a50095946.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended October 29, 2011

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ____________ to ____________

Commission File Number: 001-12951

 THE BUCKLE, INC.
(Exact name of Registrant as specified in its charter)

Nebraska
47-0366193
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

2407 West 24th Street, Kearney, Nebraska  68845-4915
(Address of principal executive offices)     (Zip Code)

Registrant's telephone number, including area code: (308) 236-8491

Securities registered pursuant to Section 12(b) of the Act:

Title of class
Name of Each Exchange on Which Registered
Common Stock, $.01 par value
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None


(Former name, former address, and former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No o

Indicate by check mark whether the registrant  has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files). Yes þ  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).
þ Large accelerated filer; o Accelerated filer; o Non-accelerated filer; o Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o  No þ

The number of shares outstanding of the Registrant's Common Stock, as of December 2, 2011, was 47,423,165.
 
 
 

 
 
THE BUCKLE, INC.

FORM 10-Q
INDEX



   
Pages
Part I.    Financial Information (unaudited)
 
       
3
 
       
   
 
17
 
       
26
 
       
26
 
       
       
Part II.    Other Information  
       
27
 
       
27
 
       
27
 
       
27
 
       
27
 
       
27
 
       
27
 
       
28
 

 
 
2

 
 
           
             
BALANCE SHEETS
           
(Dollar Amounts in Thousands Except Share and Per Share Amounts)
           
(Unaudited)
           
             
   
October 29,
   
January 29,
 
ASSETS
 
2011
   
2011
 
             
CURRENT ASSETS:
           
  Cash and cash equivalents
  $ 47,956     $ 116,470  
  Short-term investments
    30,411       22,892  
  Receivables
    8,469       14,363  
  Inventory
    140,781       88,593  
  Prepaid expenses and other assets
    15,633       14,718  
           Total current assets
    243,250       257,036  
                 
PROPERTY AND EQUIPMENT
    359,612       342,413  
  Less accumulated depreciation and amortization
    (184,996 )     (173,179 )
      174,616       169,234  
                 
LONG-TERM INVESTMENTS
    49,135       66,162  
OTHER ASSETS
    2,363       2,412  
                 
    $ 469,364     $ 494,844  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES:
               
  Accounts payable
  $ 41,219     $ 33,489  
  Accrued employee compensation
    29,857       36,018  
  Accrued store operating expenses
    11,493       9,653  
  Gift certificates redeemable
    11,232       17,213  
  Income taxes payable
    9,662       -  
           Total current liabilities
    103,463       96,373  
                 
DEFERRED COMPENSATION
    8,330       7,727  
DEFERRED RENT LIABILITY
    37,352       37,430  
OTHER LIABILITIES
    6,904       7,649  
           Total liabilities
    156,049       149,179  
                 
COMMITMENTS
               
                 
STOCKHOLDERS’ EQUITY:
               
  Common stock, authorized 100,000,000 shares of $.01 par value; 47,403,165 and 47,127,926
               
     shares issued and outstanding at October 29, 2011 and January 29, 2011, respectively
    474       471  
  Additional paid-in capital
    96,953       89,719  
  Retained earnings
    216,445       256,146  
  Accumulated other comprehensive loss
    (557 )     (671 )
           Total stockholders’ equity
    313,315       345,665  
                 
    $ 469,364     $ 494,844  
 
See notes to unaudited condensed financial statements.
 
 
3

 
 
THE BUCKLE, INC.
                   
                     
STATEMENTS OF INCOME
                   
(Amounts in Thousands Except Per Share Amounts)
                   
(Unaudited)
                   
                         
   
Thirteen Weeks Ended
   
Thirty-nine Weeks Ended
 
   
October 29,
   
October 30,
   
October 29,
   
October 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
SALES, Net of returns and allowances
  $ 273,400     $ 243,346     $ 725,870     $ 646,782  
                                 
COST OF SALES (Including buying,
                               
  distribution, and occupancy costs)
    154,735       137,404       417,116       372,001  
                                 
           Gross profit
    118,665       105,942       308,754       274,781  
                                 
OPERATING EXPENSES:
                               
  Selling
    50,144       44,063       135,303       120,550  
  General and administrative
    8,146       7,530       24,947       21,169  
      58,290       51,593       160,250       141,719  
                                 
INCOME FROM OPERATIONS
    60,375       54,349       148,504       133,062  
                                 
OTHER INCOME, Net
    313       470       2,431       2,869  
                                 
INCOME BEFORE INCOME TAXES
    60,688       54,819       150,935       135,931  
                                 
PROVISION FOR INCOME TAXES
    22,339       20,448       55,559       50,703  
                                 
NET INCOME
  $ 38,349     $ 34,371     $ 95,376     $ 85,228  
                                 
                                 
EARNINGS PER SHARE:
                               
  Basic
  $ 0.82     $ 0.75     $ 2.04     $ 1.85  
                                 
  Diluted
  $ 0.81     $ 0.73     $ 2.02     $ 1.81  
                                 
Basic weighted average shares
    46,831       46,068       46,801       46,095  
Diluted weighted average shares
    47,342       46,916       47,306       46,989  
 
See notes to unaudited condensed financial statements.
 
 
 
4

 
 
THE BUCKLE, INC.
                         
                           
STATEMENTS OF STOCKHOLDERS' EQUITY
                         
(Dollar Amounts in Thousands Except Share and Per Share Amounts)
                         
(Unaudited)
                         
                                     
                           
Accumulated
       
               
Additional
         
Other
       
   
Number
   
Common
   
Paid-in
   
Retained
   
Comprehensive
       
   
of Shares
   
Stock
   
Capital
   
Earnings
   
Loss
   
Total
 
                                     
  FISCAL 2011
                                   
BALANCE, January 30, 2011
    47,127,926     $ 471     $ 89,719     $ 256,146     $ (671 )   $ 345,665  
                                                 
  Net income
    -       -       -       95,376       -       95,376  
  Dividends paid on common stock,
                                               
    ($2.85 per share)
    -       -       -       (135,077 )     -       (135,077 )
  Common stock issued on exercise
                                               
    of stock options
    155,244       2       758       -       -       760  
  Issuance of non-vested stock, net of forfeitures
    128,595       1       (1 )     -       -       -  
  Amortization of non-vested stock grants,
                                               
     net of forfeitures
    -       -       4,634       -       -       4,634  
  Common stock purchased and retired
    (8,600 )     -       (297 )     -       -       (297 )
  Income tax benefit related to exercise of
                                               
    stock options
    -       -       2,140       -       -       2,140  
  Unrealized loss on investments, net of tax
    -       -       -       -       114       114  
                                                 
BALANCE, October 29, 2011
    47,403,165     $ 474     $ 96,953     $ 216,445     $ (557 )   $ 313,315  
                                                 
                                                 
  FISCAL 2010
                                               
BALANCE, January 31, 2010
    46,381,263     $ 464     $ 78,837     $ 275,751     $ (793 )   $ 354,259  
                                                 
  Net income
    -       -       -       85,228       -       85,228  
  Dividends paid on common stock,
                                               
    ($0.60 per share)
    -       -       -       (28,015 )     -       (28,015 )
  Common stock issued on exercise
                                               
    of stock options
    224,080       2       974       -       -       976  
  Issuance of non-vested stock, net of forfeitures
    242,985       2       (2 )     -       -       -  
  Amortization of non-vested stock grants,
                                               
     net of forfeitures
    -       -       3,207       -       -       3,207  
  Stock option compensation expense
    -       -       48       -       -       48  
  Common stock purchased and retired
    (246,800 )     (2 )     (5,992 )     -       -       (5,994 )
  Income tax benefit related to exercise of
                                               
    stock options
    -       -       2,315       -       -       2,315  
  Unrealized loss on investments, net of tax
    -       -       -       -       126       126  
                                                 
BALANCE, October 30, 2010
    46,601,528     $ 466     $ 79,387     $ 332,964     $ (667 )   $ 412,150  
 
See notes to unaudited condensed financial statements.
 
 
 
5

 
 
THE BUCKLE, INC.
           
             
STATEMENTS OF CASH FLOWS
           
(Dollar Amounts in Thousands)
           
(Unaudited)
           
             
   
Thirty-nine Weeks Ended
 
   
October 29,
   
October 30,
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
  Net income
  $ 95,376     $ 85,228  
  Adjustments to reconcile net income to net cash flows
               
    from operating activities:
               
      Depreciation and amortization
    23,437       20,967  
      Amortization of non-vested stock grants, net of forfeitures
    4,634       3,207  
      Stock option compensation expense
    -       48  
      Deferred income taxes
    (1,715 )     (1,205 )
      Other
    475       360  
      Changes in operating assets and liabilities:
               
        Receivables
    826       1,092  
        Inventory
    (52,188 )     (23,048 )
        Prepaid expenses and other assets
    (91 )     (1,929 )
        Accounts payable
    9,896       12,811  
        Accrued employee compensation
    (6,161 )     (15,381 )
        Accrued store operating expenses
    1,840       1,460  
        Gift certificates redeemable
    (5,981 )     (4,347 )
        Income taxes payable
    14,961       2,474  
        Deferred rent liabilities and deferred compensation
    525       2,358  
                 
           Net cash flows from operating activities
    85,834       84,095  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
  Purchase of property and equipment
    (31,462 )     (47,378 )
  Proceeds from sale of property and equipment
    2       14  
  Change in other assets
    49       (1,271 )
  Purchases of investments
    (8,988 )     (33,976 )
  Proceeds from sales/maturities of investments
    18,677       33,118  
                 
           Net cash flows from investing activities
    (21,722 )     (49,493 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
  Proceeds from the exercise of stock options
    760       976  
  Excess tax benefit from stock option exercises
    1,988       2,271  
  Purchases of common stock
    (297 )     (5,994 )
  Payment of dividends
    (135,077 )     (28,015 )
                 
           Net cash flows from financing activities
    (132,626 )     (30,762 )
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (68,514 )     3,840  
                 
CASH AND CASH EQUIVALENTS, Beginning of period
    116,470       135,340  
                 
CASH AND CASH EQUIVALENTS, End of period
  $ 47,956     $ 139,180  
 
See notes to unaudited condensed financial statements.
 
 
 
6

 
 
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 29, 2011 AND OCTOBER 30, 2010
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

1.  
Management Representation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments necessary for the fair presentation of the results of operations for the interim periods have been included. All such adjustments are of a normal recurring nature. Because of the seasonal nature of the business, results for interim periods are not necessarily indicative of a full year's operations. The accounting policies followed by the Company and additional footnotes are reflected in the financial statements for the fiscal year ended January 29, 2011, included in The Buckle, Inc.'s 2010 Form 10-K.

The Company follows generally accepted accounting principles (“GAAP”) established by the Financial Accounting Standards Board (“FASB”). References to GAAP in these notes are to the FASB Accounting Standards Codification (“ASC”).

2.  
Description of the Business

The Company is a retailer of medium to better priced casual apparel, footwear, and accessories for fashion conscious young men and women. The Company operates its business as one reportable industry segment. The Company had 429 stores located in 43 states throughout the continental United States as of October 29, 2011 and 421 stores in 41 states as of October 30, 2010. During the thirty-nine week period ended October 29, 2011, the Company opened 11 new stores, substantially remodeled 23 stores, and closed 2 stores; which includes 2 new stores and 7 substantial remodels during the third quarter. During the thirty-nine week period ended October 30, 2010, the Company opened 20 new stores and substantially remodeled 22 stores; which includes 2 new stores and 7 substantial remodels during the third quarter.

The following is information regarding the Company’s major product lines, stated as a percentage of the Company’s net sales:
 
         
   
Percentage of Net Sales
 
Percentage of Net Sales
   
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
Merchandise Group
 
Oct. 29, 2011
 
Oct. 30, 2010
 
Oct. 29, 2011
 
Oct. 30, 2010
                         
Denims
    49.8 %     48.6 %     44.8 %     44.4 %
Tops (including sweaters)
    31.8       32.9       32.4       33.9  
Accessories
    7.8       8.2       8.1       7.8  
Sportswear/Fashions
    1.5       1.4       6.9       6.5  
Footwear
    5.0       5.0       5.3       5.1  
Outerwear
    3.4       3.3       1.7       1.7  
Casual bottoms
    0.6       0.5       0.6       0.5  
Other
    0.1       0.1       0.2       0.1  
      100.0 %     100.0 %     100.0 %     100.0 %
 
 
7

 
 
3.  
Net Earnings Per Share

Basic earnings per share data are based on the weighted average outstanding common shares during the period. Diluted earnings per share data are based on the weighted average outstanding common shares and the effect of all dilutive potential common shares, including stock options.
 
             
   
Thirteen Weeks Ended
   
Thirteen Weeks Ended
 
   
October 29, 2011
   
October 30, 2010
         
Weighted
               
Weighted
       
         
Average
   
Per Share
         
Average
   
Per Share
 
   
Income
   
Shares
   
Amount
   
Income
   
Shares
   
Amount
 
                                     
Basic EPS
  $ 38,349       46,831     $ 0.82     $ 34,371       46,068     $ 0.75  
Effect of Dilutive Securities:
                                               
    Stock options and
                                               
    non-vested shares
    -       511       (0.01 )     -       848       (0.02 )
Diluted EPS
  $ 38,349       47,342     $ 0.81     $ 34,371       46,916     $ 0.73  

             
   
Thirty-nine Weeks Ended
   
Thirty-nine Weeks Ended
 
   
October 29, 2011
   
October 30, 2010
 
         
Weighted
               
Weighted
       
         
Average
   
Per Share
         
Average
   
Per Share
 
   
Income
   
Shares
   
Amount
   
Income
   
Shares
   
Amount
 
                                     
Basic EPS
  $ 95,376       46,801     $ 2.04     $ 85,228       46,095     $ 1.85  
Effect of Dilutive Securities:
                                               
    Stock options and
                                               
    non-vested shares
    -       505       (0.02 )     -       894       (0.04 )
Diluted EPS
  $ 95,376       47,306     $ 2.02     $ 85,228       46,989     $ 1.81  
 
4.  
Investments

The following is a summary of investments as of October 29, 2011:
 
                               
   
Amortized
   
Gross
   
Gross
   
Other-than-
   
Estimated
 
   
Cost or
   
Unrealized
   
Unrealized
   
Temporary
   
Fair
 
   
Par Value
   
Gains
   
Losses
   
Impairment
   
Value
 
Available-for-sale securities:
                             
  Auction-rate securities
  $ 17,850     $ -     $ (884 )   $ (725 )   $ 16,241  
  Preferred stock
    2,000       -       -       (1,974 )     26  
    $ 19,850     $ -     $ (884 )   $ (2,699 )   $ 16,267  
                                         
Held-to-maturity securities:                                        
  State and municipal bonds
  $ 49,427     $ 428     $ (22 )   $ -     $ 49,833  
  Fixed maturities
    5,022       35       -       -       5,057  
  Certificates of deposit
    500       18       -       -       518  
    $ 54,949     $ 481     $ (22 )   $ -     $ 55,408  
                                         
Trading securities:
                                       
  Mutual funds
  $ 8,848     $ -     $ (518 )   $ -     $ 8,330  
 
 
8

 
 
The following is a summary of investments as of January 29, 2011:
 
                               
   
Amortized
   
Gross
   
Gross
   
Other-than-
   
Estimated
 
   
Cost or
   
Unrealized
   
Unrealized
   
Temporary
   
Fair
 
   
Par Value
   
Gains
   
Losses
   
Impairment
   
Value
 
Available-for-sale securities:
                             
  Auction-rate securities
  $ 21,725     $ -     $ (1,065 )   $ (725 )   $ 19,935  
  Preferred stock
    2,000       -       -       (1,974 )     26  
    $ 23,725     $ -     $ (1,065 )   $ (2,699 )   $ 19,961  
                                         
Held-to-maturity securities:    
 
                                 
  State and municipal bonds
  $ 52,352     $ 428     $ (39 )   $ -     $ 52,741  
  Fixed maturities
    6,314       80       -       -       6,394  
  Certificates of deposit
    700       22       -       -       722  
  U.S. treasuries
    2,000       -       -       -       2,000  
    $ 61,366     $ 530     $ (39 )   $ -     $ 61,857  
                                         
Trading securities:
                                       
  Mutual funds
  $ 7,453     $ 274     $ -     $ -     $ 7,727  
 
The auction-rate securities and preferred stock were invested as follows as of October 29, 2011:

         
Nature
 
Underlying Collateral
 
Par Value
         
Municipal revenue bonds
 
100% insured by AAA/AA/A-rated bond insurers at October 29, 2011
  $ 10,125
Municipal bond funds
 
Fixed income instruments within issuers' money market funds
    4,775
Student loan bonds
 
Student loans guaranteed by state entities
    2,950
Preferred stock
 
Underlying investments of closed-end funds
    2,000
  Total par value
      $ 19,850
 
As of October 29, 2011, the Company’s auction-rate securities portfolio was 24% AAA/Aaa-rated, 51% AA/Aa-rated, 15% A-rated, and 10% below A-rated.

The amortized cost and fair value of debt securities by contractual maturity as of October 29, 2011 is as follows:
 
             
   
Amortized
   
Fair
 
   
Cost
   
Value
 
Held-to-maturity securities
           
Less than 1 year
  $ 30,411     $ 30,550  
1 - 5 years
    23,798       24,027  
5 - 10 years
    496       568  
Greater than 10 years
    244       263  
    $ 54,949     $ 55,408  
 
At October 29, 2011 and January 29, 2011, $16,267 and $19,961 of available-for-sale securities and $24,538 and $38,474 of held-to-maturity securities are classified in long-term investments. Trading securities are held in a Rabbi Trust, intended to fund the Company’s deferred compensation plan, and are classified in long-term investments.

 
9

 
 
The Company’s investments in auction-rate securities (“ARS”) and preferred securities are classified as available-for-sale and reported at fair market value. As of October 29, 2011, the reported investment amount is net of $884 of temporary impairment and $2,699 of other-than-temporary impairment (“OTTI”) to account for the impairment of certain securities from their stated par value. The $884 temporary impairment is reported, net of tax, as an “accumulated other comprehensive loss” of $557 in stockholders’ equity as of October 29, 2011. For the investments considered temporarily impaired, the Company believes that these ARS can be successfully redeemed or liquidated through future auctions at par value plus accrued interest. The Company believes it has the ability and maintains its intent to hold these investments until such recovery of market value occurs; therefore, the Company believes the current lack of liquidity has created the temporary impairment in valuation.

As of October 29, 2011, the Company had $17,850 invested in ARS and $2,000 invested in preferred securities, at par value, which are reported at their estimated fair value of $16,241 and $26, respectively. As of January 29, 2011, the Company had $21,725 invested in ARS and $2,000 invested in preferred securities, which were reported at their estimated fair value of $19,935 and $26, respectively. ARS have a long-term stated maturity, but are reset through a “dutch auction” process that occurs every 7 to 49 days, depending on the terms of the individual security. Until February 2008, the ARS market was highly liquid. During February 2008, however, a significant number of auctions related to these securities failed, meaning that there was not enough demand to sell the entire issue at auction. The failed auctions have limited the current liquidity of certain of the Company’s investments in ARS and the Company has reason to believe that certain of the underlying issuers of its ARS are currently at risk. The Company does not, however, anticipate that further auction failures will have a material impact on the Company’s ability to fund its business. During the third quarter of fiscal 2011, the Company was able to successfully liquidate $1,175 of its investments in ARS at par value. For the year-to-date period, the Company has been able to liquidate $3,875 of its investments in ARS at par value. The Company reviews all investments for OTTI at least quarterly or as indicators of impairment exist. Indicators of impairment include the duration and severity of decline in market value. In addition, the Company considers qualitative factors including, but not limited to, the financial condition of the investee, the credit rating of the investee, and the current and expected market and industry conditions in which the investee operates.

As of October 29, 2011 and January 29, 2011, all of the Company’s investments in ARS and preferred securities were classified in long-term investments.

5.  
Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:

       
Level 1 – Quoted market prices in active markets for identical assets or liabilities. Short-term and long-term investments with active markets or known redemption values are reported at fair value utilizing Level 1 inputs.
       
Level 2 – Observable market-based inputs (either directly or indirectly) such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or inputs that are corroborated by market data.
       
Level 3 – Unobservable inputs that are not corroborated by market data and are projections, estimates, or interpretations that are supported by little or no market activity and are significant to the fair value of the assets. The Company has concluded that certain of its ARS represent Level 3 valuation and should be valued using a discounted cash flow analysis. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of cash flows, and expected holding periods of the ARS.

 
10

 

As of October 29, 2011 and January 29, 2011, the Company held certain assets that are required to be measured at fair value on a recurring basis including available-for-sale and trading securities. The Company’s available-for-sale securities include its investments in ARS, as further described in Note 4. The failed auctions, beginning in February 2008, related to certain of the Company’s investments in ARS have limited the availability of quoted market prices. The Company has determined the fair value of its ARS using Level 1 inputs for known or anticipated subsequent redemptions at par value, Level 2 inputs using observable inputs, and Level 3 using unobservable inputs where the following criteria were considered in estimating fair value:

       
Pricing was provided by the custodian of ARS;
       
Pricing was provided by a third-party broker for ARS;
       
Sales of similar securities;
       
Quoted prices for similar securities in active markets;
       
Quoted prices for publicly traded preferred securities;
       
Quoted prices for similar assets in markets that are not active - including markets where there are few transactions for the asset, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly;
       
Pricing was provided by a third-party valuation consultant (using Level 3 inputs).

In addition, the Company considers other factors including, but not limited to, the financial condition of the investee, the credit rating, insurance, guarantees, collateral, cash flows, and the current and expected market and industry conditions in which the investee operates. Management believes it has used information that was reasonably obtainable in order to complete its valuation process and determine if the Company’s investments in ARS had incurred any temporary and/or other-than-temporary impairment as of October 29, 2011 and January 29, 2011.

Future fluctuations in fair value of ARS that the Company judges to be temporary, including any recoveries of previous write-downs, would be recorded as an adjustment to “accumulated other comprehensive loss.”  The value and liquidity of ARS held by the Company may be affected by continued auction-rate failures, the credit quality of each security, the amount and timing of interest payments, the amount and timing of future principal payments, and the probability of full repayment of the principal. Additional indicators of impairment include the duration and severity of the decline in market value. The interest rates on these investments will be determined by the terms of each individual ARS. The material risks associated with the ARS held by the Company include those stated above as well as the current economic environment, downgrading of credit ratings on investments held, and the volatility of the entities backing each of the issues.

The Company’s financial assets measured at fair value on a recurring basis were as follows:
 
       
   
Fair Value Measurements at Reporting Date Using
 
   
Quoted Prices in
                   
   
Active Markets
   
Significant
   
Significant
       
   
for Identical
   
Observable
   
Unobservable
       
   
Assets
   
Inputs
   
Inputs
       
October 29, 2011
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
Available-for-sale securities:
                       
   Auction-rate securities
  $ -     $ 4,827     $ 11,414     $ 16,241  
   Preferred stock
    26       -       -       26  
Trading securities (including mutual funds)
    8,330       -       -       8,330  
Totals
  $ 8,356     $ 4,827     $ 11,414     $ 24,597  
 
 
11

 

       
   
Fair Value Measurements at Reporting Date Using
 
   
Quoted Prices in
                   
   
Active Markets
   
Significant
   
Significant
       
   
for Identical
   
Observable
   
Unobservable
       
   
Assets
   
Inputs
   
Inputs
       
January 29, 2011
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
Available-for-sale securities:
                       
   Auction-rate securities
  $ -     $ 11,349     $ 8,586     $ 19,935  
   Preferred stock
    26       -       -       26  
Trading securities (including mutual funds)
    7,727       -       -       7,727  
Totals
  $ 7,753     $ 11,349     $ 8,586     $ 27,688  
 
Securities included in Level 1 represent securities which have a known or anticipated upcoming redemption as of the reporting date and those that have publicly traded quoted prices. ARS included in Level 2 represent securities which have not experienced a successful auction subsequent to the end of fiscal 2007. The fair market value for these securities was determined by applying a discount to par value based on auction prices for similar securities and by utilizing a discounted cash flow model, using market-based inputs, to determine fair value. The Company used a discounted cash flow model to value its Level 3 investments, using estimates regarding recovery periods, yield, and liquidity. The assumptions used are subjective based upon management’s judgment and views on current market conditions, and resulted in $786 of the Company’s recorded temporary impairment and $725 of the OTTI as of October 29, 2011. The use of different assumptions would result in a different valuation and related temporary impairment charge.

Changes in the fair value of the Company’s financial assets measured at fair value on a recurring basis are as follows:

       
   
Thirty-nine Weeks Ended October 29, 2011
 
   
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
   
Available-for-Sale Securities
   
Trading Securities
       
   
Auction-rate
   
Preferred
   
Mutual
       
   
Securities
   
Stock
   
Funds
   
Total
 
Balance, beginning of year
  $ 8,586     $ -     $ -     $ 8,586  
  Transfers into Level 3
    2,787  
(a)
  -       -       2,787  
  Transfers out of Level 3
    -       -       -       -  
  Total gains and losses:
                               
      Included in net income
    -       -       -       -  
      Included in other
                               
        comprehensive income
    91       -       -       91  
  Purchases, Issuances,
                               
    Sales, and Settlements:
                               
       Purchases
    -       -       -       -  
       Issuances
    -       -       -       -  
       Sales
    (50 )     -       -       (50 )
       Settlements
    -       -       -       -  
Balance, end of quarter
  $ 11,414     $ -     $ -     $ 11,414  
 
(a) Transferred from Level 2 to Level 3 due to lack of observable market data due to reduction in market activity. The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period in which the transfer occurred.
 
 
12

 
 
       
   
Thirty-nine Weeks Ended October 30, 2010
 
   
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
   
Available-for-Sale Securities
   
Trading Securities
       
   
Auction-rate
   
Preferred
   
Mutual
       
   
Securities
   
Stock
   
Funds
   
Total
 
Balance, beginning of year
  $ 8,637     $ -     $ -     $ 8,637  
  Transfers into Level 3
    -       -       -       -  
  Transfers out of Level 3
    -       -       -       -  
  Total gains and losses:
                               
      Included in net income
    -       -       -       -  
      Included in other
                               
        comprehensive income
    -       -       -       -  
  Purchases, Issuances,
                               
    Sales, and Settlements:
                               
       Purchases
    -       -       -       -  
       Issuances
    -       -       -       -  
       Sales
    (51 )     -       -       (51 )
       Settlements
    -       -       -       -  
Balance, end of quarter
  $ 8,586     $ -     $ -     $ 8,586  
 
6.  
Comprehensive Income

Comprehensive income consists of net income and unrealized gains and losses on available-for-sale securities. Unrealized losses on the Company’s investments in auction-rate securities have been included in accumulated other comprehensive loss and are separately included as a component of stockholders’ equity, net of related income taxes.
 
       
   
Thirteen Weeks Ended
 
   
October 29, 2011
   
October 30, 2010
 
             
Net income
  $ 38,349     $ 34,371  
Changes in net unrealized losses on investments,
               
  net of taxes of $(1) and $0
    2       -  
Comprehensive Income
  $ 38,351     $ 34,371  
 
       
   
Thirty-nine Weeks Ended
 
   
October 29, 2011
   
October 30, 2010
 
             
Net income
  $ 95,376     $ 85,228  
Changes in net unrealized losses on investments,
               
  net of taxes of $(67) and $(74)
    114       126  
Comprehensive Income
  $ 95,490     $ 85,354  
 
7.  
Supplemental Cash Flow Information

The Company had non-cash investing activities during the thirty-nine week periods ended October 29, 2011 and October 30, 2010 of $2,166 and $1,284, respectively. The non-cash investing activity relates to unpaid purchases of property, plant, and equipment included in accounts payable as of the end of the quarter. Amounts reported as unpaid purchases are recorded as cash outflows from investing activities for purchases of property, plant, and equipment in the statement of cash flows in the period they are paid.

Additional cash flow information for the Company includes cash paid for income taxes during the thirty-nine week periods ended October 29, 2011 and October 30, 2010 of $40,083 and $47,163, respectively.

 
13

 
 
8.  
Stock-Based Compensation

The Company has several stock option plans which allow for granting of stock options to employees, executives, and directors. The options are in the form of non-qualified stock options and are granted with an exercise price equal to the market value of the Company’s common stock on the date of grant. The options generally expire ten years from the date of grant. The Company also has a restricted stock plan that allows for the granting of non-vested shares of common stock to employees and executives and a restricted stock plan that allows for the granting of non-vested shares of common stock to non-employee directors.

As of October 29, 2011, 637,037 shares were available for grant under the various stock option plans, of which 447,884 were available for grant to executive officers. Also as of October 29, 2011, 340,324 shares were available for grant under the Company’s various restricted stock plans, of which 288,200 shares were available for grant to executive officers.

Compensation expense was recognized during fiscal 2011 and fiscal 2010 for equity-based grants, based on the grant date fair value of the awards. The fair value of stock options is determined using the Black-Scholes option pricing model, while the fair value of grants of non-vested common stock awards is the stock price on the date of grant.

Information regarding the impact of stock-based compensation expense is as follows:
 
       
   
Thirteen Weeks Ended
 
   
October 29, 2011
   
October 30, 2010
 
Stock-based compensation expense, before tax:
           
     Stock options
  $ -     $ 16  
     Non-vested shares of common stock
    1,506       1,039  
Total stock-based compensation expense, before tax
  $ 1,506     $ 1,055  
                 
Total stock-based compensation expense, after tax
  $ 949     $ 665  
 
       
   
Thirty-nine Weeks Ended
 
   
October 29, 2011
   
October 30, 2010
 
Stock-based compensation expense, before tax:
           
     Stock options
  $ -     $ 48  
     Non-vested shares of common stock
    4,634       3,207  
Total stock-based compensation expense, before tax
  $ 4,634     $ 3,255  
                 
Total stock-based compensation expense, after tax
  $ 2,919     $ 2,051  
 
FASB ASC 718 requires the benefits of tax deductions in excess of the compensation cost recognized for stock options exercised during the period to be classified as financing cash inflows. This amount is shown as “excess tax benefit from stock option exercises” on the statements of cash flows. For the thirty-nine week periods ended October 29, 2011 and October 30, 2010, the excess tax benefit realized from exercised stock options was $1,988 and $2,271, respectively.

No stock options were granted during fiscal 2011 or fiscal 2010. The Company paid a special cash dividend in each of the past two fiscal years. On November 17, 2010, the Board of Directors authorized a $2.50 per share special cash dividend to be paid on December 21, 2010 to shareholders of record at the close of business on December 3, 2010. On September 19, 2011, the Board of Directors authorized a $2.25 per share special cash dividend to be paid on October 27, 2011 to shareholders of record at the close of business on October 14, 2011. To preserve the intrinsic value for option holders, the Board also approved on each occasion, pursuant to the terms of the Company’s various stock option plans, a proportional adjustment to both the exercise price and the number of shares covered by each award for all outstanding stock options. This adjustment did not result in any incremental compensation expense.

 
14

 
 
A summary of the Company’s stock-based compensation activity related to stock options for the thirty-nine week period ended October 29, 2011 is as follows:

                           
               
Weighted
         
         
Weighted
   
Average
         
         
Average
   
Remaining
     
Aggregate
 
         
Exercise
   
Contractual
     
Intrinsic
 
   
Shares
   
Price
   
Life
     
Value
 
                           
Outstanding - beginning of year
    600,506     $ 4.54                
Granted
    -       -                
Other (1)
    2,306       0.12                
Expired/forfeited
    -       -                
Exercised
    (155,244 )     4.89                
Outstanding - end of quarter
    447,568     $ 2.38       2.37  
years
  $ 19,230  
                                   
Exercisable - end of quarter
    447,568     $ 2.38       2.37  
years
  $ 19,230  
 
(1)
An adjustment was made to the exercise price and number of options outstanding for the special cash dividend paid during October 2011. “Other” represents additional options issued as a result of this adjustment in the third quarter of fiscal 2011.
 
The total intrinsic value of options exercised during the thirty-nine week periods ended October 29, 2011 and October 30, 2010 was $5,999 and $6,400, respectively. As of October 29, 2011, there was no unrecognized compensation expense as all outstanding stock options were vested.

Non-vested shares of common stock granted during the thirty-nine week periods ended October 29, 2011 and October 30, 2010 were granted pursuant to the Company’s 2005 Restricted Stock Plan and the Company’s 2008 Director Restricted Stock Plan. Shares granted under the 2005 Plan typically vest over a period of four years, only upon certification by the Compensation Committee of the Board of Directors that the Company has achieved its pre-established performance targets for the fiscal year. Shares granted under the 2008 Director Plan vest 25% on the date of grant and then in equal portions on each of the first three anniversaries of the date of grant.

A summary of the Company’s stock-based compensation activity related to grants of non-vested shares of common stock for the thirty-nine week period ended October 29, 2011 is as follows:
 
             
         
Weighted Average
 
         
Grant Date
 
   
Shares
   
Fair Value
 
             
Non-Vested - beginning of year
    436,546     $ 26.07  
Granted
    245,500       35.59  
Forfeited
    (116,905 )     28.44  
Vested