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8-K

 
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Buckle 10-Q 2013

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
2013.11.02-10Q


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 November 2, 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 incorporation or organization)
(I.R.S. Employer Identification No.)
 
2407 West 24th Street, Kearney, Nebraska  68845-4915
(Address of principal executive offices)     (Zip Code)

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

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

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

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

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

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

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

The number of shares outstanding of the Registrant's Common Stock, as of December 6, 2013, was 48,331,077.



THE BUCKLE, INC.

FORM 10-Q
INDEX



2



THE BUCKLE, INC.

CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
 
 
 
 
ASSETS
November 2,
2013
 
February 2,
2013
 

 

CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
130,841

 
$
117,608

Short-term investments
25,455

 
26,414

Receivables
7,866

 
3,470

Inventory
146,290

 
103,853

Prepaid expenses and other assets
29,017

 
25,528

Total current assets
339,469

 
276,873

 


 


PROPERTY AND EQUIPMENT
395,272

 
373,286

Less accumulated depreciation and amortization
(230,386
)
 
(210,183
)
 
164,886

 
163,103

 


 


LONG-TERM INVESTMENTS
39,307

 
35,735

OTHER ASSETS
2,121

 
2,263

 


 


 
$
545,783

 
$
477,974

 


 


LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

 


 


CURRENT LIABILITIES:
 

 
 

Accounts payable
$
49,079

 
$
34,124

Accrued employee compensation
25,781

 
42,183

Accrued store operating expenses
12,738

 
10,121

Gift certificates redeemable
15,152

 
22,221

Income taxes payable
10,623

 
20,307

Total current liabilities
113,373

 
128,956

 


 


DEFERRED COMPENSATION
12,626

 
10,600

DEFERRED RENT LIABILITY
37,488

 
36,947

OTHER LIABILITIES
10,432

 
11,822

Total liabilities
173,919

 
188,325

 


 


COMMITMENTS


 


 


 


STOCKHOLDERS’ EQUITY:
 

 
 

Common stock, authorized 100,000,000 shares of $.01 par value; 48,329,282 and 48,059,269 shares issued and outstanding at November 2, 2013 and February 2, 2013, respectively
483

 
481

Additional paid-in capital
125,158

 
117,391

Retained earnings
246,995

 
172,711

Accumulated other comprehensive loss
(772
)
 
(934
)
Total stockholders’ equity
371,864

 
289,649

 


 


 
$
545,783

 
$
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

Thirty-nine Weeks Ended
 
November 2,
2013

October 27,
2012

November 2,
2013

October 27,
2012












SALES, Net of returns and allowances
$
286,761


$
284,147


$
789,002


$
763,392













COST OF SALES (Including buying, distribution, and occupancy costs)
160,536


158,732


451,283


437,279













Gross profit
126,225


125,415


337,719


326,113













OPERATING EXPENSES:






 


 

Selling
51,991


49,257


144,225


137,018

General and administrative
10,176


9,995


30,776


28,520

 
62,167


59,252


175,001


165,538













INCOME FROM OPERATIONS
64,058


66,163


162,718


160,575













OTHER INCOME, Net
361


172


1,218


2,345













INCOME BEFORE INCOME TAXES
64,419


66,335


163,936


162,920













PROVISION FOR INCOME TAXES
23,835


24,418


60,656


59,971













NET INCOME
$
40,584


$
41,917


$
103,280


$
102,949

























EARNINGS PER SHARE:
 


 


 


 

Basic
$
0.85


$
0.89


$
2.17


$
2.18













Diluted
$
0.85


$
0.88


$
2.15


$
2.16













Basic weighted average shares
47,707


47,358


47,703


47,307

Diluted weighted average shares
47,984


47,689


47,959


47,650


See notes to unaudited condensed consolidated financial statements.

4



THE BUCKLE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
 
November 2,
2013
 
October 27,
2012
 
November 2,
2013
 
October 27,
2012
 
 
 
 
 
 
 
 
NET INCOME
$
40,584

 
$
41,917

 
$
103,280

 
$
102,949

 
 
 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME, NET OF TAX:
 
 
 
 
 

 
 

Change in unrealized loss on investments

 
64

 
162

 
75

Other comprehensive income

 
64

 
162

 
75

 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME
$
40,584

 
$
41,981

 
$
103,442

 
$
103,024


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)
 
 
Number
of Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
FISCAL 2013
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, February 3, 2013
 
48,059,269

 
$
481

 
$
117,391

 
$
172,711

 
$
(934
)
 
$
289,649

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 

 

 

 
103,280

 

 
103,280

Dividends paid on common stock, ($0.60 per share)
 

 

 

 
(28,996
)
 

 
(28,996
)
Common stock issued on exercise of stock options
 
18,190

 

 

 

 

 

Issuance of non-vested stock, net of forfeitures
 
251,823

 
2

 
(2
)
 

 

 

Amortization of non-vested stock grants, net of forfeitures
 

 

 
7,450

 

 

 
7,450

Income tax benefit related to exercise of stock options
 

 

 
319

 

 

 
319

Change in unrealized loss on investments, net of tax
 

 

 

 

 
162

 
162

 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, November 2, 2013
 
48,329,282

 
$
483

 
$
125,158

 
$
246,995

 
$
(772
)
 
$
371,864

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FISCAL 2012
 
 

 
 

 
 

 
 

 
 

 
 

BALANCE, January 29, 2012
 
47,432,089

 
$
474

 
$
100,333

 
$
263,039

 
$
(699
)
 
$
363,147

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 

 

 

 
102,949

 

 
102,949

Dividends paid on common stock, ($0.60 per share)
 

 

 

 
(28,756
)
 

 
(28,756
)
Common stock issued on exercise of stock options
 
260,203

 
3

 
570

 

 

 
573

Issuance of non-vested stock, net of forfeitures
 
249,660

 
2

 
(2
)
 

 

 

Amortization of non-vested stock grants, net of forfeitures
 

 

 
6,136

 

 

 
6,136

Income tax benefit related to exercise of stock options
 

 

 
4,361

 

 

 
4,361

Change in unrealized loss on investments, net of tax
 

 

 

 

 
75

 
75

 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, October 27, 2012
 
47,941,952

 
$
479

 
$
111,398

 
$
337,232

 
$
(624
)
 
$
448,485


See notes to unaudited condensed consolidated financial statements.

6



THE BUCKLE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
 
 
 
 
 
Thirty-nine Weeks Ended
 
November 2,
2013
 
October 27,
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
103,280

 
$
102,949

Adjustments to reconcile net income to net cash flows from operating activities:
 

 
 

Depreciation and amortization
23,986

 
24,715

Amortization of non-vested stock grants, net of forfeitures
7,450

 
6,136

Deferred income taxes
(2,756
)
 
(2,270
)
Other
102

 
1,081

Changes in operating assets and liabilities:
 

 
 

Receivables
(475
)
 
236

Inventory
(42,437
)
 
(30,298
)
Prepaid expenses and other assets
(2,224
)
 
(2,223
)
Accounts payable
14,245

 
9,738

Accrued employee compensation
(16,402
)
 
(14,728
)
Accrued store operating expenses
2,617

 
500

Gift certificates redeemable
(7,069
)
 
(6,905
)
Income taxes payable
(13,564
)
 
1,346

Deferred rent liabilities and deferred compensation
2,567

 
2,074

 
 
 
 
Net cash flows from operating activities
69,320

 
92,351

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchases of property and equipment
(25,161
)
 
(26,129
)
Change in other assets
142

 
139

Purchases of investments
(23,787
)
 
(22,703
)
Proceeds from sales/maturities of investments
21,431

 
27,153

 
 
 
 
Net cash flows from investing activities
(27,375
)
 
(21,540
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Proceeds from the exercise of stock options

 
573

Excess tax benefit from stock option exercises
284

 
3,897

Payment of dividends
(28,996
)
 
(28,756
)
 
 
 
 
Net cash flows from financing activities
(28,712
)
 
(24,286
)
 
 
 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
13,233

 
46,525

 
 
 
 
CASH AND CASH EQUIVALENTS, Beginning of period
117,608

 
166,511

 
 
 
 
CASH AND CASH EQUIVALENTS, End of period
$
130,841

 
$
213,036


See notes to unaudited condensed consolidated financial statements.

7



THE BUCKLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED NOVEMBER 2, 2013 AND OCTOBER 27, 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 452 stores located in 43 states throughout the continental United States as of November 2, 2013 and 440 stores in 43 states as of October 27, 2012. During the thirty-nine week period ended November 2, 2013, the Company opened 13 new stores, substantially remodeled 5 stores, and closed 1 store; which includes 1 new store, 2 substantial remodels, and 1 store closure during the third quarter. During the thirty-nine week period ended October 27, 2012, the Company opened 9 new stores and substantially remodeled 19 stores; which includes 1 new store and 7 substantial remodels during the third quarter.

The following is information regarding the Company’s major product lines, stated as a percentage of the Company’s net sales:
 
 
Percentage of Net Sales
 
Percentage of Net Sales
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
Merchandise Group
November 2, 2013
 
October 27, 2012
 
November 2, 2013
 
October 27, 2012
 
 
 
 
 
 
 
 
Denims
48.5
%
 
50.6
%
 
43.9
%
 
44.5
%
Tops (including sweaters)
30.3

 
30.3

 
30.1

 
31.3

Accessories
8.2

 
8.0

 
8.3

 
8.2

Sportswear/Fashions
1.9

 
1.4

 
8.1

 
7.6

Footwear
5.9

 
5.3

 
6.1

 
5.6

Outerwear
2.9

 
3.2

 
1.7

 
1.7

Casual bottoms
1.0

 
0.8

 
0.9

 
0.8

Other
1.3

 
0.4

 
0.9

 
0.3

 
100.0
%
 
100.0
%
 
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
 
November 2, 2013
 
October 27, 2012
 
Income
 
Weighted
Average
Shares
 
Per Share
Amount
 
Income
 
Weighted
Average
Shares
 
Per Share
Amount
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
$
40,584

 
47,707

 
$
0.85

 
$
41,917

 
47,358

 
$
0.89

Effect of Dilutive Securities:
 

 
 

 
 

 
 

 
 

 
 

Stock options and non-vested shares

 
277

 

 

 
331

 
(0.01
)
Diluted EPS
$
40,584

 
47,984

 
$
0.85

 
$
41,917

 
47,689

 
$
0.88



Thirty-nine Weeks Ended

Thirty-nine Weeks Ended

November 2, 2013

October 27, 2012

Income

Weighted
Average
Shares

Per Share
Amount

Income

Weighted
Average
Shares

Per Share
Amount
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
$
103,280


47,703


$
2.17


$
102,949


47,307


$
2.18

Effect of Dilutive Securities:
 


 


 


 


 


 

Stock options and non-vested shares


256


(0.02
)



343


(0.02
)
Diluted EPS
$
103,280


47,959


$
2.15


$
102,949


47,650


$
2.16

 
4.
Investments

The following is a summary of investments as of November 2, 2013:
 
 
Amortized
Cost or
Par Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Other-than-
Temporary
Impairment
 
Estimated
Fair
Value
Available-for-Sale Securities:
 
 
 
 
 
 
 
 
 
Auction-rate securities
$
13,025

 
$

 
$
(1,225
)
 
$
(725
)
 
$
11,075

Preferred stock
400

 

 

 
(395
)
 
5

 
$
13,425

 
$

 
$
(1,225
)
 
$
(1,120
)
 
$
11,080

 
 
 
 
 
 
 
 
 
 
Held-to-Maturity Securities:
 
 
 

 
 

 
 

 
 

State and municipal bonds
$
41,056

 
$
141

 
$
(3
)
 
$

 
$
41,194

 
 
 
 
 
 
 
 
 
 
Trading Securities:
 

 
 

 
 

 
 

 
 

Mutual funds
$
11,337

 
$
1,289

 
$

 
$

 
$
12,626

 

9



The following is a summary of investments as of February 2, 2013:
 
 
Amortized
Cost or
Par Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Other-than-
Temporary
Impairment
 
Estimated
Fair
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


The auction-rate securities and preferred stock were invested as follows as of November 2, 2013:
 
Nature
 
Underlying Collateral
 
Par Value
 
 
 
 
 
Municipal revenue bonds
 
100% insured by AAA/AA/A-rated bond insurers
 
$
10,025

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
 
400

Total par value
 
 
 
$
13,425

 
As of November 2, 2013, the Company’s auction-rate securities portfolio was 76% AA/Aa-rated, 21% A-rated, and 3% below A-rated.

The amortized cost and fair value of debt securities by contractual maturity as of November 2, 2013 is as follows:
 
 
Amortized
Cost
 
Fair
Value
Held-to-Maturity Securities
 
 
 
Less than 1 year
$
25,455

 
$
25,483

1 - 5 years
15,601

 
15,711

 
$
41,056

 
$
41,194

 
At November 2, 2013 and February 2, 2013, $11,080 and $10,869 of available-for-sale securities and $15,601 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.


10



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 November 2, 2013, the reported investment amount is net of $1,225 of temporary impairment and $1,120 of other-than-temporary impairment (“OTTI”) to account for the impairment of certain securities from their stated par value. The $1,225 temporary impairment is reported, net of tax, as an “accumulated other comprehensive loss” of $772 in stockholders’ equity as of November 2, 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 November 2, 2013, the Company had $13,025 invested in ARS and $400 invested in preferred securities, at par value, which are reported at their estimated fair value of $11,075 and $5, 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 three quarters of fiscal 2013, the Company was able to successfully liquidate ARS and preferred securities with a par value of $1,650. 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 November 2, 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 November 2, 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%.


11



As of November 2, 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 November 2, 2013 and February 2, 2013.

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 are as follows:
 
 
Fair Value Measurements at Reporting Date Using
 
Quoted Prices in
Active Markets
for Identical
Assets
 
Significant
Observable
Inputs
 
Significant
Unobservable
Inputs
 
 
November 2, 2013
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
Available-for-sale securities:
 
 
 
 
 
 
 
Auction-rate securities
$

 
$
178

 
$
10,897

 
$
11,075

Preferred stock
5

 

 

 
5

Trading securities (including mutual funds)
12,626

 

 

 
12,626

Totals
$
12,631

 
$
178

 
$
10,897

 
$
23,706

 

12



 
Fair Value Measurements at Reporting Date Using
 
Quoted Prices in
Active Markets
for Identical
Assets
 
Significant
Observable
Inputs
 
Significant
Unobservable
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 $1,203 of the Company’s recorded temporary impairment and $725 of the OTTI as of November 2, 2013. The use of different assumptions would result in a different valuation and related temporary impairment charge.

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

 
Thirty-nine Weeks Ended November 2, 2013
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
Available-for-Sale Securities
 
Trading Securities
 
 
 
Auction-rate
Securities
 
Preferred
Stock
 
Mutual
Funds
 
Total
 
 
 
 
 
 
 
 
Balance, beginning of year
$
10,690

 
$

 
$

 
$
10,690

Total gains and losses:
 

 
 

 
 

 
 

Included in other comprehensive income
257

 

 

 
257

Purchases, Issuances, Sales, and Settlements:
 

 
 

 
 

 
 

Sales
(50
)
 

 

 
(50
)
Balance, end of quarter
$
10,897

 
$

 
$

 
$
10,897

 

13



 
Thirty-nine Weeks Ended October 27, 2012
 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
Available-for-Sale Securities
 
Trading Securities
 
 
 
Auction-rate
Securities
 
Preferred
Stock
 
Mutual
Funds
 
Total
 
 
 
 
 
 
 
 
Balance, beginning of year
$
11,220

 
$

 
$

 
$
11,220

Total gains and losses:
 

 
 

 
 

 
 

Included in other comprehensive income
2

 

 

 
2

Purchases, Issuances, Sales, and Settlements:
 

 
 

 
 

 
 

Sales
(50
)
 

 

 
(50
)
Balance, end of quarter
$
11,172

 
$

 
$

 
$
11,172


There were no transfers of securities between Levels 1, 2, or 3 during the thirty-nine week periods ended November 2, 2013 or October 27, 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 November 2, 2013, the fair value of held-to-maturity securities was $41,194 compared to the carrying amount of $41,056. 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 thirty-nine week periods ended November 2, 2013 and October 27, 2012 of ($710) and ($1,095), 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 $1,729 and $1,019 as of November 2, 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 thirty-nine week periods ended November 2, 2013 and October 27, 2012 of $76,691 and $56,998, respectively.

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 November 2, 2013, 635,649 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 November 2, 2013, 1,139,041 shares were available for grant under the Company’s various restricted stock plans, of which 1,113,917 shares were available for grant to executive officers.


14



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
 
Thirty-nine Weeks Ended
 
November 2, 2013
 
October 27, 2012
 
November 2, 2013
 
October 27, 2012
 
 
 
 
 
 
 
 
Stock-based compensation expense, before tax
$
2,433

 
$
1,999

 
$
7,450

 
$
6,136

 
 
 
 
 
 
 
 
Stock-based compensation expense, after tax
$
1,533

 
$
1,259

 
$
4,694

 
$
3,866


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 thirty-nine week periods ended November 2, 2013 and October 27, 2012, the excess tax benefit realized from exercised stock options was $284 and $3,897, respectively.

A summary of the Company’s stock-based compensation activity related to stock options for the thirty-nine week period ended November 2, 2013 is as follows:
 
 
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
 
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
 
 
Outstanding - beginning of year
42,808

 
$
1.79

 
 
 
 
 
Granted

 

 
 
 
 
 
Expired/forfeited
(496
)
 
0.01

 
 
 
 
 
Exercised
(18,190
)
 
0.01

 
 
 
 
 
Outstanding - end of quarter
24,122

 
$
3.17

 
1.17
years
 
$
1,102

 
 
 
 
 
 
 
 
 
Exercisable - end of quarter
24,122

 
$
3.17

 
1.17
years
 
$
1,102


No stock options were granted during fiscal 2013 or fiscal 2012. The total intrinsic value of options exercised during the thirty-nine week periods ended November 2, 2013 and October 27, 2012 was $882 and $11,976, respectively. As of November 2, 2013, there was no unrecognized compensation expense as all outstanding stock options were vested.

Non-vested shares of common stock granted during the thirty-nine week periods ended November 2, 2013 and October 27, 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.


15



A summary of the Company’s stock-based compensation activity related to grants of non-vested shares of common stock for the thirty-nine week period ended November 2, 2013 is as follows:
 
 
Shares
 
Weighted Average
Grant Date
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 November 2, 2013, there was $11,235 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 2.0 years. The total fair value of shares vested during the thirty-nine week periods ended November 2, 2013 and October 27, 2012 was $2,400 and $2,775, 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, as there were no such reclassifications during the periods presented in this Form 10-Q.


16



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.


17



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

Percentage
 
Percentage of Net Sales
 
Percentage
 
Thirteen Weeks Ended
 
Increase/
 
Thirty-nine Weeks Ended
 
Increase/
 
November 2, 2013

October 27, 2012

(Decrease)
 
November 2, 2013
 
October 27, 2012
 
(Decrease)
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
100.0
%

100.0
%

0.9
 %
 
100.0
%
 
100.0
%
 
3.4
 %
Cost of sales (including buying, distribution, and occupancy costs)
56.0
%

55.9
%

1.1
 %
 
57.2
%
 
57.3
%
 
3.2
 %
Gross profit
44.0
%

44.1
%

0.6
 %
 
42.8
%
 
42.7
%
 
3.6
 %
Selling expenses
18.1
%

17.3
%

5.6
 %
 
18.3
%
 
18.0
%
 
5.3
 %
General and administrative expenses
3.6
%

3.5
%

1.8
 %
 
3.9
%
 
3.7
%
 
7.9
 %
Income from operations
22.3
%

23.3
%

(3.2
)%
 
20.6
%
 
21.0
%
 
1.3
 %
Other income, net
0.2
%

0.1
%

110.2
 %
 
0.2
%
 
0.3
%
 
(48.1
)%
Income before income taxes
22.5
%

23.4
%

(2.9
)%
 
20.8
%
 
21.3
%
 
0.6
 %
Provision for income taxes
8.3
%

8.6
%

(2.4
)%
 
7.7
%
 
7.8
%
 
1.1
 %
Net income
14.2
%

14.8
%

(3.2
)%
 
13.1
%
 
13.5
%
 
0.3
 %
 
Net sales increased from $284.1 million in the third quarter of fiscal 2012 to $286.8 million in the third quarter of fiscal 2013, a 0.9% increase. Comparable store sales for the thirteen week quarter ended November 2, 2013 decreased by $1.3 million, or 0.5%, compared to the prior year thirteen week period ended November 3, 2012. The comparable store sales decrease for the quarter was primarily due to a 2.3% decrease in the number of transactions at comparable stores during the period and a 1.5% reduction in the average retail price per piece of merchandise sold, which were partially offset by a 3.6% increase in the number of units sold per transaction. Sales growth for the thirteen week period was also attributable to the inclusion of a full quarter of operating results for the 2 new stores opened after the first half of fiscal 2012, to the opening of 13 new stores during the first three quarters of fiscal 2013, and to growth in online sales. Online sales for the quarter (which are not included in comparable store sales) increased 11.9% to $22.0 million for the thirteen week period ended November 2, 2013 compared to $19.6 million for the thirteen week period ended October 27, 2012.

Net sales increased from $763.4 million for the first three quarters of fiscal 2012 to $789.0 million for the first three quarters of fiscal 2013, a 3.4% increase. Comparable store sales increased by $8.7 million, or 1.2%, for the thirty-nine week period ended November 2, 2013 compared to the prior year thirty-nine week period ended November 3, 2012. The comparable store sales increase for the thirty-nine week period was primarily due to a 3.6% increase in the average number of units sold per transaction, which was partially offset by a 2.1% decrease in the number of transactions at comparable stores during the period and a 0.1% reduction in the average retail price per piece of merchandise sold. Sales growth for the thirty-nine week period was also attributable to the inclusion of a full three quarters of operating results for the 10 new stores opened during fiscal 2012, to the opening of 13 new stores during the first three quarters of fiscal 2013, and to growth in online sales. Online sales for the year-to-date period increased 7.9% to $59.7 million for the thirty-nine week period ended November 2, 2013 compared to $55.4 million for the thirty-nine week period ended October 27, 2012. Average sales per square foot increased slightly from $324.42 for the thirty-nine week period ended October 27, 2012 to $324.46 for the thirty-nine week period ended November 2, 2013. Total square footage as of November 2, 2013 was 2.273 million compared to 2.204 million as of October 27, 2012.

Due to the 53rd week in fiscal 2012, total net sales for the third quarter and for the year-to-date periods are compared to the prior year thirteen and thirty-nine week fiscal periods ended October 27, 2012, while comparable store sales are compared to the corresponding thirteen and thirty-nine week periods ended November 3, 2012.


18



For the third quarter, the Company's average retail price per piece of merchandise sold decreased $0.81, or 1.5%, compared to the third quarter of fiscal 2012. This $0.81 decrease was primarily attributable to the following changes (with their corresponding effect on the overall average price per piece): a shift in the merchandise mix (-$0.96), a 4.1% reduction in average woven shirt price points (-$0.14), a 2.8% reduction in average accessory price points (-$0.12), and reduced average price points in certain other merchandise categories (-$0.05); which were partially offset by a 17.4% increase in average footwear price points ($0.46). These changes are primarily a reflection of merchandise shifts in terms of brands and product styles, fabrics, details, and finishes.

For the year-to-date period, the Company's average retail price per piece of merchandise sold decreased $0.05, or 0.1%, compared to the same period in fiscal 2012. This $0.05 decrease was primarily attributable to the following changes (with their corresponding effect on the overall average price per piece): an 8.4% reduction in average woven shirt price points (-$0.31), a shift in the merchandise mix (-$0.20), a 2.4% reduction in average accessory price points (-$0.10), and reduced average price points in certain other merchandise categories (-$0.04); which were partially offset by a 15.6% increase in average footwear price points ($0.40) and a 1.0% increase in average denim price points ($0.20). 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 $125.4 million in the third quarter of fiscal 2012 to $126.2 million in the third quarter of fiscal 2013, a 0.6% increase. As a percentage of net sales, gross profit decreased from 44.1% in the third quarter of fiscal 2012 to 44.0% in the third quarter of fiscal 2013. An improvement in merchandise margins (0.30%, as a percentage of net sales) was offset by an increase in occupancy, distribution, and buying expenses (0.40%, as a percentage of net sales).

Year-to-date, gross profit increased from $326.1 million for the thirty-nine week period ended October 27, 2012 to $337.7 million for the thirty-nine week period ended November 2, 2013, a 3.6% increase. As a percentage of net sales, gross profit increased from 42.7% for the first three quarters of fiscal 2012 to 42.8% for the first three quarters of fiscal 2013. An improvement in merchandise margins (0.25%, as a percentage of net sales) was partially offset by an increase in occupancy, distribution, and buying expenses (0.15%, as a percentage of net sales).

Selling expenses increased from $49.3 million for the third