a6422206.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended July 31, 2010

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 

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

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;  Accelerated filer;  Non-accelerated filer;  Smaller Reporting Company

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

The number of shares outstanding of the Registrant's Common Stock, as of September 3, 2010, was 46,650,516.
 
 
 

 
 
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
16
 
       
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
25
 
       
Item 4.
Controls and Procedures
25
 
       
       
Part II. Other Information
 
       
Item 1.
Legal Proceedings
26
 
       
Item 1A.
Risk Factors
26
 
       
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
26
 
       
Item 3.
Defaults Upon Senior Securities
26
 
       
Item 4.
Reserved
26
 
       
Item 5.
Other Information
26
 
       
Item 6.
Exhibits
26
 
       
Signatures
 
27
 
 

 
2

 
 
THE BUCKLE, INC.
           
             
BALANCE SHEETS
           
(Amounts in Thousands Except Share and Per Share Amounts)
 
(Unaudited)
           
             
             
   
July 31,
   
January 30,
 
ASSETS
 
2010
   
2010
 
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 93,082     $ 135,340  
Short-term investments
    30,380       22,687  
Receivables
    9,077       6,911  
Inventory
    108,680       88,187  
Prepaid expenses and other assets
    20,287       11,684  
Total current assets
    261,506       264,809  
                 
PROPERTY AND EQUIPMENT
    334,004       305,974  
Less accumulated depreciation and amortization
    (165,956 )     (159,392 )
      168,048       146,582  
                 
LONG-TERM INVESTMENTS
    73,798       72,770  
OTHER ASSETS
    5,825       4,742  
                 
    $ 509,177     $ 488,903  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES:
               
Accounts payable
  $ 38,614     $ 24,364  
Accrued employee compensation
    16,276       41,463  
Accrued store operating expenses
    8,338       8,866  
Gift certificates redeemable
    9,310       13,507  
Income taxes payable
    493       3,830  
Total current liabilities
    73,031       92,030  
                 
DEFERRED COMPENSATION
    7,110       5,957  
DEFERRED RENT LIABILITY
    37,605       36,657  
Total liabilities
    117,746       134,644  
                 
COMMITMENTS
               
                 
STOCKHOLDERS’ EQUITY:
               
Common stock, authorized 100,000,000 shares of $.01 par value; 46,790,821 and 46,381,263
               
shares issued and outstanding at July 31, 2010 and January 30, 2010, respectively
    468       464  
Additional paid-in capital
    83,716       78,837  
Retained earnings
    307,914       275,751  
Accumulated other comprehensive loss
    (667 )     (793 )
Total stockholders’ equity
    391,431       354,259  
                 
    $ 509,177     $ 488,903  
                 
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
   
Twenty-six Weeks Ended
 
   
July 31,
   
August 1,
   
July 31,
   
August 1,
 
   
2010
   
2009
   
2010
   
2009
 
                         
SALES, Net of returns and allowances
  $ 188,639     $ 192,906     $ 403,436     $ 392,603  
                                 
COST OF SALES (Including buying,
                               
distribution, and occupancy costs)
    113,251       110,628       234,597       223,622  
                                 
Gross profit
    75,388       82,278       168,839       168,981  
                                 
OPERATING EXPENSES:
                               
Selling
    36,644       37,507       76,487       75,104  
General and administrative
    6,218       6,647       13,639       14,025  
      42,862       44,154       90,126       89,129  
                                 
INCOME FROM OPERATIONS
    32,526       38,124       78,713       79,852  
                                 
OTHER INCOME, Net
    566       1,549       2,399       2,459  
                                 
INCOME BEFORE INCOME TAXES
    33,092       39,673       81,112       82,311  
                                 
PROVISION FOR INCOME TAXES
    12,345       14,679       30,255       30,455  
                                 
NET INCOME
  $ 20,747     $ 24,994     $ 50,857     $ 51,856  
                                 
                                 
EARNINGS PER SHARE:
                               
Basic
  $ 0.45     $ 0.55     $ 1.10     $ 1.14  
                                 
Diluted
  $ 0.44     $ 0.54     $ 1.08     $ 1.11  
                                 
Basic weighted average shares
    46,165       45,640       46,109       45,585  
Diluted weighted average shares
    47,059       46,623       47,026       46,572  
                                 
See notes to unaudited condensed financial statements.
                         
 
 
4

 

 
THE BUCKLE, INC.
 
                                     
STATEMENTS OF STOCKHOLDERS' EQUITY
 
(Dollar Amounts in Thousands Except Share and Per Share Amounts)
 
(Unaudited)
                                   
                                     
                                     
                           
Accumulated
       
               
Additional
         
Other
       
   
Number
   
Common
   
Paid-in
   
Retained
   
Comprehensive
       
   
of Shares
   
Stock
   
Capital
   
Earnings
   
Loss
   
Total
 
                                     
  FISCAL 2010
                                   
BALANCE, January 31, 2010
    46,381,263     $ 464     $ 78,837     $ 275,751     $ (793 )   $ 354,259  
                                                 
Net income
    -       -       -       50,857       -       50,857  
Dividends paid on common stock,
                                               
($0.20 per share)
    -       -       -       (18,694 )     -       (18,694 )
Common stock issued on exercise
                                               
of stock options
    166,323       2       839       -       -       841  
Issuance of non-vested stock, net of forfeitures
    243,235       2       (2 )     -       -       -  
Amortization of non-vested stock grants,
                                               
net of forfeitures
    -       -       2,168       -       -       2,168  
Stock option compensation expense
    -       -       32       -       -       32  
Income tax benefit related to exercise of
                                               
stock options
    -       -       1,842       -       -       1,842  
Unrealized loss on investments, net of tax
    -       -       -       -       126       126  
                                                 
BALANCE, July 31, 2010
    46,790,821     $ 468     $ 83,716     $ 307,914     $ (667 )   $ 391,431  
                                                 
                                                 
  FISCAL 2009
                                               
BALANCE, February 1, 2009
    45,906,265     $ 459     $ 68,894     $ 268,789     $ (920 )   $ 337,222  
                                                 
Net income
    -       -       -       51,856       -       51,856  
Dividends paid on common stock,
                                               
($0.20 per share)
    -       -       -       (18,476 )     -       (18,476 )
Common stock issued on exercise
                                               
of stock options
    173,511       2       1,136       -       -       1,138  
Issuance of non-vested stock, net of forfeitures
    197,429       2       (2 )     -       -       -  
Amortization of non-vested stock grants,
                                               
net of forfeitures
    -       -       2,413       -       -       2,413  
Stock option compensation expense
    -       -       109       -       -       109  
Income tax benefit related to exercise
                                               
of stock options
    -       -       1,809       -       -       1,809  
Unrealized loss on investments, net of tax
    -       -       -       -       (95 )     (95 )
                                                 
BALANCE, August 1, 2009
    46,277,205     $ 463     $ 74,359     $ 302,169     $ (1,015 )   $ 375,976  
                                                 
See notes to unaudited condensed financial statements.
                                         
 
 
5

 
 
THE BUCKLE, INC.
           
             
STATEMENTS OF CASH FLOWS
           
(Dollar Amounts in Thousands)
           
(Unaudited)
           
             
   
Twenty-six Weeks Ended
 
   
July 31,
   
August 1,
 
   
2010
   
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 50,857     $ 51,856  
Adjustments to reconcile net income to net cash flows
               
from operating activities:
               
Depreciation and amortization
    13,362       11,438  
Amortization of non-vested stock grants, net of forfeitures
    2,168       2,413  
Stock option compensation expense
    32       109  
Realized gain on securities
    -       (907 )
Deferred income taxes
    (815 )     (936 )
Other
    272       (113 )
Changes in operating assets and liabilities:
               
Receivables
    1,401       (511 )
Inventory
    (20,493 )     (22,560 )
Prepaid expenses and other assets
    (8,203 )     (769 )
Accounts payable
    16,628       19,064  
Accrued employee compensation
    (25,187 )     (20,712 )
Accrued store operating expenses
    (528 )     696  
Gift certificates redeemable
    (4,197 )     (3,158 )
Income taxes payable
    (6,809 )     (7,753 )
Long-term liabilities and deferred compensation
    2,101       2,955  
                 
Net cash flows from operating activities
    20,589       31,112  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property and equipment
    (37,492 )     (26,041 )
Proceeds from sale of property and equipment
    14       307  
Change in other assets
    (794 )     38  
Purchases of investments
    (32,281 )     (22,201 )
Proceeds from sales/maturities of investments
    23,760       15,584  
                 
Net cash flows from investing activities
    (46,793 )     (32,313 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from the exercise of stock options
    841       1,138  
Excess tax benefit from stock option exercises
    1,799       1,812  
Payment of dividends
    (18,694 )     (18,476 )
                 
Net cash flows from financing activities
    (16,054 )     (15,526 )
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS
    (42,258 )     (16,727 )
                 
CASH AND CASH EQUIVALENTS, Beginning of period
    135,340       162,463  
                 
CASH AND CASH EQUIVALENTS, End of period
  $ 93,082     $ 145,736  
                 
See notes to unaudited condensed financial statements.
               
 
 
 
6

 
 
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED JULY 31, 2010 AND AUGUST 1, 2009
 (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 30, 2010, included in The Buckle, Inc.'s 2009 Form 10-K.

The Company follows generally accepted accounting principles (“GAAP”) established by the Financial Accounting Standards Board (“FASB”). References to GAAP in these notes are to the FASB Accounting Standards Codification (“ASC”), 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 419 stores located in 41 states throughout the continental United States as of July 31, 2010 and 401 stores in 41 states as of August 1, 2009. During the second quarter of fiscal 2010, the Company opened seven new stores and substantially remodeled twelve stores. During the second quarter of fiscal 2009, the Company opened nine new stores and substantially remodeled seven 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
   
Twenty-six Weeks Ended
 
 
Merchandise Group
 
July 31, 2010
   
August 1, 2009
   
July 31, 2010
   
August 1, 2009
 
                           
 
Denims
    37.8 %     35.3 %     41.9 %     38.6 %
 
Tops (including sweaters)
    36.3       39.0       34.5       37.7  
 
Sportswear/Fashions
    10.9       11.1       9.6       9.7  
 
Accessories
    8.9       8.3       7.6       7.7  
 
Footwear
    4.9       5.0       5.1       5.0  
 
Outerwear
    0.5       0.6       0.7       0.7  
 
Casual bottoms
    0.5       0.6       0.5       0.5  
 
Other
    0.2       0.1       0.1       0.1  
                                   
        100.0 %     100.0 %     100.0 %     100.0 %

 
7

 
 
3.
Net Earnings Per Share

Basic earnings per share data are based on the weighted average outstanding common shares during the period. Diluted earnings per share data are based on the weighted average outstanding common shares and the effect of all dilutive potential common shares, including stock options.
 
     
Thirteen Weeks Ended
   
Thirteen Weeks Ended
 
     
July 31, 2010
   
August 1, 2009
 
           
Weighted
               
Weighted
       
           
Average
   
Per Share
         
Average
   
Per Share
 
     
Income
   
Shares
   
Amount
   
Income
   
Shares
   
Amount
 
                                       
 
Basic EPS
  $ 20,747       46,165     $ 0.45     $ 24,994       45,640     $ 0.55  
                                                   
 
Effect of Dilutive Securities:
                                               
 
Stock options and
                                               
 
non-vested shares
    -       894       (0.01 )     -       983       (0.01 )
                                                   
 
Diluted EPS
  $ 20,747       47,059     $ 0.44     $ 24,994       46,623     $ 0.54  
 
     
Twenty-six Weeks Ended
   
Twenty-six Weeks Ended
 
     
July 31, 2010
   
August 1, 2009
 
           
Weighted
               
Weighted
       
           
Average
   
Per Share
         
Average
   
Per Share
 
     
Income
   
Shares
   
Amount
   
Income
   
Shares
   
Amount
 
                                       
 
Basic EPS
  $ 50,857       46,109     $ 1.10     $ 51,856       45,585     $ 1.14  
                                                   
 
Effect of Dilutive Securities:
                                               
 
Stock options and
                                               
 
non-vested shares
    -       917       (0.02 )     -       987       (0.03 )
                                                   
 
Diluted EPS
  $ 50,857       47,026     $ 1.08     $ 51,856       46,572     $ 1.11  
 

4.
Investments
 
The following is a summary of investments as of July 31, 2010:
                                 
     
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
  $ 22,475     $ -     $ (1,058 )   $ (725 )   $ 20,692  
 
Preferred stock
    2,000       -       -       (1,974 )     26  
      $ 24,475     $ -     $ (1,058 )   $ (2,699 )   $ 20,718  
                                           
 
Held-to-Maturity Securities:
                                 
 
State and municipal bonds
  $ 55,018     $ 707     $ (12 )   $ -     $ 55,713  
 
Fixed maturities
    8,350       106       -       -       8,456  
 
Certificates of deposit
    985       20       -       -       1,005  
 
U.S. treasuries
    11,997       -       (5 )     -       11,992  
      $ 76,350     $ 833     $ (17 )   $ -     $ 77,166  
                                           
 
Trading Securities:
                                       
 
Mutual funds
  $ 7,288     $ -     $ (178 )   $ -     $ 7,110  

 
8

 

The following is a summary of investments as of January 30, 2010:
                                 
     
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
  $ 24,775     $ -     $ (1,258 )   $ (725 )   $ 22,792  
 
Municipal bonds
    8,116       14       (14 )     -       8,116  
 
Preferred stock
    2,000       -       -       (1,974 )     26  
      $ 34,891     $ 14     $ (1,272 )   $ (2,699 )   $ 30,934  
                                           
 
Held-to-Maturity Securities:
                                 
 
State and municipal bonds
  $ 47,036     $ 535     $ (10 )   $ -     $ 47,561  
 
Fixed maturities
    8,890       92       -       -       8,982  
 
Certificates of deposit
    1,640       27       -       -       1,667  
 
U.S. treasuries
    1,000       1       -       -       1,001  
      $ 58,566     $ 655     $ (10 )   $ -     $ 59,211  
                                           
 
Trading Securities:
                                       
 
Mutual funds
  $ 6,200     $ -     $ (243 )   $ -     $ 5,957  
 
The auction-rate securities and preferred stock were invested as follows as of July 31, 2010:
               
 
Nature
 
Underlying Collateral
   
Par Value
 
 
Municipal revenue bonds
 
91% insured by AAA/AA/A-rated bond insurers at July 31, 2010
  $ 11,125  
 
Municipal bond funds
 
Fixed income instruments within issuers' money market funds
    8,400  
 
Student loan bonds
 
Student loans guaranteed by state entities
    2,950  
 
Preferred stock
 
Underlying investments of closed-end funds
    2,000  
 
Total par value
      $ 24,475  
 
As of July 31, 2010, the Company’s auction-rate securities portfolio was 58% AAA/Aaa-rated, 26% AA/Aa-rated, 8% A-rated, and 8% below A-rated.

The amortized cost and fair value of debt securities by contractual maturity as of July 31, 2010 is as follows:
               
     
Amortized
   
Fair
 
     
Cost
   
Value
 
 
Held-to-maturity securities
           
 
Less than 1 year
  $ 30,380     $ 30,457  
 
1 - 5 years
    44,251       44,897  
 
5 - 10 years
    947       1,016  
 
Greater than 10 years
    772       796  
      $ 76,350     $ 77,166  
 
At July 31, 2010 and January 30, 2010, $20,718 and $26,634 of available-for-sale securities and $45,970 and $40,179 of held-to-maturity securities are classified in long-term investments. Trading securities are held in a Rabbi Trust, intended to fund the Company’s deferred compensation plan, and are classified in long-term investments.
 
 
9

 
 
The Company’s investments in auction-rate securities (“ARS”) and preferred securities are classified as available-for-sale and reported at fair market value. As of July 31, 2010, the reported investment amount is net of $1,058 of temporary impairment and $2,699 of other-than-temporary impairment (“OTTI”) to account for the impairment of certain securities from their stated par value. The $1,058 temporary impairment is reported, net of tax, as an “accumulated other comprehensive loss” of $667 in stockholders’ equity as of July 31, 2010. For the investments considered temporarily impaired, the Company believes that these ARS can be successfully redeemed or liquidated through future auctions at par value plus accrued interest. The Company believes it has the ability and maintains its intent to hold these investments until such recovery of market value occurs; therefore, the Company believes the current lack of liquidity has created the temporary impairment in valuation.

As of July 31, 2010, the Company had $22,475 invested in ARS and $2,000 invested in preferred securities, at par value, which are reported at their estimated fair value of $20,692 and $26, respectively. As of January 30, 2010, the Company had $24,775 invested in ARS and $2,000 invested in preferred securities, which were reported at their estimated fair value of $22,792 and $26, respectively. ARS have a long-term stated maturity, but are reset through a “dutch auction” process that occurs every 7 to 49 days, depending on the terms of the individual security. Until February 2008, the ARS market was highly liquid. During February 2008, however, a significant number of auctions related to these securities failed, meaning that there was not enough demand to sell the entire issue at auction. The failed auctions have limited the current liquidity of certain of the Company’s investments in ARS and the Company has reason to believe that certain of the underlying issuers of its ARS are currently at risk. The Company does not, however, anticipate that further auction failures will have a material impact on the Company’s ability to fund its business. During the second quarter of fiscal 2010, the Company was able to successfully liquidate $1,325 of its investments in ARS at par value. The Company reviews all investments for OTTI at least quarterly or as indicators of impairment exist. Indicators of impairment include the duration and severity of decline in market value. In addition, the Company considers qualitative factors including, but not limited to, the financial condition of the investee, the credit rating of the investee, and the current and expected market and industry conditions in which the investee operates.

As of July 31, 2010, all of the Company’s investments in ARS and preferred securities were classified as long-term investments. As of January 30, 2010, $1,350 of the Company’s investments in ARS and preferred securities was classified in short-term investments and $21,468 was classified in long-term investments.

5.
Fair Value Measurements
 
As defined by FASB ASC 820, Fair Value Measurements and Disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:
 
Level 1 – Quoted market prices in active markets for identical assets or liabilities. Short-term and long-term investments with active markets or known redemption values are reported at fair value utilizing Level 1 inputs.
Level 2 – Observable market-based inputs (either directly or indirectly) such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or inputs that are corroborated by market data.
Level 3 – Unobservable inputs that are not corroborated by market data and are projections, estimates, or interpretations that are supported by little or no market activity and are significant to the fair value of the assets. The Company has concluded that certain of its ARS represent Level 3 valuation and should be valued using a discounted cash flow analysis. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of cash flows, and expected holding periods of the ARS.
 
 
 
10

 
 
As of July 31, 2010 and January 30, 2010, the Company held certain assets that are required to be measured at fair value on a recurring basis including available-for-sale and trading securities. The Company’s available-for-sale securities include its investments in ARS, as further described in Note 4. The failed auctions, beginning in February 2008, related to certain of the Company’s investments in ARS have limited the availability of quoted market prices. The Company has determined the fair value of its ARS using Level 1 inputs for known or anticipated subsequent redemptions at par value, Level 2 inputs using observable inputs, and Level 3 using unobservable inputs where the following criteria were considered in estimating fair value:
 
Pricing was provided by the custodian of ARS;
Pricing was provided by a third-party broker for ARS;
Sales of similar securities;
Quoted prices for similar securities in active markets;
Quoted prices for publicly traded preferred securities;
Quoted prices for similar assets in markets that are not active - including markets where there are few transactions for the asset, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly;
Pricing was provided by a third-party valuation consultant (using Level 3 inputs).
 
In addition, the Company considers other factors including, but not limited to, the financial condition of the investee, the credit rating, insurance, guarantees, collateral, cash flows, and the current and expected market and industry conditions in which the investee operates. Management believes it has used information that was reasonably obtainable in order to complete its valuation process and determine if the Company’s investments in ARS had incurred any temporary and/or other-than-temporary impairment as of July 31, 2010 and January 30, 2010.

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

The Company’s financial assets measured at fair value on a recurring basis subject to the disclosure requirements of FASB ASC 820 were as follows:
         
     
Fair Value Measurements at Reporting Date Using
 
     
Quoted Prices in
                   
     
Active Markets
   
Significant
   
Significant
       
     
for Identical
   
Observable
   
Unobservable
       
     
Assets
   
Inputs
   
Inputs
       
 
July 31, 2010
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
 
Available-for-Sale Securities
                       
 
Auction-rate securities
  $ -     $ 12,106     $ 8,586     $ 20,692  
 
Preferred stock
    26       -       -       26  
 
Trading Securities (including mutual funds)
    7,110       -       -       7,110  
 
Totals
  $ 7,136     $ 12,106     $ 8,586     $ 27,828  

 
11

 
 
         
     
Fair Value Measurements at Reporting Date Using
 
     
Quoted Prices in
                   
     
Active Markets
   
Significant
   
Significant
       
     
for Identical
   
Observable
   
Unobservable
       
     
Assets
   
Inputs
   
Inputs
       
 
January 30, 2010
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
 
Available-for-Sale Securities
                       
 
Auction-rate securities
  $ 1,261     $ 12,894     $ 8,637     $ 22,792  
 
Municipal bonds
    8,116       -       -       8,116  
 
Preferred stock
    26       -       -       26  
 
Trading Securities (including mutual funds)
    5,957       -       -       5,957  
 
Totals
  $ 15,360     $ 12,894     $ 8,637     $ 36,891  
 
ARS, municipal bonds, and preferred securities included in Level 1 represent securities which have a known or anticipated upcoming redemption as of the reporting date and those that have publicly traded quoted prices. ARS included in Level 2 represent securities which have not experienced a successful auction subsequent to the end of fiscal 2007. The fair market value for these securities was determined by applying a discount to par value based on auction prices for similar securities and by utilizing a discounted cash flow model, using market-based inputs, to determine fair value. The Company used a discounted cash flow model to value its Level 3 investments, using estimates regarding recovery periods, yield, and liquidity. The assumptions used are subjective based upon management’s judgment and views on current market conditions, and resulted in $714 of the Company’s recorded temporary impairment and $725 of the OTTI as of July 31, 2010. 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 as defined in FASB ASC 820 are as follows:
                     
     
Twenty-six Weeks Ended July 31, 2010
 
     
Level 1
   
Level 2
   
Level 3
 
 
Balance, beginning of year
  $ 15,360     $ 12,894     $ 8,637  
 
Total gains or losses (realized and unrealized):
                       
 
Included in net income
    251       -       -  
 
Included in other comprehensive income
    27       99       -  
 
Purchases, sales, issuances, and settlements (net)
    (8,502 )     (887 )     (51 )
 
Transfers in and/or out
    -       -       -  
 
Balance, end of quarter
  $ 7,136     $ 12,106     $ 8,586  

                     
     
Twenty-six Weeks Ended August 1, 2009
 
     
Level 1
   
Level 2
   
Level 3
 
 
Balance, beginning of year
  $ 6,240     $ 21,468     $ 7,260  
 
Total gains or losses (realized and unrealized):
                       
 
Included in net income
    -       -       -  
 
Included in other comprehensive income
    18       (113 )     -  
 
Purchases, sales, issuances, and settlements (net)
    682       (3,479 )     (25 )
 
Transfers in and/or out
    1,645       (1,645 )     -  
 
Balance, end of quarter
  $ 8,585     $ 16,231     $ 7,235  


 
12

 
 
6.
Comprehensive Income
 
Comprehensive income consists of net income and unrealized gains and losses on available-for-sale securities. Unrealized losses on the Company’s investments in auction-rate securities have been included in accumulated other comprehensive loss and are separately included as a component of stockholders’ equity, net of related income taxes.
 
     
Thirteen Weeks Ended
 
     
July 31, 2010
   
August 1, 2009
 
               
 
Net income
  $ 20,747     $ 24,994  
 
Changes in net unrealized losses on investments,
               
 
net of taxes of $(54) and $45
    92       (77 )
 
Comprehensive Income
  $ 20,839     $ 24,917  
 
     
Twenty-six Weeks Ended
 
     
July 31, 2010
   
August 1, 2009
 
               
 
Net income
  $ 50,857     $ 51,856  
 
Changes in net unrealized losses on investments,
               
 
net of taxes of $(74) and $56
    126       (95 )
 
Comprehensive Income
  $ 50,983     $ 51,761  
 
7.
Supplemental Cash Flow Information
 
The Company had non-cash investing activities during the twenty-six week periods ended July 31, 2010 and August 1, 2009 of $2,378 and $(1,010), 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 twenty-six week periods ended July 31, 2010 and August 1, 2009 of $36,081 and $37,282, 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 July 31, 2010, 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 July 31, 2010, 399,513 shares were available for grant under the Company’s 2005 Restricted Stock Plan (all of which were available for grant to executive officers) and 65,624 shares were available for grant under the Company’s 2008 Director Restricted Stock Plan. The total number of shares authorized for issuance under the Company’s 2005 Restricted Plan was increased from 1,200,000 to 1,700,000 and the term of the plan was extended for two additional years (covering fiscal years 2010 and 2011) upon shareholder approval at the Company’s Annual Meeting held on June 4, 2010.
 
The Company accounts for stock-based compensation in accordance with FASB ASC 718, Compensation-Stock Compensation. Compensation expense was recognized during fiscal 2010 and fiscal 2009 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.
 
 
13

 
 
Information regarding the impact of stock-based compensation expense is as follows:
         
     
Thirteen Weeks Ended
 
     
July 31, 2010
   
August 1, 2009
 
 
Stock-based compensation expense, before tax:
           
 
     Stock options
  $ 16     $ 69  
 
     Non-vested shares of common stock
    668       1,188  
 
Total stock-based compensation expense, before tax
  $ 684     $ 1,257  
 
Total stock-based compensation expense, after tax
  $ 431     $ 792  
         
     
Twenty-six Weeks Ended
 
     
July 31, 2010
   
August 1, 2009
 
 
Stock-based compensation expense, before tax:
           
 
     Stock options
  $ 32     $ 109  
 
     Non-vested shares of common stock
    2,168       2,413  
 
Total stock-based compensation expense, before tax
  $ 2,200     $ 2,522  
 
Total stock-based compensation expense, after tax
  $ 1,386     $ 1,589  
 
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 twenty-six week periods ended July 31, 2010 and August 1, 2009, the excess tax benefit realized from exercised stock options was $1,799 and $1,812, respectively.

No stock options were granted during fiscal 2010 or fiscal 2009. 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, 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 twenty-six week period ended July 31, 2010 is as follows:

                       
               
Weighted
     
           
Weighted
 
Average
     
           
Average
 
Remaining
   
Aggregate
           
Exercise
 
Contractual
   
Intrinsic
     
Shares
   
Price
 
Life
   
Value
                       
 
Outstanding - beginning of year
    1,352,111     $ 5.02          
 
Granted
    -       -          
 
Expired/forfeited
    -       -          
 
Exercised
    (166,323 )     5.06          
 
Outstanding - end of quarter
    1,185,788     $ 5.01  
              2.88
  years
26,723
 
Exercisable - end of quarter
    1,179,017     $ 4.90  
              2.85
  years
26,701

 
14

 

The total intrinsic value of options exercised during the twenty-six week periods ended July 31, 2010 and August 1, 2009 was $5,117 and $5,026, respectively. As of July 31, 2010, there was $32 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 0.5 years.

Non-vested shares of common stock granted during the twenty-six week periods ended July 31, 2010 and August 1, 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.

A summary of the Company’s stock-based compensation activity related to grants of non-vested shares of common stock for the twenty-six week period ended July 31, 2010 is as follows:

 
           
Weighted Average
 
           
Grant Date
 
     
Shares
   
Fair Value
 
               
 
Non-Vested - beginning of year
    405,345     $ 23.29  
 
Granted
    243,900       28.53  
 
Forfeited
    (665 )     25.29  
 
Vested
    (51,516 )     21.75  
 
Non-Vested - end of quarter
    597,064     $ 25.56  
 
As of July 31, 2010, there was $5,344 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 twenty-six week periods ended July 31, 2010 and August 1, 2009 was $1,871 and $1,393, respectively.

9.  
Recently Issued Accounting Pronouncements

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 revises two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances, and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. The new disclosures about fair value measurements are presented in Note 5 to these financial statements, except for the requirement concerning gross presentation of Level 3 activity, which is effective for fiscal years beginning after December 15, 2010. The adoption of ASU No. 2010-06 had no effect on the Company’s financial position or results of operations.
 
 
 
15

 
 
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.
 
 
 
16

 
 
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 twenty-six week periods ended July 31, 2010 and August 1, 2009:
 
   
Percentage of Net Sales
   
Percentage
 
Percentage of Net Sales
   
Percentage
   
Thirteen Weeks Ended