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 31, 2009

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 o  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 (Do not check if a smaller reporting company); 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 November 27, 2009, was 46,294,580.

 

 

 THE BUCKLE, INC.

FORM 10-Q
INDEX

   
Pages
Part I. Financial Information (unaudited)
     
Item 1.
Financial Statements
  3
     
Item 2.
Management's Discussion and Analysis of Financial
 
 
Condition and Results of Operations
  19
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
  29
     
Item 4.
Controls and Procedures
  30
     
Part II. Other Information
     
Item 1.
Legal Proceedings
  31
     
Item 1A.
Risk Factors
  31
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
  31
     
Item 3.
Defaults Upon Senior Securities
  31
     
Item 4.
Submission of Matters to a Vote of Security Holders
  31
     
Item 5.
Other Information
  31
     
Item 6.
Exhibits
  31
     
Signatures
 
  32

 
2

 

THE BUCKLE, INC.

BALANCE SHEETS
(Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)


   
October 31,
   
January 31,
 
   
2009
   
2009
 
ASSETS
           
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 73,995     $ 162,463  
Short-term investments
    19,620       19,150  
Accounts receivable, net of allowance of $35 and $46, respectively
    4,993       3,734  
Inventory
    118,213       83,963  
Prepaid expenses and other assets
    20,820       17,655  
Total current assets
    237,641       286,965  
                 
PROPERTY AND EQUIPMENT
    292,904       264,154  
Less accumulated depreciation and amortization
    (157,905 )     (147,460 )
      134,999       116,694  
                 
LONG-TERM INVESTMENTS
    73,553       56,213  
OTHER ASSETS
    4,945       5,468  
                 
    $ 451,138     $ 465,340  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES:
               
Accounts payable
  $ 36,597     $ 22,472  
Accrued employee compensation
    30,142       40,460  
Accrued store operating expenses
    9,757       7,701  
Gift certificates redeemable
    7,079       10,144  
Income taxes payable
    7,696       8,649  
Total current liabilities
    91,271       89,426  
                 
DEFERRED COMPENSATION
    5,961       4,090  
DEFERRED RENT LIABILITY
    35,680       34,602  
Total liabilities
    132,912       128,118  
                 
COMMITMENTS
               
                 
STOCKHOLDERS’ EQUITY:
               
Common stock, authorized 100,000,000 shares of $.01 par value; 46,294,580 and 45,906,265 shares issued and outstanding at October 31, 2009 and January 31, 2009, respectively
    463       459  
Additional paid-in capital
    75,969       68,894  
Retained earnings
    242,885       268,789  
Accumulated other comprehensive loss
    (1,091 )     (920 )
Total stockholders’ equity
    318,226       337,222  
                 
    $ 451,138     $ 465,340  

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 31,
   
November 1,
   
October 31,
   
November 1,
 
   
2009
   
2008
   
2009
   
2008
 
                         
SALES, Net of returns and allowances
  $ 231,238     $ 210,567     $ 623,841     $ 540,632  
                                 
COST OF SALES (Including buying, distribution, and occupancy costs)
    129,121       118,762       352,743       312,937  
                                 
Gross profit
    102,117       91,805       271,098       227,695  
                                 
OPERATING EXPENSES:
                               
Selling
    43,017       39,415       118,121       104,454  
General and administrative
    7,427       7,000       21,452       17,172  
      50,444       46,415       139,573       121,626  
                                 
INCOME FROM OPERATIONS
    51,673       45,390       131,525       106,069  
                                 
OTHER INCOME, Net
    1,192       1,794       3,651       6,163  
UNREALIZED LOSS ON SECURITIES
    -       (1,800 )     -       (1,800 )
                                 
INCOME BEFORE INCOME TAXES
    52,865       45,384       135,176       110,432  
                                 
PROVISION FOR INCOME TAXES
    19,560       16,308       50,015       40,363  
                                 
NET INCOME
  $ 33,305     $ 29,076     $ 85,161     $ 70,069  
                                 
EARNINGS PER SHARE:
                               
Basic
  $ 0.73     $ 0.64     $ 1.87     $ 1.55  
                                 
Diluted
  $ 0.71     $ 0.62     $ 1.83     $ 1.50  
                                 
Basic weighted average shares
    45,709       45,666       45,626       45,273  
Diluted weighted average shares
    46,719       46,851       46,621       46,563  

See notes to unaudited condensed financial statements.

 
4

 

THE BUCKLE, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
(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 2009
                                   
BALANCE, February 1, 2009
    45,906,265     $ 459     $ 68,894     $ 268,789     $ (920 )   $ 337,222  
                                                 
Net income
    -       -       -       85,161       -       85,161  
Dividends paid on common stock,
                                               
($0.20 per share - 1st, 2nd, and 3rd quarters)
    -       -       -       (27,735 )     -       (27,735 )
($1.80 per share - 3rd quarter)
    -       -       -       (83,330 )     -       (83,330 )
Common stock issued on exercise of stock options
    191,527       2       1,472       -       -       1,474  
Issuance of non-vested stock, net of forfeitures
    196,788       2       (2 )     -       -       -  
Amortization of non-vested stock grants, net of forfeitures
    -       -       3,592       -       -       3,592  
Stock option compensation expense
    -       -       142       -       -       142  
Income tax benefit related to exercise of stock options
    -       -       1,871       -       -       1,871  
Unrealized loss on investments, net of tax
    -       -       -       -       (171 )     (171 )
                                                 
BALANCE, October 31, 2009
    46,294,580     $ 463     $ 75,969     $ 242,885     $ (1,091 )   $ 318,226  
                                                 
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, net of forfeitures
    -       -       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 investments, net of tax
    -       -       -       -       (1,257 )     (1,257 )
                                                 
BALANCE, November 1, 2008
    46,462,708     $ 465     $ 76,295     $ 243,630     $ (1,257 )   $ 319,133  

See notes to unaudited condensed financial statements.

 
5

 

THE BUCKLE, INC.

STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)


   
Thirty-nine Weeks Ended
 
   
October 31,
   
November 1,
 
   
2009
   
2008
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 85,161     $ 70,069  
Adjustments to reconcile net income to net cash flows from operating activities:
               
Depreciation and amortization
    17,811       15,620  
Amortization of non-vested stock grants, net of forfeitures
    3,592       3,899  
Stock option compensation expense
    142       257  
Gain on involuntary conversion of corporate aircraft to monetary asset
    -       (2,963 )
Unrealized loss on securities
    -       1,800  
Realized gain on securities
    (1,379 )     -  
Deferred income taxes
    (1,385 )     -  
Other
    (90 )     177  
Changes in operating assets and liabilities:
               
Accounts receivable
    (1,259 )     (1,770 )
Inventory
    (34,250 )     (40,563 )
Prepaid expenses and other assets
    (2,516 )     (3,193 )
Accounts payable
    12,421       16,904  
Accrued employee compensation
    (10,318 )     (557 )
Accrued store operating expenses
    2,056       3,439  
Gift certificates redeemable
    (3,065 )     (2,695 )
Income taxes payable
    386       (3,524 )
Changes in long-term liabilities and deferred compensation
    2,949       3,872  
                 
Net cash flows from operating activities
    70,256       60,772  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property and equipment
    (34,630 )     (40,654 )
Proceeds from sale of property and equipment
    308       11,816  
Change in other assets
    28       (212 )
Purchases of investments
    (43,212 )     (42,481 )
Proceeds from sales/maturities of investments
    26,510       132,387  
                 
Net cash flows from investing activities
    (50,996 )     60,856  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from the exercise of stock options
    1,474       12,716  
Excess tax benefit from stock option exercises
    1,863       11,266  
Payment of dividends
    (111,065 )     (117,484 )
                 
Net cash flows from financing activities
    (107,728 )     (93,502 )
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (88,468 )     28,126  
                 
CASH AND CASH EQUIVALENTS, Beginning of period
    162,463       64,293  
                 
CASH AND CASH EQUIVALENTS, End of period
  $ 73,995     $ 92,419  

See notes to unaudited condensed financial statements.

 
6

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 2009 AND NOVEMBER 1, 2008
 (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 31, 2009, included in The Buckle, Inc.'s 2008 Form 10-K.

The Company follows generally accepted accounting principles (“GAAP”) established by the Financial Accounting Standards Board (“FASB”). References to GAAP in these footnotes are to the FASB Accounting Standards Codification (“ASC”), which was established by FASB as the sole source of authoritative GAAP for financial statements issued for reporting periods ending on or after September 15, 2009.

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 404 stores located in 41 states throughout the continental United States as of October 31, 2009 and 384 stores in 39 states as of November 1, 2008. During the third quarter of fiscal 2009, the Company opened four new stores, substantially remodeled four stores, and closed one store. During the third quarter of fiscal 2008, the Company opened three new stores and substantially remodeled four stores.

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. 31, 2009
   
Nov. 1, 2008
   
Oct. 31, 2009
   
Nov. 1, 2008
 
                         
Denims
    46.2 %     43.6 %     41.4 %     40.4 %
Tops (including sweaters)
    35.2       39.6       36.8       38.9  
Accessories
    7.1       7.4       7.5       7.4  
Sportswear/Fashions
    1.5       1.3       6.7       6.2  
Footwear
    5.2       4.7       5.0       4.9  
Outerwear
    4.3       2.9       2.0       1.3  
Casual bottoms
    0.4       0.4       0.5       0.8  
Other
    0.1       0.1       0.1       0.1  
                                 
      100.0 %     100.0 %     100.0 %     100.0 %

 
7

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 2009 AND NOVEMBER 1, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

3.
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 31, 2009
   
November 1, 2008
 
         
Weighted
               
Weighted
       
         
Average
   
Per Share
         
Average
   
Per Share
 
   
Income
   
Shares
   
Amount
   
Income
   
Shares
   
Amount
 
                                     
Basic EPS
  $ 33,305       45,709     $ 0.73     $ 29,076       45,666     $ 0.64  
                                                 
Effect of Dilutive Securities:
                                               
Stock options and non-vested shares
    -       1,010       (0.02 )     -       1,185       (0.02 )
                                                 
Diluted EPS
  $ 33,305       46,719     $ 0.71     $ 29,076       46,851     $ 0.62  
                                                 
   
Thirty-nine Weeks Ended
   
Thirty-nine Weeks Ended
 
   
October 31, 2009
   
November 1, 2008
 
           
Weighted
                   
Weighted
         
           
Average
   
Per Share
           
Average
   
Per Share
 
   
Income
   
Shares
   
Amount
   
Income
   
Shares
   
Amount
 
                                                 
Basic EPS
  $ 85,161       45,626     $ 1.87     $ 70,069       45,273     $ 1.55  
                                                 
Effect of Dilutive Securities:
                                               
Stock options and non-vested shares
    -       995       (0.04 )     -       1,290       (0.05 )
                                                 
Diluted EPS
  $ 85,161       46,621     $ 1.83     $ 70,069       46,563     $ 1.50  

 
8

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 2009 AND NOVEMBER 1, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

4.
Investments

The following is a summary of investments as of October 31, 2009:

   
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
  $ 25,075     $ -     $ (1,732 )   $ -     $ 23,343  
Municipal Bonds
    6,099       -       -       -       6,099  
Preferred stock
    2,873       -       -       (2,498 )     375  
    $ 34,047     $ -     $ (1,732 )   $ (2,498 )   $ 29,817  
                                         
Held-to-Maturity Securities:
                                       
State and municipal bonds
  $ 51,110     $ 420     $ (30 )   $ -     $ 51,500  
Fixed maturities
    2,500       34       -       -       2,534  
Certificates of deposit
    1,735       26       -       -       1,761  
U.S. treasuries
    2,050       4       -       -       2,054  
                                         
    $ 57,395     $ 484     $ (30 )   $ -     $ 57,849  
                                         
Trading Securities:
                                       
Mutual funds
  $ 6,305     $ -     $ (344 )   $ -     $ 5,961  

The following is a summary of investments as of January 31, 2009:

   
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
  $ 35,495     $ -     $ (1,460 )   $ (3,757 )   $ 30,278  
Preferred stock
    2,000       -       -       (1,400 )     600  
    $ 37,495     $ -     $ (1,460 )   $ (5,157 )   $ 30,878  
                                         
Held-to-Maturity Securities:
                                       
State and municipal bonds
  $ 31,965     $ 536     $ (90 )   $ -     $ 32,411  
Fixed maturities
    2,500       37       (7 )     -       2,530  
Certificates of deposit
    2,945       42       -       -       2,987  
U.S. treasuries
    2,985       19       (9 )     -       2,995  
                                         
    $ 40,395     $ 634     $ (106 )   $ -     $ 40,923  
                                         
Trading Securities:
                                       
Mutual funds
  $ 5,165     $ -     $ (1,075 )   $ -     $ 4,090  

 
9

 
   
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 2009 AND NOVEMBER 1, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

The auction-rate securities were invested as follows as of October 31, 2009:

Nature
 
Underlying Collateral
 
Par Value
 
Municipal revenue bonds
 
87% insured by AAA/AA/A-rated bond insurers at Oct. 31, 2009
  $ 11,700  
Municipal bond funds
 
Fixed income instruments within issuers' money market funds
    9,625  
Student loan bonds
 
Student loans guaranteed by state entities
    3,750  
Total par value
      $ 25,075  

As of October 31, 2009, the Company’s auction-rate securities portfolio was 61% AAA/Aaa-rated, 29% AA/Aa-rated, and 10% A-rated.

The amortized cost and fair value of held-to-maturity securities by contractual maturity as of October 31, 2009 is as follows:

   
Amortized
   
Fair
 
Fiscal Periods
 
Cost
   
Value
 
             
Twelve months ending October 30, 2010
  $ 16,670     $ 16,735  
Twelve months ending October 29, 2011
    14,238       14,365  
Twelve months ending October 27, 2012
    16,627       16,733  
Twelve months ending November 2, 2013
    6,154       6,207  
Twelve months ending November 1, 2014
    959       960  
Thereafter
    2,747       2,849  
    $ 57,395     $ 57,849  

At October 31, 2009 and January 31, 2009, held-to-maturity investments of $40,725 and $22,795 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. As of October 31, 2009, the reported investment amount is net of $1,732 of temporary impairment and $2,498 of other-than-temporary impairment (“OTTI”). These amounts have been recorded to account for the impairment of certain securities from their stated par value. The $1,732 temporary impairment is reported, net of tax, as an “accumulated other comprehensive loss” of $1,091 in stockholders’ equity as of October 31, 2009. The Company reported the $2,498 OTTI ($1,574 net of tax) as part of the total of $5,157 OTTI ($3,249 net of tax) reported as a loss in the statement of income during both the third and fourth quarters of the fiscal year ended January 31, 2009.

The OTTI is related to investments in auction-rate preferred securities (“ARPS”) that have all been converted to perpetual preferred stock as a result of the September 2008 bankruptcy of Lehman Brothers (the broker and auction agent for all of the ARPS purchased by the Company). The converted shares are valued at the quoted price of the securities as of October 31, 2009. All of these issues of preferred stock are publicly traded and experienced significant declines in value during the second half of fiscal 2008. The Company recorded a charge for OTTI during fiscal 2008 based on the closing price of the preferred securities as of January 31, 2009. 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.

 
10

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 2009 AND NOVEMBER 1, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

As of October 31, 2009, the Company had $25,075 invested in ARS and $2,873 invested in preferred securities, at par value, which are reported at their estimated fair value of $23,343 and $375, respectively. As of January 31, 2009, the Company had $35,495 invested in ARS and $2,000 invested in preferred securities, which are reported at their estimated fair value of $30,278 and $600, 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. The Company liquidated $1,645 of its investments in ARS at par value and $1,527 of its investments in preferred securities at par value during the third quarter of fiscal 2009. These investments were valued at $2,449 as of January 31, 2009 and were liquidated for $2,923 in proceeds.

As of October 31, 2009, $2,950 of the Company’s investment in available-for-sale securities was classified in short-term investments and $26,867 was classified in long-term investments. As of January 31, 2009, $1,550 of the Company’s investment in available-for-sale securities was classified in short-term investments and $29,328 was classified in long-term investments.

5.
Fair Value Measurements

Effective February 3, 2008, the Company adopted the provisions of FASB ASC 820, Fair Value Measurements and Disclosures. FASB ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of FASB ASC 820 apply to all financial instruments that are being measured and reported on a fair value basis. In addition, FASB ASC 820-10-15-1A delayed the effective date of FASB ASC 820 to fiscal years beginning after November 15, 2008 for all non-financial assets and liabilities. The Company adopted the provisions of FASB ASC 820-10-15-1A in the quarter ended May 2, 2009. The adoption of FASB ASC 820 did not have any impact on the Company’s financial position or results of operations.

As defined by FASB ASC 820, 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.
 
 
11

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 2009 AND NOVEMBER 1, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

As of October 31, 2009 and January 31, 2009, 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 inputs 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-part 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 31, 2009 and January 31, 2009.

As a result of the decline in fair value for certain of the Company’s investments in ARS, the Company has reported its investments net of $1,732 of temporary impairment and $2,498 of OTTI as of October 31, 2009. The Company has reported the $1,732 of temporary impairment, net of tax, as a $1,091 reduction to stockholders’ equity in “accumulated other comprehensive loss” as of October 31, 2009. 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 reported the $2,498 OTTI ($1,574 net of tax) as part of the total of $5,157 OTTI ($3,249 net of tax) reported as a loss in the statement of income during both the third and fourth quarters of the fiscal year ended January 31, 2009. The Company reviews all investments for OTTI 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.

 
12

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 2009 AND NOVEMBER 1, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

The Company’s financial assets measured at fair value on a recurring basis subject to the disclosure requirements of FASB ASC 820 as of October 31, 2009 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, municipal
                       
bonds, and preferred stock)
  $ 7,727     $ 14,855     $ 7,235     $ 29,817  
Trading securities (including mutual funds)
    5,961       -       -       5,961  
Total
  $ 13,688     $ 14,855     $ 7,235     $ 35,778  
 
ARS, municipal bonds, and preferred securities included in Level 1 represent securities which have a known or anticipated upcoming redemption as of October 31, 2009 and those that have publicly traded quoted prices. 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 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 $690 of the Company’s recorded temporary impairment. 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 using significant unobservable inputs (Level 3), as defined in FASB ASC 820, are as follows for the 39-week year-to-date period ended October 31, 2009:

   
Available-for-Sale
 
   
Securities
 
   
(Level 3)
 
       
Balance as of February 1, 2009
  $ 7,260  
Total gains or losses (realized and unrealized):
       
Included in net income
    -  
Included in other comprehensive income
    -  
Purchases, sales, issuances, and settlements (net)
    (25 )
Transfers in and/or out of Level 3
    -  
Balance as of October 31, 2009
  $ 7,235  
 
 
13

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 2009 AND NOVEMBER 1, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

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 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 31, 2009
   
November 1, 2008
 
             
Net income
  $ 33,305     $ 29,076  
Changes in net unrealized losses on investments,
               
net of taxes of $44 and $166
    (76 )     (281 )
Comprehensive Income
  $ 33,229     $ 28,795  

   
Thirty-nine Weeks Ended
 
   
October 31, 2009
   
November 1, 2008
 
             
Net income
  $ 85,161     $ 70,069  
Changes in net unrealized losses on investments,
               
net of taxes of $100 and $739
    (171 )     (1,257 )
Comprehensive Income
  $ 84,990     $ 68,812  

7.
Supplemental Cash Flow Information

The Company had non-cash investing activities during the thirty-nine week periods ended October 31, 2009 and November 1, 2008 of $(1,704) and $1,544, 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 31, 2009 and November 1, 2008 of $49,153 and $33,310, respectively.

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 31, 2009, 641,748 shares were available for grant under the various stock option plans, of which 452,111 were available for grant to executive officers. Also as of October 31, 2009, 208,152 shares were available for grant under the various restricted stock plans, of which 129,028 were available for grant to executive officers.

 
14

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 2009 AND NOVEMBER 1, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
 
The Company accounts for stock-based compensation in accordance with FASB ASC 718, Compensation-Stock Compensation. Compensation expense was recognized during the first three quarters of fiscal 2009 and fiscal 2008 for new awards, based on the grant date fair value, as well as for the portion of awards granted in fiscal years prior to FASB ASC 718 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
 
   
October 31, 2009
   
November 1, 2008
   
October 31, 2009
   
November 1, 2008
 
Stock-based compensation expense, before tax:
                       
Stock options
  $ 33     $ 58     $ 142     $ 257  
Non-vested shares of common stock
    1,179       1,300       3,592       3,899  
Total stock-based compensation expense, before tax
  $ 1,212     $ 1,358     $ 3,734     $ 4,156  
Total stock-based compensation expense, after tax
  $ 764     $ 856     $ 2,352     $ 2,618  

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 31, 2009 and November 1, 2008, the excess tax benefit realized from exercised stock options was $1,863 and $11,266, respectively.

No stock options were granted during the first three quarters of fiscal 2009. Stock options granted during the first three quarters of fiscal 2008 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 week period ended November 1, 2008 was $8.40. The fair value of options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions:

 
 
Thirty-nine Weeks Ended
 
   
November 1, 2008
 
       
Risk-free interest rate  (1)
    3.10 %
Dividend yield  (2)
    2.40 %
Expected volatility  (3)
    33.00 %
Expected lives - years (4)
    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 stock options.
(4)
Based on historical and expected exercise behavior.

 
15

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 2009 AND NOVEMBER 1, 2008
 (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 shareholders of record at the close of business on October 15, 2008. Additionally, on September 21, 2009, the Board of Directors authorized a $1.80 per share special one-time cash dividend to be paid on October 27, 2009 to shareholders of record at the close of business on October 15, 2009. 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.

A summary of the Company’s stock-based compensation activity related to stock options for the thirty-nine week period ended October 31, 2009 is as follows:

             
Weighted
     
         
Weighted
 
Average
     
         
Average
 
Remaining
 
Aggregate
 
         
Exercise
 
Contractual
 
Intrinsic
 
   
Shares
   
Price
 
Life
 
Value
 
                     
Outstanding - beginning of year
    1,635,163     $ 6.91          
Granted
    -       n/a          
Other (1)
    447       5.83          
Expired/forfeited
    (5,069 )     24.21          
Exercised
    (191,527 )     7.70          
                         
Outstanding - end of quarter
    1,439,014     $ 4.96  
3.48
 years   
$ 36,047  
                           
Exercisable - end of quarter
    1,418,719     $ 4.71  
3.41
 years   
$ 35,893  

(1)
An adjustment was made to the exercise price and number of options outstanding for the special cash dividend paid during October 2009. “Other” represents additional options issued as a result of this adjustment in the third quarter of fiscal 2009.

The total intrinsic value of options exercised during the thirty-nine week periods ended October 31, 2009 and November 1, 2008 was $5,286 and $35,436, respectively. As of October 31, 2009, there was $97 of unrecognized compensation expense related to non-vested stock options. It is expected that this expense will be recognized over a weighted average period of approximately 1.1 years.

Non-vested shares of common stock granted during the thirty-nine week period ended November 1, 2008 were granted pursuant to the Company’s 2005 Restricted Stock Plan. Non-vested shares granted during the thirty-nine week period ended October 31, 2009 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.

 
16

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 2009 AND NOVEMBER 1, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

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 31, 2009 is as follows:

         
Weighted Average
 
         
Grant Date
 
   
Shares
   
Fair Value
 
             
Non-Vested - beginning of year
    423,171     $ 23.84  
Granted
    243,800       21.20  
Forfeited
    (47,012 )     22.65  
Vested
    (45,506 )     27.54  
                 
Non-Vested - end of quarter
    574,453     $ 22.52  
 
As of October 31, 2009, there was $5,213 of unrecognized compensation expense related to grants of non-vested shares. It is expected that this expense will be recognized over a weighted average period of approximately 1.9 years. The total fair value of shares vested during the thirty-nine week periods ended October 31, 2009 and November 1, 2008 was $1,393 and $1,341, respectively.

9.
Insurance Proceeds

During the second quarter of fiscal 2008, one of the Company’s corporate aircrafts was destroyed in a tornado. The Company received $11,500 of insurance proceeds, which is included in proceeds from sale of property and equipment in the statements of cash flows. Also during the second quarter of fiscal 2008, the Company recorded a $2,963 gain from the involuntary disposal of the aircraft, which is included in general and administrative expenses. During the third quarter of fiscal 2008 the Company purchased a replacement aircraft at a cost of $15,175.

10.
Recently Issued Accounting Pronouncements

Effective February 3, 2008, the Company adopted the provisions of FASB ASC 820, Fair Value Measurements and Disclosures. FASB ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of FASB ASC 820 apply to all financial instruments that are being measured and reported on a fair value basis. In addition, FASB ASC 820-10-15-1A delayed the effective date of FASB ASC 820 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years, for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of FASB ASC 820 during fiscal 2008 for all financial instruments and the adoption during fiscal 2009 for all non-financial assets and liabilities did not have any impact on the Company’s financial position or results of operations.

Effective February 3, 2008, the Company adopted the provisions of FASB ASC 825, Financial Instruments. FASB ASC 825 provides an option for companies to report selected financial assets and liabilities at fair value. Although the Company adopted the provisions of FASB ASC 825 effective with the beginning of the Company’s 2008 fiscal year, it did not elect the fair value option for any financial instruments or other items held by the Company. Therefore, the adoption of FASB ASC 825 did not have any impact on the Company’s financial position or results of operations.

 
17

 
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 2009 AND NOVEMBER 1, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

In May 2009, FASB issued FASB ASC 855, Subsequent Events. This guidance requires management to evaluate subsequent events through the date the financial statements are issued, or are available to be issued, and requires companies to disclose the date through which such subsequent events have been evaluated. FASB ASC 855 was effective for financial statements issued for interim or annual reporting periods ending after June 15, 2009. Therefore, the Company adopted this guidance effective May 3, 2009. The adoption of FASB ASC 855 did not have any impact on the Company’s financial position or results of operations.

In June 2009, FASB issued FASB ASC 105, Generally Accepted Accounting Principles, which establishes the FASB Accounting Standards Codification (“ASC”) as the single source of GAAP recognized by FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of FASB ASC 105, the codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the codification will become non-authoritative. FASB ASC 105 was effective for financial statements issues for interim or annual reporting periods ending after September 15, 2009. Therefore, the Company adopted the provisions of FASB ASC 105 on August 2, 2009. The adoption of FASB ASC 105 did not have any impact on the Company’s financial position or results of operations.

11.
Subsequent Events

In accordance with the provisions of FASB ASC 855, the Company has evaluated subsequent events through December 10, 2009. All subsequent events requiring recognition as of October 31, 2009 or disclosure in this Form 10-Q have been incorporated into the financial statements contained herein.

 
18

 

THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Financial Statements and notes thereto of the Company included in this Form 10-Q. The following is management’s discussion and analysis of certain significant factors which have affected the Company’s financial condition and results of operations during the periods included in the accompanying financial statements.

EXECUTIVE OVERVIEW

Company management considers the following items to be key performance indicators in evaluating Company performance.

Comparable Store Sales – Stores are deemed to be comparable stores if they were open in the prior year on the first day of the fiscal period being presented. Stores which have been remodeled, expanded, and/or relocated, but would otherwise be included as comparable stores, are not excluded from the comparable store sales calculation. Online sales are excluded from comparable store sales. Management considers comparable store sales to be an important indicator of current Company performance, helping leverage certain fixed costs when results are positive. Negative comparable store sales results could reduce net sales and have a negative impact on operating leverage, thus reducing net earnings.

Merchandise Margins – Management evaluates the components of merchandise margin including initial markup and the amount of markdowns during a period. Any inability to obtain acceptable levels of initial markups or any significant increase in the Company’s use of markdowns could have an adverse effect on the Company’s gross margin and results of operations.

Operating Margin – Operating margin is a good indicator for management of the Company’s success. Operating margin can be positively or negatively affected by comparable store sales, merchandise margins, occupancy costs, and the Company’s ability to control operating costs.

Cash Flow and Liquidity (working capital) - Management reviews current cash and short-term investments along with cash flow from operating, investing, and financing activities to determine the Company’s short-term cash needs for operations and expansion. The Company believes that existing cash, short-term investments, and cash flow from operations will be sufficient to fund current and long-term anticipated capital expenditures and working capital requirements for the next several years.

 
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THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The table below sets forth the percentage relationships of sales and various expense categories in the Statements of Income for the thirteen and thirty-nine week periods ended October 31, 2009 and November 1, 2008:
 
   
Thirteen Weeks Ended
   
Increase/
   
Thirty-nine Weeks Ended
   
Increase/
 
    
Oct. 31, 2009
   
Nov. 1, 2008
   
(Decrease)
   
Oct. 31, 2009
   
Nov. 1, 2008
   
(Decrease)
 
                                     
Net sales
    100.0 %     100.0 %