The condensed consolidated financial statements have been prepared from the accounting records of The Cato Corporation and its wholly-owned subsidiaries (the “Company”), and all amounts shown as of and for the periods ended October 29, 2011 and October 30, 2010 are unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal, recurring nature unless otherwise noted. The results of the interim period may not be indicative of the results expected for the entire year.

The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2011. Amounts as of January 29, 2011, have been derived from the audited balance sheet other than the retrospective application of the change in accounting principle (described below).

On November 22, 2011, the Board of Directors maintained the quarterly dividend at $.23 per share.

The Company elected to change its method of accounting for inventory to the weighted average cost method from the retail method effective January 30, 2011. In accordance with ASC 250 “Accounting Changes and Error Corrections,” all periods have been retrospectively adjusted to reflect the period-specific effects of the change to the weighted average cost method. The Company believes that the weighted average cost method better matches cost of sales with related sales, as well as having an inventory valuation that more closely reflects the acquisition cost of inventory by valuing inventory on a unit basis versus the product department level under the retail method. The cumulative adjustment as of January 31, 2010, was an increase in inventory of $11,700,000 and an increase in retained earnings of $7,300,000.

Additionally, the Company has changed the classification for certain balance sheet items to conform to the 2011 presentation. This change in classification has reduced accounts payable and inventory by $1,628,000 as of January 29, 2011 and $618,000 as of October 30, 2010.

In addition, the Company has changed the classification of certain prior year income statement items to conform to the 2011 presentation. The change has no effect on net income; however, it does increase retail sales by $191,000, cost of goods sold by $99,000 and selling, general and administrative expense by $92,000 for the three months ended October 30, 2010. The change also reduces retail sales by $555,000, cost of goods sold by $240,000 and selling, general and administrative expense by $315,000 for the nine months ended October 30, 2010.

On November 22, 2011, the Board of Directors maintained the quarterly dividend at $.23 per share.

As a result of this retrospective application of the change in accounting principle and the change in the classification of the Balance Sheet, the following items in the Company's Condensed Consolidated Balance Sheets have been adjusted:




	January 29, 2011
	(Unaudited)
	(Dollars in thousands)
	As Previously Reported		Total Changes		As Adjusted
Merchandise inventories	$	132,020	$	12,008	$	144,028
Deferred income taxes		5,001		(1,341)		3,660
Total Current Assets		414,774		10,667		425,441
Total Assets		522,092		10,667		532,759
Accounts payable		105,526		(1,628)		103,898
Total Current Liabilities		175,546		(1,628)		173,918
Deferred income taxes		5,695		3,845		9,540
Retained earnings		255,768		8,450		264,218
Total Stockholders' Equity		325,564		8,450		334,014
Total Liabilities and Stockholders’ Equity	$	522,092	$	10,667	$	532,759



	October 30, 2010
	(Unaudited)
	(Dollars in thousands)
	As Previously Reported		Total Changes		As Adjusted
Merchandise inventories	$	120,557	$	8,001	$	128,558
Deferred income taxes		7,727		54		7,781
Total Current Assets		396,934		8,055		404,989
Total Assets		504,796		8,055		512,851
Accounts payable		87,220		(618)		86,602
Total Current Liabilities		162,256		(618)		161,638
Deferred income taxes		4,087		3,241		7,328
Retained earnings		253,322		5,432		258,754
Total Stockholders' Equity		322,676		5,432		328,108
Total Liabilities and Stockholders’ Equity	$	504,796		8,055	$	512,851


As a result of this retrospective application of the change in accounting principle and the change in the classification of the Income Statement, the following items in the Company's Condensed Consolidated Statements of Income and Condensed Consolidated Statement of Cash Flows have been adjusted:

	Three Months Ended
	October 30, 2010
	(Unaudited)
	(Dollars in thousands, except per share data)
	As Previously Reported		Total Changes		As Adjusted
Retail Sales	$	197,985	$	191	$	198,176
Total Revenues		200,784		191		200,975
Cost of goods sold		125,694		1,442		127,136
Selling, general and administrative		60,473		92		60,565
Cost and expenses, net		190,773		1,534		192,307
Income before income taxes		10,011		(1,343)		8,668
Income tax expense		3,275		(505)		2,770
Net income	$	6,736	$	(838)	$	5,898
Basic earnings per share	$	0.23	$	(0.03)	$	0.20
Diluted earnings per share	$	0.23	$	(0.03)	$	0.20


	Nine Months Ended
	October 30, 2010
	(Unaudited)
	(Dollars in thousands, except per share data)
	As Previously Reported		Total Changes		As Adjusted
Retail Sales	$	689,610	$	(555)	$	689,055
Total Revenues		698,194		(555)		697,639
Cost of goods sold		415,588		2,813		418,401
Selling, general and administrative		191,301		(315)		190,986
Cost and expenses, net		620,192		2,498		622,690
Income before income taxes		78,002		(3,053)		74,949
Income tax expense		28,187		(1,148)		27,039
Net income	$	49,815	$	(1,905)	$	47,910
Basic earnings per share	$	1.69	$	(0.07)	$	1.62
Diluted earnings per share	$	1.69	$	(0.07)	$	1.62

	Nine Months Ended
	October 30, 2010
	(Unaudited)
	(Dollars in thousands)
	As Previously Reported		Total Changes		As Adjusted
Cash flow from operating activities:
Net income	$	49,815	$	(1,905)	$	47,910
Merchandise inventories		(1,929)		3,019		1,090
Accounts payable, accrued expenses
and other liabilities	$	(14,341)	$	(1,114)	$	(15,455)