January 29,


January 31,2006


2005


2004Dividend income

$
(17
)

$
(20
)

$
(2
)Interest income


(2,593
)


(1,499
)


(1,704
)Miscellaneous income


(1,836
)


(1,473
)


(1,235
)(Gain)/loss investment sales


(117
)


253



(673
)Interest and other income

$
(4,563
)

$
(2,739
)

$
(3,614
)  30




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   3.
    Short-Term
    Investments:    January 28, 2006


January 29, 2005Unrealized


Estimated





Unrealized


EstimatedSecurity Type:

Cost


Gain/(Loss)


Fair Value


Cost


Gain/(Loss)


Fair ValueDebt Securities issued by
    U.S. Treasury & other U.S. government
    corporations and agencies:With unrealized (loss)

$



$



$



$
3,603


$
(5
)

$
3,598Debt Securities issued by states
    of the United States and political subdivisions of the states:With unrealized (loss)


86,207



(122
)


86,085



85,087



(97
)


84,990Total

$
86,207


$
(122
)

$
86,085


$
88,690


$
(102
)

$
88,588           EstimatedSecurity Type

Cost


Fair ValueDue in one year or less

$
86,207


$
86,085Total

$
86,207


$
86,085    31




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   4.
    Accounts
    Receivable:    January 28,


January 29,2006


2005Customer
    accounts  principally deferred payment accounts

$
47,581


$
53,337Miscellaneous trade receivables


5,757



3,674Total


53,338



57,011Less allowance for doubtful
    accounts


3,694



6,122Accounts
    receivable  net

$
49,644


$
50,889       5.
    Property
    and Equipment:    January 28,


January 29,2006


2005Land and improvements

$
3,266


$
2,019Buildings


17,758



17,751Leasehold improvements


48,084



43,317Fixtures and equipment


145,965



133,484Information Technology equipment
    and software


43,276



36,883Construction in progress


2,186



4,015Total


260,535



237,469Less accumulated depreciation


136,431



119,879Property and
    equipment  net

$
124,104


$
117,590   point-of-sale
 32




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   6.
    Accrued
    Expenses:    January 28,


January 29,2006


2005Accrued payroll and related items

$
7,728


$
7,189Accrued advertising


1,013



963Property and other taxes


10,825



10,539Accrued insurance


6,059



5,572Other


6,342



6,954Total

$
31,967


$
31,217   7.
    Financing
    Arrangements:        8.
    Stockholders
    Equity:       33




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         1 3
  5-year
       34




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##### Table of Contents



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


AverageOptions


Option Prices


PriceOutstanding options,February 1, 2003


2,162,925


$
3.29  $17.84


$
7.47Granted


29,250



11.10   14.19



11.77Exercised


(432,375
)


3.29   12.57



6.63Cancelled


(28,200
)


5.50   12.57



8.50Outstanding options,January 31, 2004


1,731,600



3.42   17.84



7.69Granted


113,625



13.09   15.42



14.37Exercised


(294,000
)


3.42   14.01



7.98Cancelled


(45,900
)


6.39   14.60



11.51Outstanding options,January 29, 2005


1,505,325



5.13   17.84



8.05Granted


20,750



18.96   21.75



20.05Exercised


(172,025
)


5.13   17.84



7.63Cancelled


(12,150
)


11.50   20.50



14.62Outstanding options,January 28, 2006


1,341,900


$
5.50  $21.75


$
8.23     Options OutstandingWeighted Average

WeightedRange of



Remaining

AverageExercise Prices

Options

Contractual Life

Exercise Price$ 5.50  $ 9.42


1,175,300



2.37 years


$
7.3511.10  14.79


122,775



7.57 years



13.3215.08  19.99


37,825



8.60 years



16.8121.37  21.75


6,000



9.08 years



21.47$ 5.50  $21.75


1,341,900



3.05 years


$
8.23   Options ExercisableWeightedRange of



AverageExercise Prices

Options

Exercise Price$ 5.50  $ 9.42


1,175,300


$
7.3511.10  14.79


29,100



12.8815.08  19.99


6,875



16.3121.37  21.75


0



N/A$ 5.50  $21.75


1,211,275


$
7.54    35




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    three-for-two
    January 28,


January 29,


January 31,Fiscal Year Ended

2006


2005


2004Net income

$
44,829


$
34,841


$
31,014Unrealized gains (losses) on
    available-for-sale
    securities


10



20



(306
)Income tax effect


3



7



(111
)Unrealized gains (losses) net of
    taxes


7



13



(195
)Total comprehensive income

$
44,836


$
34,854


$
30,819     9.
    Employee
    Benefit Plans:       36




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   10.
    Leases:      Fiscal Year2006

$
49,5992007


39,2132008


27,7262009


16,1002010


8,0212011 +


57Total minimum lease payments

$
140,716     January 28,


January 29,


January 31,Fiscal Year Ended

2006


2005


2004Minimum rentals

$
47,278


$
44,493


$
39,998Contingent rent


74



85



165Total rental expense

$
47,352


$
44,578


$
40,163   11.
    Related
    Party Transactions:   37




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   12.
    Income
    Taxes:    January 28,


January 29,


January 31,Fiscal Year Ended

2006


2005


2004Current income taxes:Federal

$
26,983


$
19,283


$
11,440State


1,311



535



337Total


28,294



19,818



11,777Deferred income taxes:Federal


(3,271
)


(735
)


4,048State


(389
)


(88
)


482Total


(3,660
)


(823
)


4,530Allocation of tax benefits to
    capital stock for stock options exercised


912



859



1,366Total income tax expense

$
25,546


$
19,854


$
17,673     January 28,


January 29,2006


2005Deferred tax assets:Bad debt reserve

$
1,417


$
2,338Inventory valuation


1,870



1,643Restricted stock options


941



684Deferred lease liability


5,325



4,998Capital loss carryover


393



446Reserves


4,815



4,856Other






830Total deferred tax assets


14,761



15,795Deferred tax liabilities:Fixed assets


14,048



19,442Unrealized gains on short-term
    investments


44



40Other


1,404



704Total deferred tax liabilities


15,496



20,186Net deferred tax liabilities

$
735


$
4,391    38




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     January 28,


January 29,


January 31,Fiscal Year Ended

2006


2005


2004Federal income tax rate


35.0
%


35.0
%


35.0
%State income taxes


1.3



1.3



1.3Effective income tax rate


36.3
%


36.3
%


36.3
%   and/or
  13.
    Quarterly
    Financial Data (Unaudited):    Fiscal 2005

First


Second


Third


FourthRetail sales

$
215,064


$
208,316


$
177,762


$
220,497Total revenues


218,927



211,964



181,354



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


136,434



140,426



119,869



150,226Income before income taxes


28,911



16,809



6,385



18,270Net income


18,416



10,707



4,067



11,638Basic earnings per share

$
0.59


$
0.34


$
0.13


$
0.37Diluted earnings per share

$
0.58


$
0.34


$
0.13


$
0.37   Fiscal 2004

First


Second


Third


FourthRetail sales

$
205,193


$
197,068


$
163,611


$
207,937Total revenues


209,201



200,884



167,514



212,005Cost of goods sold (exclusive of
    depreciation)


132,398



136,185



115,640



144,693Income before income taxes


26,372



12,777



2,825



12,721Net income


16,799



8,139



1,800



8,103Basic earnings per share

$
0.55


$
0.26


$
0.06


$
0.26Diluted earnings per share

$
0.54


$
0.25


$
0.06


$
0.26  39




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   14.
    Reportable
    Segment Information:      Fiscal 2005

Retail


Credit


TotalRevenues

$
823,685


$
12,696


$
836,381Depreciation


20,173



102



20,275Interest and other income


(4,563
)


0



(4,563
)Income before taxes


65,682



4,693



70,375Total assets


339,788



66,848



406,636Capital expenditures


28,477



35



28,512   Fiscal 2004

Retail


Credit


TotalRevenues

$
775,421


$
14,183


$
789,604Depreciation


20,320



77



20,397Interest and other income


(2,739
)


0



(2,739
)Income before taxes


49,268



5,427



54,695Total assets


332,199



65,124



397,323Capital expenditures


25,102



199



25,301   Fiscal 2003

Retail


Credit


TotalRevenues

$
732,796


$
14,471


$
747,267Depreciation


18,617



78



18,695Interest and other income


(3,614
)


0



(3,614
)Income before taxes


43,963



4,724



48,687Total assets


293,911



62,373



356,284Capital expenditures


20,549



4



20,553       January 28,


January 29,


January 31,2006


2005


2004Bad debt expense

$
4,650


$
5,096


$
6,098Payroll


1,043



1,142



1,101Postage


1,061



1,075



1,131Other expenses


1,147



1,366



1,339Total expenses

$
7,901


$
8,679


$
9,669  40




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##### Table of Contents



THE CATO
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   15.
    Commitments
    and Contingencies:       41




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Independent Registered Public
    Accounting Firm on
    Accounting and Consolidated Financial Disclosure:  Form 8-K/A
  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
   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant:    Item 11.
    Executive
    Compensation:   42




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##### Table of Contents



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

(b)

future issuance underNumber of securities to be

Weighted-average

equity compensationissued upon exercise of

exercise price of

plans (excludingoutstanding options,

outstanding options,

securities reflected inPlan Category

warrants and rights(1)

warrants and rights(1)

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


1,341,900


$
8.23



1,611,195Equity compensation plans not
    approved by security holders










Total


1,341,900


$
8.23



1,611,195     (1)
    
    This column contains information regarding employee stock
    options only; there are no outstanding warrants or stock
    appreciation rights.(2)
    
    Includes the following:1,300,500 shares of Class A Stock available for grant
    under the Companys stock incentive plan, referred to as
    the 2004 Incentive Compensation Plan. Under this plan,
    non-qualified stock options may be granted to key employees.
    Additionally, 6,727 shares of either Class A or
    Class B Stock 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; and303,968 shares of Class A Stock available under the
    2003 Employee Stock Purchase Plan. Eligible employees may
    participate in the purchase of designated shares of the
    Companys common stock. The purchase price of this stock is
    equal to 85% of the lower of the closing price at the beginning
    or the end of each semi-annual stock purchase period.    Item 13.
    Certain
    Relationships and Related Transactions:    Item 14.
    Principal
    Accountant Fees and Services:   43




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##### Table of Contents



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


20-21Consolidated Statements of Income
    for the fiscal years ended January 28, 2006,
    January 29, 2005 and January 31, 2004


22Consolidated Balance Sheets at
    January 28, 2006 and January 29, 2005


23Consolidated Statements of Cash
    Flows for the fiscal years ended January 28, 2006,
    January 29, 2005 and January 31, 2004


24Consolidated Statements of
    Stockholders Equity for the fiscal years ended
    January 28, 2006, January 29, 2005 and
    January 31, 2004


25Notes to Consolidated Financial
    Statements


26     Schedule II  Valuation
    and Qualifying Accounts and Reserves


S-2     http://www.sec.gov. (1-31340).
  ExhibitNumber

Description of Exhibit3
.1

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

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

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

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

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

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

Retirement Agreement between
    Registrant and Wayland H. Cato, Jr. dated August 29,
    2003 incorporated by reference to Exhibit 10.1 to
    Form 10-Q
    of the Registrant for quarter ended August 2, 2003. 44




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##### Table of Contents



ExhibitNumber

Description of Exhibit10
.6

Retirement Agreement between
    Registrant and Edgar T. Cato dated August 29, 2003,
    incorporated by reference to Exhibit 10.2 to
    Form 10-Q
    of the Registrant for the quarter ended August 2, 2003.10
.7

Letter Agreement between
    Registrant and Reynolds C. Faulkner dated as of March 21,
    2006, incorporated by reference to Exhibit 99.1 to
    Form 8-K
    of the Registrant filed March 22, 2006.21


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 Principal Financial Officer.32
.1

Section 1350 Certification of
    Chief Executive Officer.32
.2

Section 1350 Certification of
    Principal Financial Officer.  45




---



##### Table of Contents



EXHIBIT INDEX
  Designationof Exhibit



Page21


Subsidiaries of the Registrant


4723
.1

Consent of Independent Registered
    Public Accounting Firm


4831
.1

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


5031
.2

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


5132
.1

Section 1350 Certification of
    Chief Executive Officer


5232
.2

Section 1350 Certification of
    Principal Financial Officer


53  46




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##### Table of Contents



EXHIBIT 21
  SUBSIDIARIES
    OF THE REGISTRANT
  State ofName of Subsidiary

Incorporation/Organization

Name under which Subsidiary does
    BusinessCHW LLC

Delaware

CHW LLCProvidence Insurance Company,
    Limited

A Bermudian Company

Providence Insurance Company,
    LimitedCatoSouth LLC

North Carolina

CatoSouth LLCCato of Texas L.P.

Texas

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

Delaware

Cato Southwest, Inc.CaDel LLC

Delaware

CaDel LLCCatoWest LLC

Nevada

CatoWest LLCCedar Hill National Bank

A Nationally Chartered Bank

Cedar Hill National Bankcatocorp.com, LLC

Delaware

catocorp.com, LLC  47




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##### Table of Contents



EXHIBIT 23.1
  CONSENT
    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  No. 333-119300 Form S-8 No. 333-119299 No. 333-96283 Form S-8 No. 33-41314 Form S-8 No. 33-41315 Form S-8 33-69844 333-96285 Forms S-8 Form 10-K.
       48




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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/  ROBERT M.
    SANDLERRobert
    M. Sandler
    Senior Vice President
    Controller       /s/  JOHN P. D. CATOJohn
    P. D. Cato
    (President and Chief Executive Officer
    (Principal Executive Officer) and Director)

/s/  GRANT L. HAMRICKGrant
    L. Hamrick
    (Director)/s/  ROBERT M.
    SANDLERRobert
    M Sandler
    (Senior Vice President and Controller
    (Principal Financial and 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)/s/  WILLIAM H. GRIGGWilliam
    H. Grigg
    (Director)  49