Unassociated Document
 
 


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

FORM 10-Q

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

For the Quarterly Period Ended November 1, 2008

 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 is a large accelerated filer, an accelerated filer or a non-accelerated filer. (See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act).  Check one.
o Large accelerated filer;   þ Accelerated filer;   o Non-accelerated filer
 
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 November 28, 2008, was 46,106,508.
 
 


 
 
THE BUCKLE, INC.

FORM 10-Q
INDEX
 
 
 
 
THE BUCKLE, INC.

PART I - FINANCIAL INFORMATION (UNAUDITED)
 
ITEM 1 – FINANCIAL STATEMENTS
 
 
THE BUCKLE, INC.
 
BALANCE SHEETS
(Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
             
   
November 1,
   
February 2,
 
ASSETS
 
2008
   
2008
 
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 92,419     $ 64,293  
Short-term investments
    25,963       102,910  
Accounts receivable, net of allowance of $32 and $62, respectively
    4,609       2,800  
Inventory
    118,202       77,639  
Prepaid expenses and other assets
    18,502       13,979  
Total current assets
    259,695       261,621  
                 
PROPERTY AND EQUIPMENT:
    262,303       240,237  
Less accumulated depreciation and amortization
    (145,548 )     (137,903 )
      116,755       102,334  
                 
LONG-TERM INVESTMENTS
    64,446       81,201  
OTHER ASSETS
    5,122       5,501  
    $ 4 46,018     $ 450,657  
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES:
               
Accounts payable
  $ 40,515     $ 25,155  
Accrued employee compensation
    27,279       27,836  
Accrued store operating expenses
    9,143       5,704  
Gift certificates redeemable
    5,816       8,511  
Income taxes payable
    5,149       10,020  
Total current liabilities
    87,902       77,226  
                 
DEFERRED COMPENSATION
    4,239       4,127  
DEFERRED RENT LIABILITY
    34,744       30,984  
Total liabilities
    126,885       112,337  
                 
COMMITMENTS
               
                 
STOCKHOLDERS’ EQUITY:
               
Common stock, authorized 100,000,000 shares of $.01 par value; 46,462,708 and 29,841,668 shares issued and outstanding at November 1, 2008 and February 2, 2008, respectively
    465       298  
Additional paid-in capital
    76,295       46,977  
Retained earnings
    243,630       291,045  
Accumulated other comprehensive loss
    (1,257 )      
Total stockholders’ equity
    319,133       338,320  
    $ 4 46,018     $ 450,657  
                 
                 
See notes to unaudited condensed financial statements.

 
THE BUCKLE, INC.
 
STATEMENTS OF INCOME
(Amounts in Thousands Except Per Share Amounts)
(Unaudited)
             
   
Thirteen Weeks Ended
   
Thirty-nine Weeks Ended
 
   
November 1,
   
November 3,
   
November 1,
   
November 3,
 
   
2008
   
2007
   
2008
   
2007
 
                                 
SALES, Net of returns and allowances
  $ 210,567     $ 167,559     $ 540,632     $ 412,927  
                                 
COST OF SALES (Including buying, distribution, and occupancy costs)
    118,762       96,810       312,937       250,262  
Gross profit
    91,805       70,749       227,695       162,665  
                                 
OPERATING EXPENSES:
                               
Selling
    39,415       31,864       104,454       80,353  
General and administrative
    7,000       5,746       17,172       15,617  
      46,415       37,610       121,626       95,970  
                                 
INCOME FROM OPERATIONS
    45,390       33,139       106,069       66,695  
                                 
OTHER INCOME, Net
    1,794       2,177       6,163       6,560  
UNREALIZED LOSS ON SECURITIES
    ( 1,800 )           (1,800 )      
                                 
INCOME BEFORE INCOME TAXES
    45,384       35,316       110,432       73,255  
                                 
PROVISION FOR INCOME TAXES
    16,308       13,118       40,363       27,072  
NET INCOME
  $ 29,076     $ 22,198     $ 70,069     $ 46,183  
                                 
EARNINGS PER SHARE:
                               
Basic
  $ 0.64     $ 0.50     $ 1.55     $ 1.04  
Diluted
  $ 0.62     $ 0.48     $ 1.50     $ 1.00  
                                 
Basic weighted average shares
    45,666       44,687       45,273       44,517  
Diluted weighted average shares
    46,851       46,372       46,563       46,263  
                                 
                                 
See notes to unaudited condensed financial statements

 
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 2008
                                   
BALANCE, February 3, 2008
    29,841,668     $ 298     $ 46,977     $ 291,045     $     $ 338,320  
                                                 
Net income
                      70,069             70,069  
Dividends paid on common stock,
                                               
($0.1667 per share - 1st and 2nd quarters)
                      (15,269 )           (15,269 )
($0.20 per share - 3rd quarter)
                      (9,293 )           (9,293 )
($2.00 per share - 3rd quarter)
                      (92,922 )           (92,922 )
Common stock issued on exercise of stock options
    993,583       11       12,705                   12,716  
Issuance of non-vested stock, net of forfeitures
    139,950       1       (1 )                  
Amortization of non-vested stock grants
                3,899                   3,899  
Stock option compensation expense
                257                   257  
Income tax benefit related to exercise of stock options
                12,613                   12,613  
3-for-2 stock split
    15,487,507       155       (155 )                  
Unrealized loss on investment securities, net of tax
                            (1,257 )     (1,257 )
BALANCE, November 1, 2008
    46,462,708     $ 4 65     $ 76,295     $ 243,630     $ (1,257 )   $ 319,133  
                                                 
FISCAL 2007
                                               
BALANCE, February 4, 2007
    29,408,576     $ 294     $ 43,493     $ 242,800     $     $ 286,587  
                                                 
Net income
                      46,183             46,183  
Dividends paid on common stock,
                                               
($0.1333 per share - 1st and 2nd quarters)
                      (12,013 )           (12,013 )
($0.1667 per share - 3rd quarter)
                      (7,532 )           (7,532 )
Common stock issued on exercise of stock options
    854,965       9       11,126                   11,135  
Issuance of non-vested stock, net of forfeitures
    138,345       1       (1 )                  
Amortization of non-vested stock grants
                2,913                   2,913  
Stock option compensation expense
                248                   248  
Income tax benefit related to exercise of stock options
                7,878                   7,878  
Common stock purchased and retired
    (95,700 )     (1 )     ( 3,294 )                 (3,295 )
BALANCE, November 3, 2007
    30,306,186     $ 303     $ 62,363     $ 269,438     $     $ 332,104  
                                                 
                                                 
See notes to unaudited condensed financial statements.

 
THE BUCKLE, INC.
STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
(Unaudited)
   
Thirty-nine Weeks Ended
 
   
November 1,
   
November 3,
 
   
2008
   
2007
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 70,069     $ 46,183  
Adjustments to reconcile net income to net cash flows from operating activities:
               
Depreciation and amortization
    15,620       14,519  
Amortization of non-vested stock grants
    3,899       2,913  
Stock option compensation expense
    257       248  
Gain on involuntary conversion of corporate aircraft to monetary asset
    (2,963 )      
Unrealized loss on securities
    1,800        
Other
    177       101  
Changes in operating assets and liabilities:
               
Accounts receivable
    (1,770 )     (361 )
Inventory
    (40,563 )     (29,186 )
Prepaid expenses and other assets
    (3,193 )     (3,601 )
Accounts payable
    16,904       14,361  
Accrued employee compensation
    (557 )     (294 )
Accrued store operating expenses
    3,439       1,979  
Gift certificates redeemable
    (2,695 )     (2,446 )
Income taxes payable
    (3,524 )     1,766  
Long-term liabilities and deferred compensation
    3,872       3,813  
Net cash flows from operating activities
    60,772       49,995  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property and equipment
    (40,654 )     (19,785 )
Proceeds from sale of property and equipment
    11,816       18  
Change in other assets
    (212 )     151  
Purchases of investments
    (42,481 )     (69,222 )
Proceeds from sales/maturities of investments
    132,387       47,785  
Net cash flows from investing activities
    60,856       (41,053 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from the exercise of stock options
    12,716       11,135  
Excess tax benefit from stock option exercises
    11,266       7,103  
Purchases of common stock
          (3,295 )
Payment of dividends
    (117,484 )     (19,545 )
Net cash flows from financing activities
    (93,502 )     (4,602 )
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    28,126       4 ,340  
CASH AND CASH EQUIVALENTS, Beginning of period
    64,293       35,752  
CASH AND CASH EQUIVALENTS, End of period
  $ 92,419     $ 40,092  
                 
                 
See notes to unaudited condensed financial statements.
 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN and THIRTY-NINE WEEKS ENDED NOVEMBER 1, 2008 AND NOVEMBER 3, 2007
 (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 February 2, 2008, included in The Buckle, Inc.'s 2007 Form 10-K.

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 384 stores located in 39 states throughout the continental United States (excluding the northeast) as of November 1, 2008, and 367 stores in 38 states as of November 3, 2007.  During the third quarter of fiscal 2008, the Company opened three new stores and substantially remodeled four stores.  During the third quarter of fiscal 2007, the Company opened five new stores and substantially remodeled one store.

 
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
 
Nov. 1, 2008
   
Nov. 3, 2007
   
Nov. 1, 2008
   
Nov. 3, 2007
 
Denims
    43.6 %     45.8 %     40.4 %     42.2 %
Tops (including sweaters)
    39.6       37.3       38.9       35.2  
Accessories
    7.4       6.7       7.4       7.4  
Sportswear/Fashions
    1.3       1.3       6.2       6.1  
Footwear
    4.7       5.2       4.9       6.3  
Outerwear
    2.9       2.8       1.3       1.4  
Casual bottoms
    0.4       0.8       0.8       1.3  
Other
    0.1       0.1       0.1       0.1  
      100.0 %     100.0 %     100.0 %     100.0 %



THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN and THIRTY-NINE WEEKS ENDED NOVEMBER 1, 2008 AND NOVEMBER 3, 2007
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

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
 
   
November 1, 2008
   
November 3, 2007
 
         
Weighted
               
Weighted
       
         
Average
   
Per Share
         
Average
   
Per Share
 
   
Income
   
Shares
   
Amount
   
Income
   
Shares
   
Amount
 
Basic EPS
  $ 29,076       45,666     $ 0 .64     $ 22,198       44,687     $ 0 .50  
Effect of dilutive securities
                                               
Stock options and non-vested shares
          1,185       (0.02 )           1,685       (0.02 )
Diluted EPS
  $ 29,076       4 6,851     $ 0.62     $ 22,198       46,372     $ 0.48  


   
Thirty-nine Weeks Ended
   
Thirty-nine Weeks Ended
 
   
November 1, 2008
   
November 3, 2007
 
         
Weighted
               
Weighted
       
         
Average
   
Per Share
         
Average
   
Per Share
 
   
Income
   
Shares
   
Amount
   
Income
   
Shares
   
Amount
 
Basic EPS
  $ 70,069       4 5,273     $ 1.55     $ 46,183       44,517     $ 1 .04  
Effect of dilutive securities
                                               
Stock options and non-vested shares
          1,290       (0.05 )           1,746       (0.04 )
Diluted EPS
  $ 70,069       4 6,563     $ 1.50     $ 46,183       46,263     $ 1.00  
 
 
4.  
Stock Split/Special Dividend – On September 15, 2008, the Company’s Board of Directors approved a 3-for-2 stock split payable in the form of a stock dividend for shareholders of record as of October 15, 2008, with a distribution date of October 30, 2008.  All share and per share data (except par value and historical stockholders’ equity data) presented in the financial statements for all periods has been adjusted to reflect the impact of this stock split.  On September 15, 2008, the Company’s Board of Directors also authorized a $3.00 per share ($2.00 per share split-adjusted) special one-time cash dividend to be paid to shareholders of record at the close of business on October 15, 2008.  The one-time cash dividend was paid on October 27, 2008 together with the Company’s third quarter dividend of $0.30 per share ($0.20 per share split adjusted).  Both the special one-time cash dividend and the regular quarterly dividend were paid before the impact of the 3-for-2 stock split, which also had a record date of October 15, 2008.  The total dividend payment on October 27, 2008 was $102,215.



THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN and THIRTY-NINE WEEKS ENDED NOVEMBER 1, 2008 AND NOVEMBER 3, 2007
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

5.  
Investments

The following is a summary of investments as of November 1, 2008:
 
   
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
  $ 45,545     $     $ ( 1,996 )   $ (1,800 )   $ 41,749  
                                         
Held-to-Maturity Securities:
                                       
State and municipal bonds
  $ 33,743     $ 127     $ (378 )   $     $ 33,492  
Fixed maturities
    1,250       9                   1,259  
Certificates of deposit
    2,945             ( 7 )           2,938  
U.S. treasuries
    6,483       23                   6,506  
    $ 44,421     $ 159     $ (385 )   $     $ 44,195  
Trading Securities:
                                       
Mutual funds
  $ 5,056     $     $ (817 )   $     $ 4,239  
 
The following is a summary of investments as of February 2, 2008:
 
   
Amortized
   
Gross
   
Gross
   
Estimated
 
   
Cost or
   
Unrealized
   
Unrealized
   
Fair
 
   
Par Value
   
Gains
   
Losses
   
Value
 
Available-for-Sale Securities:
                       
Auction-rate securities
  $ 145,835     $     $     $ 145,835  
                                 
Held-to-Maturity Securities:
                               
State and municipal bonds
  $ 26,260     $ 375     $ ( 10 )   $ 26,625  
Fixed maturities
    2,899       1             2,900  
U.S. treasuries
    4,990       24             5,014  
    $ 34,149     $ 400     $ (10 )   $ 34,539  
Trading Securities:
                               
Mutual funds
  $ 4,143     $ 5     $ (21 )   $ 4,127  
 
The auction-rate securities were invested as follows as of November 1, 2008:
 
Nature
 
Underlying Collateral
 
Par Value
 
Municipal revenue bonds
 
83% insured by AAA/AA/A-rated bond insurers at November 1, 2008
  $ 14,945  
Municipal bond funds
 
Fixed income instruments within issuers money market funds
    11,750  
Student loan bonds
 
Student loans guaranteed by state entities
    11,450  
Tax preferred securities
 
Underlying investments of closed-end funds
    7,400  
Total
      $ 45,545  

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN and THIRTY-NINE WEEKS ENDED NOVEMBER 1, 2008 AND NOVEMBER 3, 2007
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

As of November 1, 2008, the Company’s auction-rate securities portfolio was 71% AAA/Aaa-rated, 23% AA/Aa-rated, and 6% A-rated.

The amortized cost and fair value of debt securities by contractual maturity as of November 1, 2008 is as follows:
 
   
Amortized
   
Fair
 
   
Cost
   
Value
 
Fiscal Periods
           
Twelve months ending October 31, 2009
  $ 17,763     $ 17,803  
Twelve months ending October 30, 2010
    9,750       9,761  
Twelve months ending October 29, 2011
    5,501       5,500  
Twelve months ending October 27, 2012
    2,704       2,698  
Twelve months ending November 2, 2013
    1,509       1,497  
Thereafter
    7,194       6,936  
    $ 44,421     $ 44,195  
 
At November 1, 2008 and February 2, 2008, held-to-maturity investments of $26,658 and $20,152 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.

The Company’s investments in auction-rate securities (“ARS”) are classified as available-for-sale and reported at fair market value.  At the end of the third quarter of fiscal 2008, the reported investment amount is net of $1,996 of temporary impairment and $1,800 of other-than-temporary impairment.  These amounts have been recorded during the first three quarters of fiscal 2008 to account for the impairment of certain securities from their stated par value.  The temporary impairment is reported net of tax as an “accumulated other comprehensive loss” of $1,257 in stockholders’ equity as of November 1, 2008.  The Company has reported the other-than-temporary impairment as a loss in the statements of income for the thirteen and thirty-nine week periods ended November 1, 2008.

As of November 1, 2008, the Company had $45,545 invested in ARS at par value, which are reported at their estimated fair value of $41,749.  As of February 2, 2008, the Company had $145,835 invested in ARS.  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 impact of the failed auctions on holders of ARS is that the holder cannot sell the securities and the issuer’s interest rate is generally reset to a higher “penalty” rate.  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 at least one of the underlying issuers of its ARS is currently at risk; however, the Company does not anticipate that further auction failures will have a material impact on the Company’s ability to fund its business.  The Company was able to successfully liquidate $104,890 of its investments in ARS at par value during the first three quarters of fiscal 2008.  

As of November 1, 2008, $8,200 of the Company’s investment in ARS was classified in short-term investments, due to known or anticipated subsequent redemptions, and $33,549 was classified in long-term investments.  The amount classified in long-term investments has not experienced a successful auction subsequent to the end of the Company’s fiscal year and is net of $1,996 of temporary impairments plus $1,800 of other-than-temporary impairments, related to certain securities whose fair values have declined from their stated par value.  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.



THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN and THIRTY-NINE WEEKS ENDED NOVEMBER 1, 2008 AND NOVEMBER 3, 2007
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

As of February 2, 2008, $88,913 of the Company’s investment in ARS was classified in short-term investments and $56,922 was classified in long-term investments.

6.  
Fair Value Measurements

Effective February 3, 2008, the Company adopted the provisions of FASB Statement No. 157 (“SFAS 157”), Fair Value Measurements.  This standard defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  The provisions of SFAS 157 apply to all financial instruments that are being measured and reported on a fair value basis.  In addition, in February 2008, FASB issued FASB Staff Position (“FSP) FAS 157-2, Effective Date of FASB Statement No. 157.  This FSP delays the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for all non-financial assets and liabilities.  The partial adoption of SFAS 157 did not have any impact on the Company’s financial position or results of operations.

As defined by SFAS 157, 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.  Items reported at fair value using Level 2 inputs consist of certain auction-rate securities (“ARS”) classified as long-term investments due to failed auctions and are valued using brokerage pricing or pricing from similar securities.
·  
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.

As of November 1, 2008, 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 5.  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 and Level 2 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 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.

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 November 1, 2008.




THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN and THIRTY-NINE WEEKS ENDED NOVEMBER 1, 2008 AND NOVEMBER 3, 2007
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

As a result of the decline in fair value for certain of the Company’s investments in ARS, the Company recorded a temporary impairment of $1,996 and an other-than-temporary impairment of $1,800 during the first three quarters of fiscal 2008.  The Company has reported the $1,996 of temporary impairment, net of tax, as a $1,257 reduction to stockholders’ equity in “accumulated other comprehensive loss” as of November 1, 2008.  Any future fluctuation in fair value related to these securities 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 Company has reported the $1,800 other-than-temporary impairment as a loss in the statements of income for the thirteen and thirty-nine week periods ended November 1, 2008.  The Company reviews all investments for other-than-temporary impairment at least quarterly or as indicators of impairment exist.  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. In addition, the Company considers other 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.

The Company’s financial assets measured at fair value on a recurring basis subject to the disclosure requirements of SFAS 157 as of November 1, 2008 were as follows:
 
   
Fair Value Measurements at Reporting Date Using
 
   
Quoted Prices in
                   
   
Active Markets
   
Significant
   
Significant
       
   
for Identical
   
Observable
   
Unobservable
       
   
Assets
   
Inputs
   
Inputs
       
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
ASSETS:
                       
Available-for-sale securities (including auction-rate securities)
  $ 8,200     $ 33,549     $     $ 41,749  
Trading securities (including mutual funds)
    4,239                   4,239  
Totals
  $ 12,439     $ 33,549     $     $ 45,988  
 
ARS included in Level 1 represent securities which have a known or anticipated upcoming redemption as of November 1, 2008.  ARS included in Level 2 represent securities which have not experienced a successful auction subsequent to February 2, 2008.  The fair market value for these securities was determined by applying a discount to par value based on auction prices for similar securities that had most recently experienced a successful auction subsequent to February 2, 2008.  Prior to fiscal 2008, the fair value for these securities had been based on quoted market prices, which were readily available at that time.



THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN and THIRTY-NINE WEEKS ENDED NOVEMBER 1, 2008 AND NOVEMBER 3, 2007
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

7.  
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
 
   
November 1, 2008
   
November 3, 2007
 
             
Net income
  $ 29,076     $ 22,198  
Changes in net unrealized losses on investments in auction-rate-securities,
net of taxes of $166 and $0
    (281 )      
Comprehensive Income
  $ 28,795     $ 22,198  
                 

   
Thirty-nine Weeks Ended
 
   
November 1, 2008
   
November 3, 2007
 
             
Net income
  $ 70,069     $ 46,183  
Changes in net unrealized losses on investments in auction-rate-securities,
net of taxes of $739 and $0
    (1,257 )      
Comprehensive Income
  $ 68,812     $ 46,183  
                 
 
8.  
Supplemental Cash Flow Information

The Company had non-cash investing activities during the thirty-nine week periods ended November 1, 2008 and November 3, 2007 of $1,544 and $2,865, 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 period.  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 November 1, 2008 and November 3, 2007 of $33,310 and $18,967, respectively.

9.  
Stock-Based Compensation

The Company has several stock option plans which allow for granting of stock options to employees, executives, and directors; as described more fully in the notes included in the Company’s 2007 Annual Report.  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.

As of November 1, 2008, 637,126 shares were available for grant under the various stock option plans, of which 452,502 were available for grant to executive officers.  Also as of November 1, 2008, 314,625 shares were available for grant under the Company’s 2005 Restricted Stock Plan, all of which were available for grant to executive officers.  On May 28, 2008, shareholders also approved the Company’s 2008 Director Restricted Stock Plan.  The plan is designed to replace the annual stock option grants historically made to non-employee directors under the Company’s 1993 Director Stock Option Plan with annual grants of restricted shares beginning with the grants scheduled to be made on the first day of fiscal 2009.  A total of 90,000 shares have been reserved for issuance under the plan.



THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN and THIRTY-NINE WEEKS ENDED NOVEMBER 1, 2008 AND NOVEMBER 3, 2007
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

The Company accounts for stock-based compensation in accordance with FASB Statement No. 123 (revised 2004) (“SFAS 123(R)”), Share-Based Payment.  Compensation expense was recognized during the first three quarters of fiscal 2008 and 2007 for new awards, based on the grant date fair value, as well as for the portion of awards granted in fiscal years prior to SFAS 123(R) adoption that was not vested as of the beginning of fiscal 2006.  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
   
Thirty-nine Weeks Ended
 
   
Nov. 1, 2008
   
Nov. 3, 2007
   
Nov. 1, 2008
   
Nov. 3, 2007
 
                         
Stock-based compensation expense, before tax:
                       
Stock options
  $ 58     $ 46     $ 257     $ 248  
Non-vested shares of common stock
    1,300       972       3,899       2,913  
Total stock-based compensation expense, before tax
  $ 1,358     $ 1,018     $ 4,156     $ 3,161  
Total stock-based compensation expense, after tax
  $ 856     $ 641     $ 2,618     $ 1,991  
 
SFAS 123(R) 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 statement of cash flows.  For the thirty-nine week periods ended November 1, 2008 and November 3, 2007, the excess tax benefit realized from exercised stock options was $11,266 and $7,103, respectively.

Stock options granted during the first three quarters of fiscal 2008 and 2007 were granted under the Company’s 1993 Director Stock Option Plan.  Grants were made with an exercise price equal to the market value of the Company’s common stock on the date of grant and a contractual term of ten years.  Options granted under the 1993 Director Stock Option Plan typically vest over a period of three years.

The weighted average grant date fair value of options granted during the thirty-nine weeks ended November 1, 2008 and November 3, 2007 was $12.61 and $12.81 per option, respectively.  The fair value of options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions:
 
   
2008
   
2007
 
             
Risk-free interest rate (1)
    3.10 %     4.80 %
Dividend yield (2)
    2.40 %     2.40 %
Expected volatility (3)
    33.0 %     39.0 %
Expected lives -years (4)
    7.0       7.0  
                 

(1)
Based on the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected lives of stock options.
(2)
Based on expected dividend yield as of the date of grant.
(3)
Based on historical volatility of the Company’s common stock over a period consistent with the expected lives of options.
(4)
Based on historical and expected exercise behavior.

 


THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN and THIRTY-NINE WEEKS ENDED NOVEMBER 1, 2008 AND NOVEMBER 3, 2007
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

On September 15, 2008, the Board of Directors authorized a $3.00 per share ($2.00 per share after 3-for-2 stock split) special one-time cash dividend to be paid on October 27, 2008 to shareholder of record at the close of business on October 15, 2008.  To preserve the intrinsic value for option holders, the Board also approved, 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.

A summary of the Company’s stock-based compensation activity related to stock options for the thirty-nine week period ended November 1, 2008 is as follows:
 
               
2008
       
               
Weighted
       
         
Weighted
   
Average
       
         
Average
   
Remaining
   
Aggregate