a50648961.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 May 4, 2013

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

For the Transition Period from ____________ to ____________

Commission File Number: 001-12951

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

Nebraska
47-0366193
(State or other jurisdiction of
 (I.R.S. Employer
incorporation or organization)
Identification No.)
 
2407 West 24th Street, Kearney, Nebraska  68845-4915
(Address of principal executive offices)     (Zip Code)

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

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

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

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

___________________________________________________________

(Former name, former address, and former fiscal year if changed since last report)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
 
Indicate by check mark whether the registrant  has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files). Yes þ No o

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

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

The number of shares outstanding of the Registrant's Common Stock, as of June 7, 2013, was 48,325,331.
 
 
 

 
 
 THE BUCKLE, INC.

FORM 10-Q
INDEX



   
Pages
Part I. Financial Information (unaudited)
     
3
     
 
 
16
     
24
     
24
     
     
Part II.   Other Information
     
25
     
25
     
25
     
25
     
25
     
25
     
25
     
26
 
 
2

 
 
           
             
CONSOLIDATED BALANCE SHEETS
           
(Amounts in Thousands Except Share and Per Share Amounts)
           
(Unaudited)
           
             
   
May 4,
   
February 2,
 
ASSETS
 
2013
   
2013
 
             
CURRENT ASSETS:
           
  Cash and cash equivalents
  $ 116,601     $ 117,608  
  Short-term investments
    27,566       26,414  
  Receivables
    4,176       3,470  
  Inventory
    105,894       103,853  
  Prepaid expenses and other assets
    26,506       25,528  
           Total current assets
    280,743       276,873  
                 
PROPERTY AND EQUIPMENT
    383,901       373,286  
  Less accumulated depreciation and amortization
    (217,396 )     (210,183 )
      166,505       163,103  
                 
LONG-TERM INVESTMENTS
    36,094       35,735  
OTHER ASSETS
    2,265       2,263  
                 
    $ 485,607     $ 477,974  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES:
               
  Accounts payable
  $ 40,746     $ 34,124  
  Accrued employee compensation
    13,435       42,183  
  Accrued store operating expenses
    10,703       10,121  
  Gift certificates redeemable
    17,674       22,221  
  Income taxes payable
    21,062       20,307  
           Total current liabilities
    103,620       128,956  
                 
DEFERRED COMPENSATION
    11,890       10,600  
DEFERRED RENT LIABILITY
    38,441       36,947  
OTHER LIABILITIES
    11,331       11,822  
           Total liabilities
    165,282       188,325  
                 
COMMITMENTS
               
                 
STOCKHOLDERS’ EQUITY:
               
  Common stock, authorized 100,000,000 shares of $.01 par value; 48,322,955 and 48,059,269
               
     shares issued and outstanding at May 4, 2013 and February 2, 2013, respectively
    483       481  
  Additional paid-in capital
    120,170       117,391  
  Retained earnings
    200,598       172,711  
  Accumulated other comprehensive loss
    (926 )     (934 )
           Total stockholders’ equity
    320,325       289,649  
                 
    $ 485,607     $ 477,974  
                 
See notes to unaudited condensed consolidated financial statements.
               
 
 
3

 
 
THE BUCKLE, INC.
           
             
CONSOLIDATED STATEMENTS OF INCOME
           
(Amounts in Thousands Except Per Share Amounts)
           
(Unaudited)
           
             
   
Thirteen Weeks Ended
 
   
May 4,
   
April 28,
 
   
2013
   
2012
 
             
SALES, Net of returns and allowances
  $ 269,712     $ 263,762  
                 
COST OF SALES (Including buying, distribution, and occupancy costs)
    152,705       149,567  
                 
           Gross profit
    117,007       114,195  
                 
OPERATING EXPENSES:
               
  Selling
    47,290       46,270  
  General and administrative
    10,460       9,903  
      57,750       56,173  
                 
INCOME FROM OPERATIONS
    59,257       58,022  
                 
OTHER INCOME, Net
    350       1,812  
                 
INCOME BEFORE INCOME TAXES
    59,607       59,834  
                 
PROVISION FOR INCOME TAXES
    22,055       22,025  
                 
NET INCOME
  $ 37,552     $ 37,809  
                 
                 
EARNINGS PER SHARE:
               
  Basic
  $ 0.79     $ 0.80  
                 
  Diluted
  $ 0.78     $ 0.79  
                 
Basic weighted average shares
    47,698       47,219  
Diluted weighted average shares
    47,933       47,597  
                 
See notes to unaudited condensed consolidated financial statements.
               
 
 
4

 
 
THE BUCKLE, INC.
           
             
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
           
(Amounts in Thousands)
           
(Unaudited)
           
             
   
Thirteen Weeks Ended
 
   
May 4,
   
April 28,
 
   
2013
   
2012
 
             
NET INCOME
  $ 37,552     $ 37,809  
                 
OTHER COMPREHENSIVE INCOME, NET OF TAX:
               
  Change in unrealized loss on investments
    8       (2 )
Other comprehensive income
    8       (2 )
                 
COMPREHENSIVE INCOME
  $ 37,560     $ 37,807  
                 
See notes to unaudited condensed consolidated financial statements.
               
 
 
5

 
 
THE BUCKLE, INC.
                                   
                                     
CONSOLIDATED 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 2013
                                   
BALANCE, February 3, 2013
    48,059,269     $ 481     $ 117,391     $ 172,711     $ (934 )   $ 289,649  
                                                 
  Net income
    -       -       -       37,552       -       37,552  
  Dividends paid on common stock,
                                               
    ($0.20 per share)
    -       -       -       (9,665 )     -       (9,665 )
  Common stock issued on exercise
                                               
    of stock options
    11,863       -       -       -       -       -  
   Issuance of non-vested stock, net of                                                
    forfeitures
    251,823       2       (2 )     -       -       -  
  Amortization of non-vested stock grants,
                                               
     net of forfeitures
    -       -       2,584       -       -       2,584  
  Income tax benefit related to exercise of
                                               
    stock options
    -       -       197       -       -       197  
  Change in unrealized loss on investments,
                                               
    net of tax
    -       -       -       -       8       8  
                                                 
BALANCE, May 4, 2013
    48,322,955     $ 483     $ 120,170     $ 200,598     $ (926 )   $ 320,325  
                                                 
                                                 
  FISCAL 2012
                                               
BALANCE, January 29, 2012
    47,432,089     $ 474     $ 100,333     $ 263,039     $ (699 )   $ 363,147  
                                                 
  Net income
    -       -       -       37,809       -       37,809  
  Dividends paid on common stock,
                                               
    ($0.20 per share)
    -       -       -       (9,584 )     -       (9,584 )
  Common stock issued on exercise
                                               
    of stock options
    238,448       2       315       -       -       317  
   Issuance of non-vested stock, net of                                                
    forfeitures
    250,900       3       (3 )     -       -       -  
  Amortization of non-vested stock grants,
                                               
     net of forfeitures
    -       -       2,138       -       -       2,138  
  Income tax benefit related to exercise of
                                               
    stock options
    -       -       4,165       -       -       4,165  
  Change in unrealized loss on investments,
                                               
    net of tax
    -       -       -       -       (2 )     (2 )
                                                 
BALANCE, April 28, 2012
    47,921,437     $ 479     $ 106,948     $ 291,264     $ (701 )   $ 397,990  
                                                 
See notes to unaudited condensed consolidated financial statements.
                                 
 
 
6

 
 
THE BUCKLE, INC.
           
             
CONSOLIDATED STATEMENTS OF CASH FLOWS
           
(Amounts in Thousands)
           
(Unaudited)
           
             
   
Thirteen Weeks Ended
 
   
May 4,
   
April 28,
 
   
2013
   
2012
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
  Net income
  $ 37,552     $ 37,809  
  Adjustments to reconcile net income to net cash flows
               
    from operating activities:
               
      Depreciation and amortization
    7,887       7,894  
      Amortization of non-vested stock grants, net of forfeitures
    2,584       2,138  
      Deferred income taxes
    (956 )     (791 )
      Other
    17       211  
      Changes in operating assets and liabilities:
               
        Receivables
    (847 )     515  
        Inventory
    (2,041 )     7,169  
        Prepaid expenses and other assets
    (519 )     (557 )
        Accounts payable
    6,471       4,578  
        Accrued employee compensation
    (28,748 )     (26,425 )
        Accrued store operating expenses
    582       (1,830 )
        Gift certificates redeemable
    (4,547 )     (4,925 )
        Income taxes payable
    922       9,555  
        Deferred rent liabilities and deferred compensation
    2,784       2,422  
                 
           Net cash flows from operating activities
    21,141       37,763  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
  Purchases of property and equipment
    (11,157 )     (8,772 )
  Purchases of investments
    (7,118 )     (5,718 )
  Proceeds from sales/maturities of investments
    5,619       2,467  
                 
           Net cash flows from investing activities
    (12,656 )     (12,023 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
  Proceeds from the exercise of stock options
    -       317  
  Excess tax benefit from stock option exercises
    173       3,709  
  Payment of dividends
    (9,665 )     (9,584 )
                 
           Net cash flows from financing activities
    (9,492 )     (5,558 )
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (1,007 )     20,182  
                 
CASH AND CASH EQUIVALENTS, Beginning of period
    117,608       166,511  
                 
CASH AND CASH EQUIVALENTS, End of period
  $ 116,601     $ 186,693  
                 
See notes to unaudited condensed consolidated financial statements.
               
 
 
7

 

THE BUCKLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED MAY 4, 2013 AND APRIL 28, 2012
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

1.  
Management Representation

The accompanying unaudited consolidated 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 consolidated financial statements for the fiscal year ended February 2, 2013, included in The Buckle, Inc.'s 2012 Form 10-K.

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

2.  
Description of the Business

The Company is a retailer of medium to better priced casual apparel, footwear, and accessories for fashion conscious young men and women. The Company operates its business as one reportable segment. The Company had 443 stores located in 43 states throughout the continental United States as of May 4, 2013 and 431 stores in 43 states as of April 28, 2012. During the thirteen week period ended May 4, 2013, the Company opened three new stores and substantially remodeled one store. During the thirteen week period ended April 28, 2012, the Company did not open any new stores, but did substantially remodel six 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
 
   
Thirteen Weeks Ended
 
Merchandise Group
 
May 4, 2013
   
April 28, 2012
 
             
Denims
    44.7 %     44.7 %
Tops (including sweaters)
    28.3       30.2  
Sportswear/Fashions
    10.8       10.7  
Accessories
    7.5       7.0  
Footwear
    6.3       5.6  
Outerwear
    1.0       0.8  
Casual bottoms
    0.9       0.9  
Other
    0.5       0.1  
      100.0 %     100.0 %
 
 
8

 
 
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
 
   
May 4, 2013
   
April 28, 2012
 
         
Weighted
               
Weighted
       
         
Average
   
Per Share
         
Average
   
Per Share
 
   
Income
   
Shares
   
Amount
   
Income
   
Shares
   
Amount
 
                                     
Basic EPS
  $ 37,552       47,698     $ 0.79     $ 37,809       47,219     $ 0.80  
Effect of Dilutive Securities:
                                               
    Stock options and
                                               
    non-vested shares
    -       235       (0.01 )     -       378       (0.01 )
Diluted EPS
  $ 37,552       47,933     $ 0.78     $ 37,809       47,597     $ 0.79  
 
4.  
Investments

The following is a summary of investments as of May 4, 2013:
 
                               
   
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
  $ 13,050     $ -     $ (1,470 )   $ (725 )   $ 10,855  
  Preferred stock
    2,000       -       -       (1,974 )     26  
    $ 15,050     $ -     $ (1,470 )   $ (2,699 )   $ 10,881  
                                         
Held-to-Maturity Securities:
   
 
                                 
  State and municipal bonds
  $ 40,389     $ 75     $ (9 )   $ -     $ 40,455  
  Certificates of deposit
    500       -       -       -       500  
    $ 40,889     $ 75     $ (9 )   $ -     $ 40,955  
                                         
Trading Securities:
                                       
  Mutual funds
  $ 11,222     $ 668     $ -     $ -     $ 11,890  
 
The following is a summary of investments as of February 2, 2013:
 
                               
   
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
  $ 13,075     $ -     $ (1,482 )   $ (725 )   $ 10,868  
  Preferred stock
    2,000       -       -       (1,974 )     26  
    $ 15,075     $ -     $ (1,482 )   $ (2,699 )   $ 10,894  
                                         
Held-to-Maturity Securities:
   
 
                                 
  State and municipal bonds
  $ 40,155     $ 108     $ (15 )   $ -     $ 40,248  
  Certificates of deposit
    500       4       -       -       504  
    $ 40,655     $ 112     $ (15 )   $ -     $ 40,752  
                                         
Trading Securities:
                                       
  Mutual funds
  $ 10,257     $ 343     $ -     $ -     $ 10,600  
 
 
9

 
 
The auction-rate securities and preferred stock were invested as follows as of May 4, 2013:
 
           
Nature
 
Underlying Collateral
 
Par Value
 
           
Municipal revenue bonds
 
100% insured by AAA/AA/A-rated bond insurers at May 4, 2013
  $ 10,050  
Municipal bond funds
 
Fixed income instruments within issuers' money market funds
    50  
Student loan bonds
 
Student loans guaranteed by state entities
    2,950  
Preferred stock
 
Underlying investments of closed-end funds
    2,000  
  Total par value
      $ 15,050  
 
As of May 4, 2013, the Company’s auction-rate securities portfolio was 68% AA/Aa-rated, 19% A-rated, and 13% below A-rated.

The amortized cost and fair value of debt securities by contractual maturity as of May 4, 2013 is as follows:
 
             
   
Amortized
   
Fair
 
   
Cost
   
Value
 
Held-to-Maturity Securities
           
Less than 1 year
  $ 27,566     $ 27,598  
1 - 5 years
    13,323       13,357  
    $ 40,889     $ 40,955  
 
At May 4, 2013 and February 2, 2013, $10,881 and $10,869 of available-for-sale securities and $13,323 and $14,266 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.

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 May 4, 2013, the reported investment amount is net of $1,470 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 $1,470 temporary impairment is reported, net of tax, as an “accumulated other comprehensive loss” of $926 in stockholders’ equity as of May 4, 2013. For the investments considered temporarily impaired, the Company believes that these ARS can be successfully redeemed or liquidated in the future 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 and has classified the investments in long-term investments.

As of May 4, 2013, the Company had $13,050 invested in ARS and $2,000 invested in preferred securities, at par value, which are reported at their estimated fair value of $10,855 and $26, respectively. As of February 2, 2013, the Company had $13,075 invested in ARS and $2,000 invested in preferred securities, which were reported at their estimated fair value of $10,868 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 first quarter of fiscal 2013, the Company was able to successfully liquidate $25 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.

 
10

 

As of May 4, 2013, all of the Company’s investments in ARS and preferred securities were classified in long-term investments. As of February 2, 2013, $25 of the Company’s investments in ARS and preferred securities was classified in short-term investments (due to a known upcoming redemption at par value) and $10,869 was classified in long-term investments.

5.  
Fair Value Measurements

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

      
Level 1 – Quoted market prices in active markets for identical assets or liabilities. Short-term and long-term investments with active markets or known redemption values are reported at fair value utilizing Level 1 inputs.
      
Level 2 – Observable market-based inputs (either directly or indirectly) such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or inputs that are corroborated by market data.
      
Level 3 – Unobservable inputs that are not corroborated by market data and are projections, estimates, or interpretations that are supported by little or no market activity and are significant to the fair value of the assets. The Company has concluded that certain of its ARS represent Level 3 valuation and should be valued using a discounted cash flow analysis. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of cash flows, and expected holding periods of the ARS. As of May 4, 2013, the unobservable inputs used by the Company and its independent third-party valuation consultant in valuing its Level 3 investments in ARS included:

o     
Durations until redemption ranging from 0.5 to 29.0 years, with a weighted average of 6.4 years.
o     
Discount rates ranging from 0.88% to 5.80%, with a weighted average of 2.28%.
o     
Loss severities ranging from 0% to 25% of par value, with a weighted average of 2.66%.

As of May 4, 2013 and February 2, 2013, 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 May 4, 2013 and February 2, 2013.

 
11

 

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

The Company’s financial assets measured at fair value on a recurring basis were as follows:
 
       
   
Fair Value Measurements at Reporting Date Using
 
   
Quoted Prices in
                   
   
Active Markets
   
Significant
   
Significant
       
   
for Identical
   
Observable
   
Unobservable
       
   
Assets
   
Inputs
   
Inputs
       
May 4, 2013
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
Available-for-sale securities:
                       
   Auction-rate securities
  $ -     $ 178     $ 10,677     $ 10,855  
   Preferred stock
    26       -       -       26  
Trading securities (including mutual funds)
    11,890       -       -       11,890  
Totals
  $ 11,916     $ 178     $ 10,677     $ 22,771  
 
       
   
Fair Value Measurements at Reporting Date Using
 
   
Quoted Prices in
                   
   
Active Markets
   
Significant
   
Significant
       
   
for Identical
   
Observable
   
Unobservable
       
   
Assets
   
Inputs
   
Inputs
       
February 2, 2013
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
Available-for-sale securities:
                       
   Auction-rate securities
  $ -     $ 178     $ 10,690     $ 10,868  
   Preferred stock
    26       -       -       26  
Trading securities (including mutual funds)
    10,600       -       -       10,600  
Totals
  $ 10,626     $ 178     $ 10,690     $ 21,494  
 
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 $1,449 of the Company’s recorded temporary impairment and $725 of the OTTI as of May 4, 2013. The use of different assumptions would result in a different valuation and related temporary impairment charge.
 
 
12

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

       
   
Thirteen Weeks Ended May 4, 2013
 
   
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
   
Available-for-Sale Securities
   
Trading Securities
       
   
Auction-rate
   
Preferred
   
Mutual
       
   
Securities
   
Stock
   
Funds
   
Total
 
Balance, beginning of year
  $ 10,690     $ -     $ -     $ 10,690  
  Total gains and losses:
                               
       Included in other
                               
         comprehensive income
    12       -       -       12  
  Purchases, Issuances,
                               
    Sales, and Settlements:
                               
       Sales
    (25 )     -       -       (25 )
Balance, end of quarter
  $ 10,677     $ -     $ -     $ 10,677  
 
       
   
Thirteen Weeks Ended April 28, 2012
 
   
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
   
Available-for-Sale Securities
   
Trading Securities
       
   
Auction-rate
   
Preferred
   
Mutual
       
   
Securities
   
Stock
   
Funds
   
Total
 
Balance, beginning of year
  $ 11,220     $ -     $ -     $ 11,220  
  Total gains and losses:
                               
       Included in other
                               
         comprehensive income
    -       -       -       -  
  Purchases, Issuances,
                               
    Sales, and Settlements:
                               
       Sales
    (25 )     -       -       (25 )
Balance, end of quarter
  $ 11,195     $ -     $ -     $ 11,195  

There were no transfers of securities between Levels 1, 2, or 3 during the thirteen week periods ended May 4, 2013 or April 28, 2012. The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period in which the transfer occurred.

The carrying value of cash equivalents approximates fair value due to the low level of risk these assets present and their relatively liquid nature, particularly given their short maturities. The Company also holds certain financial instruments that are not carried at fair value on the consolidated balance sheets, including held-to-maturity securities. Held-to-maturity securities consist of state and municipal bonds, corporate bonds, and certificates of deposit. The fair values of these debt securities are based on quoted market prices and yields for the same or similar securities, which the Company determined to be Level 2 inputs. As of May 4, 2013, the fair value of held-to-maturity securities was $40,955 compared to the carrying amount of $40,889. As of February 2, 2013, the fair value of held-to-maturity securities was $40,752 compared to the carrying amount of $40,655.

6.  
Supplemental Cash Flow Information

The Company had non-cash investing activities during the thirteen week periods ended May 4, 2013 and April 28, 2012 of ($151) and ($1,168), respectively. The non-cash investing activity relates to the change in the balance of unpaid purchases of property, plant, and equipment included in accounts payable as of the end of the period. The liability for unpaid purchases of property, plant, and equipment included in accounts payable was $1,170 and $1,019 as of May 4, 2013 and February 2, 2013, respectively. Amounts reported as unpaid purchases are recorded as cash outflows from investing activities for purchases of property, plant, and equipment in the consolidated 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 thirteen week periods ended May 4, 2013 and April 28, 2012 of $21,915 and $9,552, respectively.

 
13

 

7.  
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 May 4, 2013, 635,153 shares were available for grant under the various stock option plans, of which 447,457 shares were available for grant to executive officers. Also as of May 4, 2013, 339,041 shares were available for grant under the Company’s various restricted stock plans, of which 313,917 shares were available for grant to executive officers.

Compensation expense was recognized during fiscal 2013 and fiscal 2012 for equity-based grants, based on the grant date fair value of the awards. 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 compensation expense related to grants of non-vested shares of common stock is as follows:

       
   
Thirteen Weeks Ended
 
   
May 4, 2013
   
April 28, 2012
 
             
Stock-based compensation expense, before tax
  $ 2,584     $ 2,138  
                 
Stock-based compensation expense, after tax
  $ 1,628     $ 1,347  

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 consolidated statements of cash flows. For the thirteen week periods ended May 4, 2013 and April 28, 2012, the excess tax benefit realized from exercised stock options was $173 and $3,709, respectively.

A summary of the Company’s stock-based compensation activity related to stock options for the thirteen week period ended May 4, 2013 is as follows:
 
                           
               
Weighted
         
         
Weighted
   
Average
         
         
Average
   
Remaining
     
Aggregate
 
         
Exercise
   
Contractual
     
Intrinsic
 
   
Shares
   
Price
   
Life
     
Value
 
                           
Outstanding - beginning of year
    42,808     $ 1.79                
Granted
    -       -                
Expired/forfeited
    -       -                
Exercised
    (11,863 )     0.01                
Outstanding - end of quarter
    30,945     $ 2.47       1.47  
years
  $ 1,443  
                                   
Exercisable - end of quarter
    30,945     $ 2.47       1.47  
years
  $ 1,443  
 
 
14

 
 
No stock options were granted during fiscal 2013 or fiscal 2012. The total intrinsic value of options exercised during the thirteen week periods ended May 4, 2013 and April 28, 2012 was $540 and $11,300, respectively. As of May 4, 2013, there was no unrecognized compensation expense as all outstanding stock options were vested.

Non-vested shares of common stock granted during the thirteen week periods ended May 4, 2013 and April 28, 2012 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 thirteen week period ended May 4, 2013 is as follows:
 
             
         
Weighted Average
 
         
Grant Date
 
   
Shares
   
Fair Value
 
             
Non-Vested - beginning of year
    419,261     $ 39.52  
Granted
    254,400       47.03  
Forfeited
    (2,577 )     40.33  
Vested
    (50,728 )     43.60  
Non-Vested - end of quarter
    620,356     $ 42.26  
 
As of May 4, 2013, there was $16,101 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 2.2 years. The total fair value of shares vested during the thirteen week periods ended May 4, 2013 and April 28, 2012 was $2,400 and $2,767, respectively.

8.  
Recently Issued Accounting Pronouncements

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which adds additional disclosure requirements for items reclassified out of accumulated other comprehensive income. The additional disclosure requirements are effective for interim and annual reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a material impact 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 Consolidated Financial Statements and notes thereto of the Company included in this Form 10-Q. All references herein to the “Company”, “Buckle”, “we”, “us”, or similar terms refer to The Buckle, Inc. and its subsidiary. 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 consolidated 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 following table sets forth certain financial data expressed as a percentage of net sales and the percentage change in the dollar amount of such items compared to the prior period:

             
   
Percentage of Net Sales
   
   
Thirteen Weeks Ended
 
Percentage
   
May 4, 2013
 
April 28, 2012
 
Increase/(Decrease)
                   
Net sales
    100.0 %     100.0 %     2.3 %
Cost of sales (including buying,
                       
  distribution, and occupancy costs)
    56.6 %     56.7 %     2.1 %
Gross profit
    43.4 %     43.3 %     2.5 %
Selling expenses
    17.5 %     17.5 %     2.2 %
General and administrative expenses
    3.9 %     3.8 %     5.6 %
Income from operations
    22.0 %     22.0 %     2.1 %
Other income, net
    0.1 %     0.7 %     -80.7 %
Income before income taxes
    22.1 %     22.7 %     -0.4 %
Provision for income taxes
    8.2 %     8.4 %     0.1 %
Net income
    13.9 %     14.3 %     -0.7 %
 
Net sales increased from $263.8 million in the first quarter of fiscal 2012 to $269.7 million in the first quarter of fiscal 2013, a 2.3% increase. Comparable store sales for the 13-week first quarter ended May 4, 2013 increased by $3.0 million, or 1.2%, from the 13-week period ended May 5, 2012. Due to the 53rd week in fiscal 2012, total net sales for the 13-week fiscal quarter ended May 4, 2013 are compared to the prior year 13-week fiscal quarter ended April 28, 2012, while comparable store sales for the quarter are compared to the corresponding 13-week period ended May 5, 2012. The comparable store sales increase for the quarter was primarily due to a 3.6% increase in the average number of units sold per transaction and a 0.7% increase in the average retail price per piece of merchandise sold during the period, which were partially offset by a 2.8% decrease in the number of transactions at comparable stores. Sales growth for the 13-week period was also attributable to the inclusion of a full quarter of operating results for the 10 new stores opened during fiscal 2012, to the opening of 3 new stores during the first quarter of fiscal 2013, and to growth in online sales. Online sales for the quarter (which are not included in comparable store sales) increased 6.0% to $20.9 million for the 13-week period ended May 4, 2013 compared to $19.7 million for the 13-week period ended April 28, 2012. Average sales per square foot decreased 1.0% from $113.04 for the first quarter of fiscal 2012 to $111.96 for the first quarter of fiscal 2013. Total square footage as of May 4, 2013 was 2.224 million compared to 2.156 million as of April 28, 2012.

The Company’s average retail price per piece of merchandise sold increased $0.32, or 0.7%, during the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012. This $0.32 increase was primarily attributable to the following changes (with their corresponding effect on the overall average price per piece): a 14.0% increase in average footwear price points ($0.38), a 1.1% increase in average denim price points ($0.24), and a shift in the merchandise mix ($0.18); which were partially offset by an 8.9% decrease in average woven shirt price points (-$0.33) and a 1.4% decrease in average knit shirt price points (-$0.15). These changes are primarily a reflection of merchandise shifts in terms of brands and product styles, fabrics, details, and finishes.

Gross profit after buying, distribution, and occupancy expenses increased from $114.2 million in the first quarter of fiscal 2012 to $117.0 million in the first quarter of fiscal 2013, a 2.5% increase. As a percentage of net sales, gross profit increased from 43.3% in the first quarter of fiscal 2012 to 43.4% in the first quarter of fiscal 2013. The increase was attributable to an improvement in merchandise margins (0.35%, as a percentage of net sales), which was partially offset by increases in occupancy, buying and distribution costs (0.25%, as a percentage of net sales).

Selling expenses increased from $46.3 million for the first quarter of fiscal 2012 to $47.3 million for the first quarter of fiscal 2013, a 2.2% increase. As a percentage of net sales, selling expenses were 17.5% for both the first quarter of fiscal 2012 and the first quarter of fiscal 2013. Increases in store payroll expense (0.35%, as a percentage of net sales) and health insurance claims expense (0.10%, as a percentage of net sales) were offset by reductions in store supplies expense (0.20%, as a percentage of net sales), expense related to the incentive bonus accrual (0.15%, as a percentage of net sales), and certain other selling expenses (0.10%, as a percentage of net sales).
 
 
17

 
 
General and administrative expenses increased from $9.9 million in the first quarter of fiscal 2012 to $10.5 million in the first quarter of fiscal 2013, a 5.6% increase. As a percentage of net sales, general and administrative expenses increased from 3.8% in the first quarter of fiscal 2012 to 3.9% in the first quarter of fiscal 2013. Increases in equity compensation expense (0.15%, as a percentage of net sales) and vacation pay expense (0.10%, as a percentage of net sales) were partially offset by reductions in certain other general and administrative expenses (0.15%, as a percentage of net sales).
 
As a result of the above changes, the Company's income from operations increased 2.1% to $59.3 million for the first quarter of fiscal 2013 compared to $58.0 million for the first quarter of fiscal 2012. Income from operations was 22.0% of net sales for both the first quarter of fiscal 2013 and the first quarter of fiscal 2012.

Other income decreased from $1.8 million for the first quarter of fiscal 2012 to $0.4 million for the first quarter of fiscal 2013, with the reduction related primarily to certain state economic development incentives received during the first quarter of fiscal 2012.

Income tax expense as a percentage of pre-tax income was 37.0% in the first quarter of fiscal 2013 compared to 36.8% in the first quarter of fiscal 2012, bringing net income to $37.6 million in the first quarter of fiscal 2013 compared to $37.8 million in the first quarter of fiscal 2012.

LIQUIDITY AND CAPITAL RESOURCES

As of May 4, 2013, the Company had working capital of $177.1 million, including $116.6 million of cash and cash equivalents and short-term investments of $27.6 million. The Company’s cash receipts are generated from retail sales and from investment income, and the Company's primary ongoing cash requirements are for inventory, payroll, occupancy costs, dividend payments, new store expansion, remodeling, and other capital expenditures. Historically, the Company's primary source of working capital has been cash flow from operations. During the first quarter of fiscal 2013 and fiscal 2012, the Company’s cash flow from operations was $21.1 million and $37.8 million, respectively.

The uses of cash for both thirteen week periods primarily include payment of annual bonuses accrued at fiscal year end, changes in inventory and accounts payable for build-up of inventory levels, dividend payments, construction costs for new and remodeled stores, other capital expenditures, and purchases of investment securities.

During the first quarter of fiscal 2013 and 2012, the Company invested $4.7 million and $7.9 million, respectively, in new store construction, store renovation, and store technology upgrades. The Company also spent $6.5 million and $0.9 million in the first quarter of fiscal 2013 and 2012, respectively, in capital expenditures for the corporate headquarters and distribution facility. Capital spending for the corporate headquarters and distribution center during the first quarter of fiscal 2013 includes $5.4 million for the purchase of a new corporate airplane as a replacement for a plane that was sold by the Company in the fourth quarter of fiscal 2012.

During the remainder of fiscal 2013, the Company anticipates completing approximately 18 additional store construction projects, including approximately 10 new stores and approximately 8 stores to be substantially remodeled and/or relocated. Management estimates that total capital expenditures during fiscal 2013 will be approximately $34.0 to $38.0 million, which includes primarily planned new store and store remodeling projects. The Company believes that existing cash and cash equivalents, 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. The Company has a consistent record of generating positive cash flow each year and, as of May 4, 2013, had total cash and investments of $180.3 million. The Company does not currently have plans for a merger or acquisition and has fairly consistent plans for new store expansion and remodels. Based upon past results and current plans, management does not anticipate any large swings in the Company’s need for cash in the upcoming years.

 
18

 

Future conditions, however, may reduce the availability of funds based upon factors such as a decrease in demand for the Company’s product, change in product mix, competitive factors, and general economic conditions as well as other risks and uncertainties which would reduce the Company’s sales, net profitability, and cash flows. Also, the Company’s acceleration in store openings and/or remodels or the Company entering into a merger, acquisition, or other financial related transaction could reduce the amount of cash available for further capital expenditures and working capital requirements.

The Company has available an unsecured line of credit of $25.0 million with Wells Fargo Bank, N.A. for operating needs and letters of credit. The line of credit provides that outstanding letters of credit cannot exceed $20.0 million. Borrowings under the line of credit provide for interest to be paid at a rate based on LIBOR. The Company has, from time to time, borrowed against these lines of credit. There were no bank borrowings during the first quarter of fiscal 2013 or 2012. The Company had no bank borrowings as of May 4, 2013 and was in compliance with the terms and conditions of the line of credit agreement.

Auction-Rate Securities - As of May 4, 2013, total cash and investments included $10.9 million of auction-rate securities (“ARS”) and preferred securities, which compares to $10.9 million of ARS and preferred securities as of February 2, 2013. All of the $10.9 million of ARS and preferred securities as of May 4, 2013 has been included in long-term investments. 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. During February 2008, 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 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 anticipate, however, that further auction failures will have a material impact on the Company’s ability to fund its business.

ARS and preferred securities are reported at fair market value, and as of May 4, 2013, the reported investment amount is net of a $1.5 million temporary impairment and a $2.7 million other-than-temporary impairment (“OTTI”) to account for the impairment of certain securities from their stated par value. The Company reported the $1.5 million temporary impairment, net of tax, as an “accumulated other comprehensive loss” of $0.9 million in stockholders’ equity as of May 4, 2013. The Company has accounted for the impairment as temporary, as it currently believes that these ARS can be successfully redeemed or liquidated in the future at par value plus accrued interest.

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 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. The Company believes it has the ability and intent to hold these investments until recovery of market value occurs or until the ultimate maturity of the investments.

 
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon The Buckle, Inc.’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires that management make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the financial statement date, and the reported amounts of sales and expenses during the reporting period. The Company regularly evaluates its estimates, including those related to inventory, investments, incentive bonuses, and income taxes. Management bases its estimates on past experience and on various other factors that are thought to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes that the estimates and judgments used in preparing these consolidated financial statements were the most appropriate at that time. Presented below are those critical accounting policies that management believes require subjective and/or complex judgments that could potentially affect reported results of operations. The critical accounting policies and estimates utilized by the Company in the preparation of its condensed consolidated financial statements for the period ending May 4, 2013 have not changed materially from those utilized for the fiscal year ended February 2, 2013, included in The Buckle Inc.’s 2012 Annual Report on Form 10-K .

1.  
Revenue Recognition. Retail store sales are recorded upon the purchase of merchandise by customers. Online sales are recorded when merchandise is delivered to the customer, with the time of delivery being based on estimated shipping time from the Company’s distribution center to the customer. Shipping fees charged to customers are included in revenue and shipping costs are included in selling expenses. The Company recognizes revenue from sales made under its layaway program upon delivery of the merchandise to the customer. Revenue is not recorded when gift cards and gift certificates are sold, but rather when a card or certificate is redeemed for merchandise. A current liability for unredeemed gift cards and certificates is recorded at the time the card or certificate is purchased. The liability recorded for unredeemed gift certificates and gift cards was $17.7 million and $22.2 million as of May 4, 2013 and February 2, 2013, respectively. The amounts of the gift certificate and gift card liabilities are determined using the outstanding balances from the prior three and four years of issuance, respectively. The Company records breakage as other income when the probability of redemption, which is based on historical redemption patterns, is remote.

The Company establishes a liability for estimated merchandise returns based upon the historical average sales return percentage. Customer returns could potentially exceed the historical average, thus reducing future net sales results and potentially reducing future net earnings. The accrued liability for reserve for sales returns was $0.9 million as of both May 4, 2013 and February 2, 2013.

2.  
Inventory. Inventory is valued at the lower of cost or market. Cost is determined using an average cost method that approximates the first-in, first-out (FIFO) method. Management makes adjustments to inventory and cost of goods sold, based upon estimates, to reserve for merchandise obsolescence and markdowns that could affect market value, based on assumptions using calculations applied to current inventory levels within each different markdown level. Management also reviews the levels of inventory in each markdown group and the overall aging of the inventory versus the estimated future demand for such product and the current market conditions. Such judgments could vary significantly from actual results, either favorably or unfavorably, due to fluctuations in future economic conditions, industry trends, consumer demand, and the competitive retail environment. Such changes in market conditions could negatively impact the sale of markdown inventory, causing further markdowns or inventory obsolescence, resulting in increased cost of goods sold from write-offs and reducing the Company’s net earnings. The liability recorded as a reserve for markdowns and/or obsolescence was $5.7 million and $6.3 million as of May 4, 2013 and February 2, 2013, respectively. The Company is not aware of any events, conditions, or changes in demand or price that would indicate that its inventory valuation may not be materially accurate at this time.

 
20

 

3.  
Income Taxes. The Company records a deferred tax asset and liability for expected future tax consequences resulting from temporary differences between financial reporting and tax bases of assets and liabilities. The Company considers future taxable income and ongoing tax planning in assessing the value of its deferred tax assets. If the Company determines that it is more than likely that these assets will not be realized, the Company would reduce the value of these assets to their expected realizable value, thereby decreasing net income. Estimating the value of these assets is based upon the Company’s judgment. If the Company subsequently determined that the deferred tax assets, which had been written down, would be realized in the future, such value would be increased. Adjustment would be made to increase net income in the period such determination was made. As of May 4, 2013 and February 2, 2013, the Company’s non-current deferred tax liability includes a $0.2 million valuation allowance recorded to reduce the value of the Company’s capital loss carryforward to its expected realizable amount prior to expiration.

4.  
Operating Leases. The Company leases retail stores under operating leases. Most lease agreements contain tenant improvement allowances, rent holidays, rent escalation clauses, and/or contingent rent provisions. For purposes of recognizing lease incentives and minimum rental expense on a straight-line basis over the terms of the leases, the Company uses the date of initial possession to begin amortization, which is generally when the Company enters the space and begins to make improvements in preparation of intended use. For tenant improvement allowances and rent holidays, the Company records a deferred rent liability on the consolidated balance sheets and amortizes the deferred rent over the terms of the leases as reductions to rent expense on the consolidated statements of income.

For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy, the Company records minimum rental expense on a straight-line basis over the terms of the leases on the consolidated statements of income. Certain leases provide for contingent rents, which are determined as a percentage of gross sales in excess of specified levels. The Company records a contingent rent liability on the consolidated balance sheets and the corresponding rent expense when specified levels have been achieved or are reasonably probable to be achieved.

5.  
Investments. Investments classified as short-term investments include securities with a maturity of greater than three months and less than one year. Available-for-sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity (net of the effect of income taxes), using the specific identification method, until they are sold.

The Company reviews impairment to determine the classification of potential impairments as either temporary or other-than-temporary. A temporary impairment results in an unrealized loss being recorded in other comprehensive income. An impairment that is considered other-than-temporary would be recognized in net income. The Company considers various factors in reviewing impairment, including the duration and severity of the 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, the current and expected market and industry conditions in which the investee operates, and the Company’s intent and ability to hold the investments for a period of time sufficient to allow for any anticipated recovery in market value. The Company believes it has the ability and maintains its intent to hold these investments until recovery of market value occurs or until the ultimate maturity of the investments.

The Company determined the fair value of 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).

 
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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 May 4, 2013.

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. As of May 4, 2013, the unobservable inputs used by the Company and its independent third-party valuation consultant in valuing its Level 3 investments in ARS included:

      
Durations until redemption ranging from 0.5 to 29.0 years, with a weighted average of 6.4 years.
      
Discount rates ranging from 0.88% to 5.80%, with a weighted average of 2.28%.
      
Loss severities ranging from 0% to 25% of par value, with a weighted average of 2.66%.

OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND COMMERCIAL COMMITMENTS

As referenced in the tables below, the Company has contractual obligations and commercial commitments that may affect the financial condition of the Company. Based on management’s review of the terms and conditions of its contractual obligations and commercial commitments, there is no known trend, demand, commitment, event, or uncertainty that is reasonably likely to occur which would have a material effect on the Company’s financial condition, results of operations, or cash flows.

In addition, the commercial obligations and commitments made by the Company are customary transactions which are similar to those of other comparable retail companies. The operating lease obligations shown in the table below represent future cash payments to landlords required to fulfill the Company’s minimum rent requirements. Such amounts are actual cash requirements by year and are not reported net of any tenant improvement allowances received from landlords.

The following tables identify the material obligations and commitments as of May 4, 2013:

       
   
Payments Due by Period
 
Contractual obligations (dollar amounts in thousands):
 
Total
   
Less than 1
year
   
1-3 years
   
4-5 years
   
After 5
years
 
Purchase obligations
  $ 8,982     $ 6,480     $ 1,972     $ 530     $ -  
Deferred compensation
    11,890       -       -       -       11,890  
Operating leases
    367,534       60,939       106,320       89,292       110,983  
Total contractual obligations
  $ 388,406     $ 67,419     $ 108,292     $ 89,822     $ 122,873  
 
       
   
Amount of Commitment Expiration Per Period
 
Other commercial commitments (dollar amounts in thousands):
 
Total
Amounts
Committed
 
Less than 1
year
 
1-3 years
   
4-5 years
   
After 5
years
 
Lines of credit
  $ -     $ -     $ -     $ -     $ -  
Total commercial commitments
  $ -     $ -     $ -     $ -     $ -  
 
The Company has available an unsecured line of credit of $25.0 million, of which $20.0 million is available for letters of credit, which is excluded from the preceding table. Certain merchandise purchase orders require that the Company open letters of credit. When the Company takes possession of the merchandise, it releases payment on the letters of credit. The amounts of outstanding letters of credit reported reflect the open letters of credit on merchandise ordered, but not yet received or funded. The Company believes it has sufficient credit available to open letters of credit for merchandise purchases. There were no bank borrowings during the first quarter of fiscal 2013 or the first quarter of fiscal 2012. The Company had outstanding letters of credit totaling $2.2 million and $3.2 million as of May 4, 2013 and February 2, 2013, respectively. The Company has no other off-balance sheet arrangements.

 
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SEASONALITY AND INFLATION

The Company's business is seasonal, with the holiday season (from approximately November 15 to December 30) and the back-to-school season (from approximately July 15 to September 1) historically contributing the greatest volume of net sales. For fiscal years 2012, 2011, and 2010, the holiday and back-to-school seasons accounted for approximately 35% of the Company's fiscal year net sales. Although the operations of the Company are influenced by general economic conditions, the Company does not believe that inflation has had a material effect on the results of operations during the thirteen week periods ended May 4, 2013 and April 28, 2012. Quarterly results may vary significantly depending on a variety of factors including the timing and amount of sales and costs associated with the opening of new stores, the timing and level of markdowns, the timing of store closings, the remodeling of existing stores, competitive factors, and general economic conditions.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which adds additional disclosure requirements for items reclassified out of accumulated other comprehensive income. The additional disclosure requirements are effective for interim and annual reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a material impact on the Company’s financial position or results of operations.

FORWARD LOOKING STATEMENTS

Information in this report, other than historical information, may be considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Act”). Such statements are made in good faith by the Company pursuant to the safe-harbor provisions of the 1995 Act. In connection with these safe-harbor provisions, this management’s discussion and analysis contains certain forward-looking statements, which reflect management’s current views and estimates of future economic conditions, Company performance, and financial results. The statements are based on many assumptions and factors that could cause future results to differ materially. Such factors include, but are not limited to, changes in product mix, changes in fashion trends, competitive factors, and general economic conditions, economic conditions in the retail apparel industry, as well as other risks and uncertainties inherent in the Company’s business and the retail industry in general. Any changes in these factors could result in significantly different results for the Company. The Company further cautions that the forward-looking information contained herein is not exhaustive or exclusive. The Company does not undertake to update any forward-looking statements, which may be made from time to time by or on behalf of the Company.

 
23

 
 
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has evaluated the disclosure requirements of Item 305 of S-K “Quantitative and Qualitative Disclosures about Market Risk,” and has concluded that the Company has inherent risks in its operations as it is exposed to certain market risks, including interest rates.

Interest Rate Risk - To the extent that the Company borrows under its line of credit facility, the Company would be exposed to market risk related to changes in interest rates. As of May 4, 2013, no borrowings were outstanding under the line of credit facility. The Company is not a party to any derivative financial instruments. Additionally, the Company is exposed to market risk related to interest rate risk on the cash and investments in interest-bearing securities. These investments have carrying values that are subject to interest rate changes that could impact earnings to the extent that the Company did not hold the investments to maturity. If there are changes in interest rates, those changes would also affect the investment income the Company earns on its cash and investments. For each one-quarter percent decline in the interest/dividend rate earned on cash and investments (approximately a 50% change in the rate earned), the Company’s net income would decrease approximately $0.3 million, or less than $0.01 per share. This amount could vary based upon the number of shares of the Company’s stock outstanding and the level of cash and investments held by the Company.

Other Market Risk – At May 4, 2013, the Company held $15.1 million, at par value, of investments in auction-rate securities (“ARS”) and preferred stock. The Company concluded that a $1.5 million temporary impairment and $2.7 million other-than-temporary impairment existed related to these securities as of May 4, 2013. Given current market conditions in the ARS and equity markets, the Company may incur additional temporary or other-than-temporary impairment in the future if market conditions persist and the Company is unable to recover the cost of its investments in ARS.

ITEM 4 – CONTROLS AND PROCEDURES

The Company maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that material information, which is required to be timely disclosed, is accumulated and communicated to management in a timely manner. An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was performed as of the end of the period covered by this report. This evaluation was performed under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer.

Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report were effective to provide reasonable assurance that information required to be disclosed by the Company in the Company’s reports that it files or submits under the Exchange Act is accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms.

Change in Internal Control Over Financial Reporting

There were no changes in the Company's internal control over financial reporting that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 
24

 

THE BUCKLE, INC.

PART II -- OTHER INFORMATION


Item 1.     Legal Proceedings:                                                                                                      None

Item 1A. Risk Factors:

There have been no material changes from the risk factors disclosed under “Item 1A - Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2013.


Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds:

The following table sets forth information concerning purchases made by the Company of its common stock for each of the months in the fiscal quarter ended May 4, 2013:

     
Total Number of
Maximum Number of Shares
 
Total Number
Average
Shares Purchased
that May Yet Be Purchased
 
of Shares
Price Paid
as Part of Publicly
Under Publicly
  Purchased
Per Share
Announced Plans
Announced Plans
         
Feb. 3, 2013 to Mar. 2, 2013
-
-
-
 543,900
Mar. 3, 2013 to Apr. 6, 2013
-
-
-
  543,900
Apr. 7, 2013 to May 4, 2013
-
-
-
  543,900