BUCKLE INC - Quarter Report: 2008 May (Form 10-Q)
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
3, 2008
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
(State
or other jurisdiction of
incorporation
or organization)
|
47-0366193
(I.R.S.
Employer
Identification
No.)
|
|
2407
West 24th Street, Kearney,
Nebraska
(Address
of principal
executive offices)
|
68845-4915
(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
Common
Stock, $.01 par value
|
Name
of Each Exchange on Which
Registered
New
York Stock
Exchange
|
Securities
registered pursuant to Section 12(g) of the Act: None
___________________________________________________________
(Former
name, former address and former fiscal year if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes þ
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. (See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act). Check
one.
o
Large
accelerated
filer;
þ
Accelerated filer; o
Non-accelerated filer
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
Yes
o No
þ
The
number of shares outstanding of the Registrant's Common Stock, as of May 30,
2008, was 30,629,654.
THE
BUCKLE, INC.
FORM
10-Q
INDEX
|
Pages
|
||
|
Part
I. Financial Information (unaudited)
|
||
|
Item
1.
|
Financial
Statements
|
3
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial
Condition
and Results of Operations
|
16
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
24
|
|
Item
4.
|
Controls
and Procedures
|
24
|
|
Part
II. Other Information
|
||
|
Item
1.
|
Legal
Proceedings
|
25
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
25
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
25
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
25
|
|
Item
5.
|
Other
Information
|
25
|
|
Item
6.
|
Exhibits
|
25
|
|
Signatures
|
26
|
2
THE
BUCKLE, INC.
BALANCE
SHEETS
(Amounts
in Thousands Except Share and Per Share Amounts)
(Unaudited)
|
May
3,
2008
|
February
2,
2008
|
||||||
|
ASSETS
|
|||||||
|
CURRENT
ASSETS:
|
|||||||
|
Cash
and cash equivalents
|
$
|
141,174
|
$
|
64,293
|
|||
|
Short-term
investments
|
38,954
|
102,910
|
|||||
|
Accounts
receivable, net of allowance of $40 and $62, respectively
|
3,991
|
2,800
|
|||||
|
Inventory
|
73,976
|
77,639
|
|||||
|
Prepaid
expenses and other assets
|
14,937
|
13,979
|
|||||
|
Total
current assets
|
273,032
|
261,621
|
|||||
|
PROPERTY
AND EQUIPMENT:
|
246,263
|
240,237
|
|||||
|
Less
accumulated depreciation and amortization
|
(141,929
|
)
|
(137,903
|
)
|
|||
|
104,334
|
102,334
|
||||||
|
LONG-TERM
INVESTMENTS
|
78,861
|
81,201
|
|||||
|
OTHER
ASSETS
|
5,905
|
5,501
|
|||||
|
$
|
462,132
|
$
|
450,657
|
||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
|
CURRENT
LIABILITIES:
|
|||||||
|
Accounts
payable
|
$
|
27,299
|
$
|
25,155
|
|||
|
Accrued
employee compensation
|
13,415
|
27,836
|
|||||
|
Accrued
store operating expenses
|
6,019
|
5,704
|
|||||
|
Gift
certificates redeemable
|
6,430
|
8,511
|
|||||
|
Income
taxes payable
|
5,286
|
10,020
|
|||||
|
Total
current liabilities
|
58,449
|
77,226
|
|||||
|
DEFERRED
COMPENSATION
|
4,996
|
4,127
|
|||||
|
DEFERRED
RENT LIABILITY
|
32,750
|
30,984
|
|||||
|
Total
liabilities
|
96,195
|
112,337
|
|||||
|
COMMITMENTS
|
|||||||
|
STOCKHOLDERS’
EQUITY:
|
|||||||
|
Common
stock, authorized 100,000,000 shares of $.01 par value; issued
and
outstanding;
|
|||||||
|
30,622,601
shares at May 3, 2008 and 29,841,668 shares at February 2,
2008
|
306
|
298
|
|||||
|
Additional
paid-in capital
|
64,168
|
46,977
|
|||||
|
Retained
earnings
|
302,151
|
291,045
|
|||||
|
Accumulated
other comprehensive loss
|
(688
|
)
|
-
|
||||
|
Total
stockholders’ equity
|
365,937
|
338,320
|
|||||
|
$
|
462,132
|
$
|
450,657
|
See
notes
to unaudited condensed financial statements.
3
THE
BUCKLE, INC.
STATEMENTS
OF INCOME
(Amounts
in Thousands Except Per Share Amounts)
(Unaudited)
|
Thirteen
Weeks Ended
|
||||||
|
May
3,
2008
|
May
5,
2007
|
|||||
|
SALES,
Net of returns and allowances
|
$
|
160,300
|
$
|
121,111
|
||
|
COST
OF SALES (Including buying, distribution,
|
||||||
|
and
occupancy costs)
|
94,678
|
75,608
|
||||
|
Gross
profit
|
65,622
|
45,503
|
||||
|
OPERATING
EXPENSES:
|
||||||
|
Selling
|
31,559
|
23,424
|
||||
|
General
and administrative
|
6,695
|
4,980
|
||||
|
38,254
|
28,404
|
|||||
|
INCOME
FROM OPERATIONS
|
27,368
|
17,099
|
||||
|
OTHER
INCOME, Net
|
2,320
|
2,123
|
||||
|
INCOME
BEFORE INCOME TAXES
|
29,688
|
19,222
|
||||
|
PROVISION
FOR INCOME TAXES
|
10,971
|
7,029
|
||||
|
NET
INCOME
|
$
|
18,717
|
$
|
12,193
|
||
|
EARNINGS
PER SHARE:
|
||||||
|
Basic
|
$
|
0.63
|
$
|
0.41
|
||
|
Diluted
|
$
|
0.61
|
$
|
0.40
|
||
|
Basic
weighted average shares
|
29,871
|
29,468
|
||||
|
Diluted
weighted average shares
|
30,833
|
30,687
|
||||
See
notes
to unaudited condensed financial statements.
4
THE
BUCKLE, INC.
STATEMENTS
OF STOCKHOLDERS' EQUITY
(Dollar
Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
|
Number
of
Shares
|
Common
Stock
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Loss
|
Total
|
||||||||||||||
|
FISCAL
2008
|
|||||||||||||||||||
|
BALANCE,
February 3, 2008
|
29,841,668
|
$
|
298
|
$
|
46,977
|
$
|
291,045
|
$
|
-
|
$
|
338,320
|
||||||||
|
Net
income
|
-
|
-
|
-
|
18,717
|
-
|
18,717
|
|||||||||||||
|
Dividends
paid on common stock,
|
|||||||||||||||||||
|
($0.25
per share)
|
-
|
-
|
-
|
(7,611
|
)
|
-
|
(7,611
|
)
|
|||||||||||
|
Common
stock issued on exercise
|
|||||||||||||||||||
|
of
stock options
|
640,983
|
7
|
8,514
|
-
|
-
|
8,521
|
|||||||||||||
|
Issuance
of non-vested stock, net of forfeitures
|
139,950
|
1
|
(1
|
)
|
-
|
-
|
-
|
||||||||||||
|
Amortization
of non-vested stock grants
|
-
|
-
|
1,300
|
-
|
-
|
1,300
|
|||||||||||||
|
Stock
option compensation expense
|
-
|
-
|
142
|
-
|
-
|
142
|
|||||||||||||
|
Income
tax benefit related to exercise
|
|||||||||||||||||||
|
of
stock options
|
-
|
-
|
7,236
|
-
|
-
|
7,236
|
|||||||||||||
|
Unrealized
loss on investment securities
|
-
|
-
|
-
|
-
|
(688
|
)
|
(688
|
)
|
|||||||||||
|
BALANCE,
May 3, 2008
|
30,622,601
|
$
|
306
|
$
|
64,168
|
$
|
302,151
|
$
|
(688
|
)
|
$
|
365,937
|
|||||||
|
FISCAL
2007
|
|||||||||||||||||||
|
BALANCE,
February 4, 2007
|
29,408,576
|
$
|
294
|
$
|
43,493
|
$
|
242,800
|
$
|
-
|
$
|
286,587
|
||||||||
|
Net
income
|
-
|
-
|
-
|
12,193
|
-
|
12,193
|
|||||||||||||
|
Dividends
paid on common stock,
|
|||||||||||||||||||
|
($0.20
per share)
|
-
|
-
|
-
|
(5,975
|
)
|
-
|
(5,975
|
)
|
|||||||||||
|
Common
stock issued on exercise
|
|||||||||||||||||||
|
of
stock options
|
498,836
|
5
|
6,582
|
-
|
-
|
6,587
|
|||||||||||||
|
Issuance
of non-vested stock, net of forfeitures
|
139,800
|
1
|
(1
|
)
|
-
|
-
|
-
|
||||||||||||
|
Amortization
of non-vested stock grants
|
-
|
-
|
976
|
-
|
-
|
976
|
|||||||||||||
|
Stock
option compensation expense
|
-
|
-
|
157
|
-
|
-
|
157
|
|||||||||||||
|
Income
tax benefit related to exercise
|
|||||||||||||||||||
|
of
stock options
|
-
|
-
|
4,261
|
-
|
-
|
4,261
|
|||||||||||||
|
BALANCE,
May 5, 2007
|
30,047,212
|
$
|
300
|
$
|
55,468
|
$
|
249,018
|
$
|
-
|
$
|
304,786
|
See
notes
to unaudited condensed financial statements.
5
THE
BUCKLE, INC.
STATEMENTS
OF CASH FLOWS
(Dollar
Amounts in Thousands)
(Unaudited)
|
Thirteen
Weeks Ended
|
|||||||
|
May
3,
|
May
5, 2007 |
||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
|
Net
income
|
$
|
18,717
|
$
|
12,193
|
|||
|
Adjustments
to reconcile net income to net cash flows
|
|||||||
|
from
operating activities:
|
|||||||
|
Depreciation
and amortization
|
5,141
|
4,662
|
|||||
|
Amortization
of non-vested stock grants, net of forfeitures
|
1,300
|
976
|
|||||
|
Stock
option compensation expense
|
142
|
157
|
|||||
|
Other
|
2
|
(6
|
)
|
||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Accounts
receivable
|
(1,191
|
)
|
625
|
||||
|
Inventory
|
3,663
|
45
|
|||||
|
Prepaid
expenses and other assets
|
(958
|
)
|
(1,124
|
)
|
|||
|
Accounts
payable
|
2,499
|
4,562
|
|||||
|
Accrued
employee compensation
|
(14,421
|
)
|
(8,933
|
)
|
|||
|
Accrued
store operating expenses
|
315
|
198
|
|||||
|
Gift
certificates redeemable
|
(2,081
|
)
|
(1,810
|
)
|
|||
|
Income
taxes payable
|
(3,561
|
)
|
(947
|
)
|
|||
|
Changes
in long-term liabilities and deferred compensation
|
2,635
|
446
|
|||||
|
Net
cash flows from operating activities
|
12,202
|
11,044
|
|||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
|
Purchase
of property and equipment
|
(7,585
|
)
|
(6,348
|
)
|
|||
|
Proceeds
from sale of property and equipment
|
87
|
12
|
|||||
|
Change
in other assets
|
-
|
151
|
|||||
|
Purchases
of investments
|
(15,787
|
)
|
(21,204
|
)
|
|||
|
Proceeds
from sales/maturities of investments
|
80,991
|
9,725
|
|||||
|
Net
cash flows from investing activities
|
57,706
|
(17,664
|
)
|
||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
|
Proceeds
from the exercise of stock options
|
8,521
|
6,587
|
|||||
|
Excess
tax benefit from stock option exercises
|
6,063
|
3,758
|
|||||
|
Payment
of dividends
|
(7,611
|
)
|
(5,975
|
)
|
|||
|
Net
cash flows from financing activities
|
6,973
|
4,370
|
|||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
76,881
|
(2,250
|
)
|
||||
|
CASH
AND CASH EQUIVALENTS, Beginning of period
|
64,293
|
35,752
|
|||||
|
CASH
AND CASH EQUIVALENTS, End of period
|
$
|
141,174
|
$
|
33,502
|
|||
See
notes
to unaudited condensed financial statements.
6
THE
BUCKLE, INC.
NOTES
TO
CONDENSED FINANCIAL STATEMENTS
THIRTEEN
WEEKS ENDED MAY 3, 2008 AND MAY 5, 2007
(Dollar
Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
| 1. |
Management
Representation
-
The accompanying unaudited financial statements have been prepared
in
accordance with accounting principles generally accepted in the United
States of America for interim financial information. Accordingly,
they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for
complete
financial statements. In the opinion of management, all adjustments
necessary for the fair presentation of the results of operations
for the
interim periods have been included. All such adjustments are of a
normal
recurring nature. Because of the seasonal nature of the business,
results
for interim periods are not necessarily indicative of a full year's
operations. The accounting policies followed by the Company and additional
footnotes are reflected in the financial statements for the fiscal
year
ended February 2, 2008, included in The Buckle, Inc.'s 2007 Form
10-K.
|
| 2. |
Description
of the Business
-
The Company is a retailer of medium to better priced casual apparel,
footwear, and accessories for fashion conscious young men and women.
The
Company operates its business as one reportable industry segment.
The
Company had 374 stores located in 39 states throughout the continental
United States (excluding the northeast) as of May 3, 2008, and 353
stores
in 38 states as of May 5, 2007. During the first quarter of fiscal
2008,
the Company opened seven new stores, substantially remodeled two
stores,
and closed one store. During the first quarter of fiscal 2007, the
Company
opened four new stores and closed one
store.
|
The
following is information regarding the Company’s major product lines, stated as
a percentage of the Company’s net sales:
|
|
Percentage
of Net Sales
Thirteen
Weeks Ended
|
||||||
|
Merchandise
Group
|
May
3, 2008
|
May
5, 2007
|
|||||
|
Denims
|
42.1
|
%
|
42.3
|
%
|
|||
|
Tops
(including sweaters)
|
36.0
|
31.0
|
|||||
|
Sportswear/Fashions
|
8.3
|
9.1
|
|||||
|
Accessories
|
7.0
|
7.5
|
|||||
|
Footwear
|
5.1
|
7.7
|
|||||
|
Casual
bottoms
|
1.0
|
1.7
|
|||||
|
Outerwear
|
0.4
|
0.6
|
|||||
|
Other
|
0.1
|
0.1
|
|||||
|
100.0
|
%
|
100.0
|
%
|
||||
| 3. |
Net
Earnings Per Share
-
Basic earnings per share data are based on the weighted average
outstanding common shares during the period. Diluted
earnings per share data are based on the weighted average outstanding
common shares and the effect of all dilutive potential common shares,
including stock options.
|
|
Thirteen
Weeks Ended
May
3, 2008
|
Thirteen
Weeks Ended
May
5, 2007
|
||||||||||||||||||
|
Income
|
Weighted
Average
Shares
|
Per
Share
Amount
|
Income
|
Weighted
Average
Shares
|
Per
Share
Amount
|
||||||||||||||
|
Basic
EPS
|
|||||||||||||||||||
|
Net
income
|
$
|
18,717
|
29,871
|
$
|
0.63
|
$
|
12,193
|
29,468
|
$
|
0.41
|
|||||||||
|
Effect
of Dilutive
|
|||||||||||||||||||
|
Securities
|
|||||||||||||||||||
|
Stock
options and
|
|||||||||||||||||||
|
non-vested
shares
|
-
|
962
|
(0.02
|
)
|
-
|
1,219
|
(0.01
|
)
|
|||||||||||
|
Diluted
EPS
|
$
|
18,717
|
30,833
|
$
|
0.61
|
$
|
12,193
|
30,687
|
$
|
0.40
|
|||||||||
7
THE
BUCKLE, INC.
NOTES
TO
CONDENSED FINANCIAL STATEMENTS
THIRTEEN
WEEKS ENDED MAY 3, 2008 AND MAY 5, 2007
(Dollar
Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
| 4. |
Investments
|
The
following is a summary of investments as of May
3,
2008:
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair
Value
|
||||||||||
|
Available-for-Sale
Securities:
|
|||||||||||||
|
Auction-rate
securities
|
$
|
74,370
|
$
|
-
|
$
|
(1,092
|
)
|
$
|
73,278
|
||||
|
Held-to-Maturity
Securities:
|
|||||||||||||
|
State
and municipal bonds
|
$
|
34,240
|
$
|
274
|
$
|
(47
|
)
|
$
|
34,467
|
||||
|
Fixed
maturities
|
1,500
|
-
|
-
|
1,500
|
|||||||||
|
U.S.
treasuries
|
3,801
|
37
|
-
|
3,838
|
|||||||||
|
$
|
39,541
|
$
|
311
|
$
|
(47
|
)
|
$
|
39,805
|
|||||
|
Trading
Securities:
|
|||||||||||||
|
Mutual
funds
|
$
|
4,983
|
$
|
30
|
$
|
(17
|
)
|
$
|
4,996
|
The
following is a summary of investments as of February
2, 2008:
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
|
Available-for-Sale
Securities:
|
|||||||||||||
|
Auction-rate
securities
|
$
|
145,835
|
$
|
-
|
$
|
-
|
$
|
145,835
|
|||||
|
Held-to-Maturity
Securities:
|
|||||||||||||
|
State
and municipal bonds
|
$
|
26,260
|
$
|
375
|
$
|
(10
|
)
|
$
|
26,625
|
||||
|
Fixed
maturities
|
2,899
|
1
|
-
|
2,900
|
|||||||||
|
U.S.
treasuries
|
4,990
|
24
|
-
|
5,014
|
|||||||||
|
$
|
34,149
|
$
|
400
|
$
|
(10
|
)
|
$
|
34,539
|
|||||
|
Trading
Securities:
|
|||||||||||||
|
Mutual
funds
|
$
|
4,143
|
$
|
5
|
$
|
(21
|
)
|
$
|
4,127
|
8
THE
BUCKLE, INC.
NOTES
TO
CONDENSED FINANCIAL STATEMENTS
THIRTEEN
WEEKS ENDED MAY 3, 2008 AND MAY 5, 2007
(Dollar
Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
The
amortized cost and fair value of debt securities by contractual maturity
as
of May
3,
2008
is as
follows:
|
Amortized
Cost
|
Fair
Value
|
||||||
|
Fiscal
Periods
|
|||||||
|
Twelve
months ending May 2, 2009
|
$
|
21,879
|
$
|
21,959
|
|||
|
Twelve
months ending May 1, 2010
|
7,147
|
7,202
|
|||||
|
Twelve
months ending April 30, 2011
|
3,992
|
4,041
|
|||||
|
Twelve
months ending April 28, 2012
|
1,661
|
1,684
|
|||||
|
Twelve
months ending May 4, 2013
|
45
|
46
|
|||||
|
Thereafter
|
4,817
|
4,873
|
|||||
|
$
|
39,541
|
$
|
39,805
|
At
May
3,
2008 and February 2, 2008, held-to-maturity
investments of $17,662 and
$20,152 are
classified in long-term investments. Trading
securities are held in a Rabbi Trust,
intended
to fund the Company’s deferred compensation plan
and are
classified
in long-term investments.
The
Company’s investments in
auction-rate securities (“ARS”) are
classified as available-for-sale and reported at fair market value. At the
end
of the first quarter of fiscal 2008, the reported investment amount is net
of a
$1,092 unrealized loss recorded during the first quarter of fiscal 2008 to
account for the temporary impairment of certain securities from their stated
par
value.
As
of May
3, 2008, the Company had $74,370 invested in ARS, which are reported at their
estimated fair value of $73,278. As of February 2, 2008, the Company had
$145,835 invested in ARS. ARS have a long-term stated maturity, but are reset
through a “dutch auction” process that occurs every 7 to 49 days, depending on
the terms of the individual security. Until February 2008, the ARS market was
highly liquid. During February 2008, however, a significant number of auctions
related to these securities failed, meaning that there was not enough demand
to
sell the entire issue at auction. The impact of the failed auctions on holders
of ARS is that the holder cannot sell the securities and the issuer’s interest
rate is generally reset to a higher “penalty” rate. The failed auctions have
limited the current liquidity of certain of the Company’s investments in ARS;
however, the Company has no reason to believe that any of the underlying issuers
of its ARS are currently at risk or that further auction failures will have
a
material impact on the Company’s ability to fund its business. The
Company was able to successfully liquidate $76,065 of its investments in
auction-rate securities at par value during the first quarter.
As
of May
3, 2008, $17,075 of the Company’s investment in ARS was classified in short-term
investments and $56,203 was classified in long-term investments. The amount
classified in long-term investments has not experienced a successful auction
subsequent to the end of the Company’s fiscal year and is net of a $1,092
unrealized loss related to the temporary impairment of certain securities from
their stated par value.
As
of
February 2, 2008, $88,913 of the Company’s investment in ARS was classified in
short-term investments and $56,922 was classified in long-term investments.
9
THE
BUCKLE, INC.
NOTES
TO
CONDENSED FINANCIAL STATEMENTS
THIRTEEN
WEEKS ENDED MAY 3, 2008 AND MAY 5, 2007
(Dollar
Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
| 5. |
Fair
Value Measurements
|
Effective
February 3, 2008, the Company adopted the provisions of FASB Statement
No. 157 (“SFAS 157”), Fair
Value Measurements.
This
standard defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. The provisions of SFAS
157 apply to all financial instruments that are being measured and reported
on a
fair value basis. In addition, in February 2008, FASB issued FASB Staff Position
(“FSP) FAS 157-2, Effective
Date of FASB Statement No. 157.
This
FSP delays the effective date of SFAS 157 to fiscal years beginning after
November 15, 2008 for all non-financial assets and liabilities. The partial
adoption of SFAS 157 did not have any impact on the Company’s financial position
or results of operations.
As
defined by SFAS 157, fair value is the price that would be received to sell
an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Financial assets and liabilities measured
and reported at fair value are classified and disclosed in one of the following
categories:
| · |
Level
1 - Quoted market prices in active markets for identical assets or
liabilities.
|
| · |
Level
2 - Observable market-based inputs or unobservable inputs that are
corroborated by market data.
|
| · |
Level
3 - Unobservable inputs that are not corroborated by market
data.
|
As
of May
3, 2008, the Company held certain assets that are required to be measured at
fair value on a recurring basis, including money market funds (which are
classified in cash and cash equivalents), available-for-sale securities, and
trading securities. The Company’s available-for-sale securities include its
investments in auction-rate securities, as further described in Note 4. The
failed auctions, beginning in February 2008, related to certain of the Company’s
investments in auction-rate securities have limited the availability of quoted
market prices. As such, the Company has based its valuation for these securities
on observable market data for other securities with similar characteristics
and
credit quality of those held by the Company.
As
a
result of the decline in fair value for certain of the Company’s investments in
auction-rate securities, which the Company attributes to a current lack of
liquidity as opposed to deterioration in the credit quality of the underlying
issuers, the Company recorded a pre-tax unrealized loss of $1,092 in the first
quarter of fiscal 2008. This unrealized loss is reported net of tax as a $688
reduction to stockholders’ equity in accumulated other comprehensive income. Any
future fluctuation in fair value related to these securities that the Company
judges to be temporary, including any recoveries of previous write-downs, would
be recorded as an adjustment to accumulated other comprehensive income. If
the
Company determines that any future valuation adjustment was
other-than-temporary, it would record a change to net income as
appropriate.
10
THE
BUCKLE, INC.
NOTES
TO
CONDENSED FINANCIAL STATEMENTS
THIRTEEN
WEEKS ENDED MAY 3, 2008 AND MAY 5, 2007
(Dollar
Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
The
Company’s financial assets measured at fair value on a recurring basis subject
to the disclosure requirements of SFAS 157 at May 3, 2008 were as
follows:
|
Fair
Value Measurements at Reporting Date Using
|
|||||||||||||
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level
1)
|
Significant
Observable
Inputs
(Level
2)
|
Significant
Unobservable
Inputs
(Level
3)
|
Total
|
||||||||||
|
ASSETS:
|
|||||||||||||
|
Cash
and cash equivalents
|
|||||||||||||
|
(including
cash and money market funds)
|
$
|
141,174
|
$
|
-
|
$
|
-
|
$
|
141,174
|
|||||
|
Available-for-sale
securities
|
|||||||||||||
|
(including
auction-rate-securities)
|
17,075
|
56,203
|
-
|
73,278
|
|||||||||
|
Trading
securities
|
|||||||||||||
|
(including
mutual funds)
|
4,996
|
-
|
-
|
4,996
|
|||||||||
|
Totals
|
$
|
163,245
|
$
|
56,203
|
$
|
-
|
$
|
219,448
|
|||||
Auction-rate
securities included in Level 1 represent securities which experienced a
successful auction subsequent to February 2, 2008 at amounts equal to par value.
Auction-rate securities included in Level 2 represent securities which have
not
experienced a successful auction subsequent to February 2, 2008. The fair market
value for these securities was determined by applying a discount to par value
based on auction prices for similar securities that had most recently
experienced a successful auction subsequent to February 2, 2008. Prior to the
first quarter of fiscal 2008, the fair value for these securities had been
based
on quoted market prices, which were readily available at that time.
| 6. |
Comprehensive
Income
|
Comprehensive
income consists of net income and unrealized gains and losses on
available-for-sale securities. Unrealized losses on the Company’s investments in
auction-rate securities have been included in accumulated other comprehensive
loss and are separately included as a component of stockholders’ equity, net of
related income taxes.
|
Thirteen
Weeks Ended
|
|||||||
|
May
3, 2008
|
May
5, 2007
|
||||||
|
Net
income
|
$
|
18,717
|
$
|
12,193
|
|||
|
Changes
in net unrealized losses on investments
|
|||||||
|
in
auction-rate-securities, net of taxes of $404 and $0
|
(688
|
)
|
-
|
||||
|
Comprehensive
Income
|
$
|
18,029
|
$
|
12,193
|
|||
11
THE
BUCKLE, INC.
NOTES
TO
CONDENSED FINANCIAL STATEMENTS
THIRTEEN
WEEKS ENDED MAY 3, 2008 AND MAY 5, 2007
(Dollar
Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
| 7. |
Other
Income
|
The
following table summarizes the Company’s Other Income for the thirteen week
periods included in the statements of income:
|
Thirteen
Weeks Ended
|
|||||||
|
May
3, 2008
|
May
5, 2007
|
||||||
|
Interest/dividends
from investments
|
$
|
2,232
|
$
|
1,886
|
|||
|
Insurance
proceeds
|
-
|
162
|
|||||
|
Miscellaneous
|
88
|
75
|
|||||
|
Other
Income, net
|
$
|
2,320
|
$
|
2,123
|
|||
Other
income for the first quarter of fiscal 2007 included additional proceeds
received from the settlement of Hurricane Katrina and Hurricane Rita insurance
claims.
| 8. |
Supplemental
Cash Flow Information
|
The
Company had non-cash investing activities during the thirteen week periods
ended
May 3, 2008 and May 5, 2007 of $355 and $296, respectively. The non-cash
investing activity relates to unpaid purchases of property, plant, and equipment
included in accounts payable as of the end of the quarter. Amounts reported
as
unpaid purchases are recorded as cash outflows from investing activities for
purchases of property, plant, and equipment in the statement of cash flows
in
the period they are paid.
Additional
cash flow information for the Company includes cash paid for income taxes during
the thirteen week periods ended May 3, 2008 and May 5, 2007 of $8,587 and
$4,301, respectively.
| 9. |
Stock-Based
Compensation
-
The Company has several stock option plans which allow for granting
of
stock options to employees, executives, and directors; as described
more
fully in the notes included in the Company’s 2007 Annual Report. The
options are in the form of non-qualified stock options and are granted
at
fair market value 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.
|
During
fiscal 2008, the Company granted 140,050 shares of non-vested common stock
under
its 2005 Restricted Stock Plan. These grants resulted in $657 of compensation
expense recognized on a graded vesting basis during the fiscal quarter ended
May
3, 2008. The shares will 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 based on growth
in
fiscal 2008 pre-bonus, pre-tax net income.
During
fiscal 2007, the Company granted 139,800 shares of non-vested common stock
under
its 2005 Restricted Stock Plan. These grants resulted in $305 and $528 of
compensation expense recognized on a graded vesting basis during the fiscal
quarters ended May 3, 2008 and May 5, 2007, respectively. Due to participants
terminating their employment prior to the vesting date, 400 of these shares
were
forfeited to date. Upon certification by the Compensation Committee that the
Company achieved its performance targets for fiscal 2007, 20% of the
non-forfeited shares vested on March 24, 2008, with the remaining non-forfeited
shares vesting 20% on January 31, 2009, 30% on January 30, 2010, and 30% on
January 29, 2011.
12
THE
BUCKLE, INC.
NOTES
TO
CONDENSED FINANCIAL STATEMENTS
THIRTEEN
WEEKS ENDED MAY 3, 2008 AND MAY 5, 2007
(Dollar
Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
During
fiscal 2006, the Company granted 204,000 shares of non-vested common stock
under
its 2005 Restricted Stock Plan. These grants resulted in $189 and $300 of
compensation expense recognized on a graded vesting basis during the fiscal
quarters ended May 3, 2008 and May 5, 2007, respectively. Due to participants
terminating their employment prior to the vesting date, 8,610 of these shares
were forfeited to date. An initial 20% of the non-forfeited shares from this
grant vested on March 19, 2007, based upon certification that the Company had
achieved its performance targets for fiscal 2006, another 20% vested on February
2, 2008, and the remaining non-forfeited shares will vest 30% on January 31,
2009 and 30% on January 30, 2010.
During
fiscal 2005, the Company granted 116,250 shares of non-vested common stock
under
its 2005 Restricted Stock Plan. These grants resulted in $149 and $148 of
compensation expense recognized on a graded vesting basis during the fiscal
quarters ended May 3, 2008 and May 5, 2007, respectively. Due to participants
terminating their employment prior to the vesting date, 840 of these shares
were
forfeited to date and the vesting for 5,100 of these shares was accelerated.
Upon certification by the Compensation Committee that the Company achieved
its
performance target for fiscal 2005, an initial 20% of the non-forfeited shares
vested on March 24, 2006, an additional 20% vested on February 3, 2007, and
30%
vested on February 2, 2008. The remaining 30% of non-forfeited shares will
vest
on January 31, 2009.
In
total,
the Company recognized $1,300 and $976 of compensation expense related to
outstanding shares of non-vested stock during the first quarters of fiscal
2008
and 2007, respectively.
As
of May
3, 2008, 424,821 shares were available for grant under the various stock option
plans, of which 301,889 were available for grant to executive officers. Also
as
of May 3, 2008, 209,750 shares were available for grant under the Company’s 2005
Restricted Stock Plan, all of which were available for grant to executive
officers.
Options
granted during the first quarters of fiscal 2008 and 2007 were granted under
the
Company’s 1993 Director Stock Option Plan. Grants were made with an exercise
price equal to the market value of the Company’s common stock on the date of
grant and a contractual term of ten years. Options granted under the 1993
Director Stock Option Plan typically vest over a period of three
years.
The
Company accounts for stock-based compensation in accordance with FASB Statement
No. 123 (revised 2004) (“SFAS 123(R)”), Share-Based
Payment.
Compensation expense was recognized during the first quarters of fiscal 2008
and
2007 for new awards, based on the grant date fair value, as well as for the
portion of awards granted in fiscal years prior to SFAS 123(R) adoption that
was
not vested as of the beginning of fiscal 2006. The fair value of stock options
is determined using the Black-Scholes option pricing model, while the fair
value
of grants of non-vested common stock awards is the stock price on the date
of
grant. The Company recognized $142 and $157 of stock option compensation expense
during the fiscal quarters ended May 3, 2008 and May 5, 2007, respectively.
In
the
first quarter of fiscal 2007, stock option compensation expense was allocated
to
cost of sales, selling expenses, and general and administrative expenses in
a
method similar to that of allocating accrued incentive bonus expense. In the
first quarter of fiscal 2008, however, it was included in general and
administrative expenses.
SFAS
123(R) requires the benefits of tax deductions in excess of the compensation
cost recognized for stock options exercised during the period to be classified
as financing cash inflows. This amount is shown as “excess tax benefit from
stock option exercises” on the statement of cash flows. For the fiscal quarters
ended May 3, 2008 and May 5, 2007, respectively, the excess tax benefit realized
from exercised stock options was $6,063 and $3,758, respectively.
13
THE
BUCKLE, INC.
NOTES
TO
CONDENSED FINANCIAL STATEMENTS
THIRTEEN
WEEKS ENDED MAY 3, 2008 AND MAY 5, 2007
(Dollar
Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
The
weighted average grant date fair value of options granted during the thirteen
weeks ended May 3, 2008 and May 5, 2007 was $12.61 and $12.81 per option,
respectively. The fair value of options granted was estimated at the date of
grant using the Black-Scholes option pricing model with the following
assumptions:
|
2008
|
2007
|
||||||
|
Risk-free
interest rate (1)
|
3.10
|
%
|
4.80
|
%
|
|||
|
Dividend
yield (2)
|
2.40
|
%
|
2.40
|
%
|
|||
|
Expected
volatility (3)
|
33.0
|
%
|
39.0
|
%
|
|||
|
Expected
lives - years (4)
|
7.0
|
7.0
|
|||||
|
(1)
Based on the U.S. Treasury yield curve in effect at the time of
grant with
a term consistent with the
expected lives of stock options.
|
|||||||
|
(2)
Based on expected dividend yield as of the date of grant.
|
|||||||
|
(3)
Based on historical volatility of the Company’s common stock over a period
consistent with the expected lives of options.
|
|||||||
|
(4)
Based on historical and expected exercise behavior.
|
A
summary
of the Company’s stock-based compensation activity related to stock options for
the
fiscal
quarter
ended May 3, 2008
is as
follows:
|
2008
|
||||||||||||||||
|
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
|
|
|
||||||||||||||
|
Outstanding
- beginning
|
||||||||||||||||
|
of
quarter
|
2,057,228
|
$
|
12.72
|
|||||||||||||
|
Granted
|
27,000
|
42.02
|
||||||||||||||
|
Expired/forfeited
|
(169
|
)
|
15.98
|
|||||||||||||
|
Exercised
|
(640,983
|
)
|
13.29
|
|||||||||||||
|
Outstanding
- end of quarter
|
1,443,076
|
$
|
13.01
|
4.46
|
years
|
$
|
51,551
|
|||||||||
|
Exercisable
- end of quarter
|
1,403,471
|
$
|
12.35
|
4.32
|
years
|
$
|
51,053
|
|||||||||
The
total
intrinsic value of options exercised during the fiscal quarters ended May 3,
2008 and May 5, 2007, respectively, was $20,679 and $11,517. As of May 3, 2008,
there was $429 of unrecognized compensation expense related to non-vested stock
options. It is expected that this expense will be recognized over a weighted
average period of approximately 2.2 years.
14
THE
BUCKLE, INC.
NOTES
TO
CONDENSED FINANCIAL STATEMENTS
THIRTEEN
WEEKS ENDED MAY 3, 2008 AND MAY 5, 2007
(Dollar
Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
A
summary
of the Company’s stock-based compensation activity related to grants of
non-vested shares of common stock for the fiscal quarter ended May 3, 2008
is as
follows:
|
2008
|
|||||||
|
Shares
|
Weighted
Average
Grant
Date
Fair
Value
|
||||||
|
Non-Vested
- beginning of quarter
|
289,615
|
$
|
28.44
|
||||
|
Granted
|
140,050
|
42.02
|
|||||
|
Forfeited
|
(100
|
)
|
33.87
|
||||
|
Vested
|
(27,880
|
)
|
33.87
|
||||
|
Non-Vested
- end of quarter
|
401,685
|
$
|
32.79
|
||||
As
of May
3, 2008, there was $8,228 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 fiscal quarters ended May 3, 2008 and May 5, 2007
was
$1,341 and $1,372, respectively.
| 10. |
Recently
Issued Accounting
Pronouncements
|
Effective
February 3, 2008, the Company adopted the provisions of FASB Statement
No. 157 (“SFAS 157”), Fair
Value Measurements.
This
standard defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. The provisions of SFAS
157 apply to all financial instruments that are being measured and reported
on a
fair value basis. In addition, in February 2008, FASB issued FASB Staff Position
(“FSP) FAS 157-2, Effective
Date of FASB Statement No. 157.
This
FSP delays the effective date of SFAS 157 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for all
non-financial assets and liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis. The
partial adoption of SFAS 157 did not have any impact on the Company’s financial
position or results of operations.
Effective
February 3, 2008, the Company adopted the provisions of FASB Statement No.
159
(“SFAS 159”), The
Fair Value Option for Financial Assets and Financial
Liabilities.
This
standard provides an option for companies to report selected financial assets
and liabilities at fair value. Although the Company adopted the provisions
of
SFAS 159 effective with the beginning of the Company’s 2008 fiscal year, it did
not elect the fair value option for any financial instruments or other items
held by the Company. Therefore, the adoption of SFAS 159 did not have any 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 Financial Statements
and notes thereto of the Company included in this Form 10-Q. The following
is
management’s discussion and analysis of certain significant factors which have
affected the Company’s financial condition and results of operations during the
periods included in the accompanying financial statements.
EXECUTIVE
OVERVIEW
Company
management considers the following items to be key performance indicators in
evaluating Company performance.
Comparable
Store Sales
- Stores
are deemed to be comparable stores if they were open in the prior year on
the
first day of the fiscal period being presented. Stores which have been
remodeled, expanded, and/or relocated, but would otherwise be included as
comparable stores, are not excluded from the comparable store sales calculation.
Online sales are excluded from comparable store sales. Management considers
comparable store sales to be an important indicator of current Company
performance, helping leverage certain fixed costs when results are positive.
Negative comparable store sales results could reduce net sales and have a
negative impact on operating leverage, thus reducing net earnings.
Net
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
THE
BUCKLE, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS
OF OPERATIONS
The
table
below sets forth the percentage relationships of sales and various expense
categories in the Statements of Income for the thirteen-week periods ended
May
3, 2008, and May 5, 2007:
|
Percentage
of Net Sales
Thirteen
Weeks Ended
|
|
|||||||||
|
May
3, 2008
|
May
5, 2007
|
Percentage
Increase/(Decrease)
|
||||||||
|
Net
sales
|
100.0
|
%
|
100.0
|
%
|
32.4
|
%
|
||||
|
Cost
of sales (including buying,
|
||||||||||
|
distribution,
and occupancy costs)
|
59.1
|
%
|
62.4
|
%
|
25.2
|
%
|
||||
|
Gross
profit
|
40.9
|
%
|
37.6
|
%
|
44.2
|
%
|
||||
|
Selling
expenses
|
19.7
|
%
|
19.4
|
%
|
34.7
|
%
|
||||
|
General
and administrative expenses
|
4.2
|
%
|
4.1
|
%
|
34.5
|
%
|
||||
|
Income
from operations
|
17.0
|
%
|
14.1
|
%
|
60.1
|
%
|
||||
|
Other
income, net
|
1.5
|
%
|
1.8
|
%
|
9.3
|
%
|
||||
|
Income
before income taxes
|
18.5
|
%
|
15.9
|
%
|
54.4
|
%
|
||||
|
Provision
for income taxes
|
6.8
|
%
|
5.8
|
%
|
56.1
|
%
|
||||
|
Net
income
|
11.7
|
%
|
10.1
|
%
|
53.5
|
%
|
||||
Net
sales
increased from $121.1 million in the first quarter of fiscal 2007 to $160.3
million in the first quarter of fiscal 2008, a 32.4% increase. Comparable store
sales increased by $29.5 million, or 25.6%, for the thirteen week period ended
May 3, 2008 compared to the same period in the prior year. The comparable store
sales increase was primarily due to an increase in the number of transactions
at
comparable stores during the period, in addition to a 6.0% increase in the
average retail price per piece of merchandise sold during the period, and a
1.0%
increase in the average 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 twenty new stores opened during fiscal
2007, to the opening of seven new stores during the first thirteen weeks of
fiscal 2008, and to growth in online sales.
The
Company’s average retail price per piece of merchandise sold increased $2.31, or
6.0%, during the first quarter of fiscal 2008 compared to the first quarter
of
fiscal 2007. This $2.31 increase was primarily attributable to the following
changes (with their corresponding effect on the overall average price per
piece): a 17.0% increase in average knit shirt price points ($1.69), a 4.8%
increase in average denim price points ($0.80), a 9.7% increase in average
woven
shirt price points ($0.25), and a 4.8% increase in average accessory price
points ($0.13). These increases were partially offset by the impact of a shift
in the merchandise mix (-$0.44) and by reduced price points in certain other
categories (including footwear). These changes are primarily a reflection of
merchandise shifts in terms of brands and product styles, fabrics, details,
and
finishes. Average sales per square foot for the quarter increased 24.3% from
$66.55 to $82.73.
Gross
profit after buying, distribution, and occupancy expenses increased $20.1
million in the first quarter of fiscal 2008 to $65.6 million, a 44.2% increase.
As a percentage of net sales, gross profit increased from 37.6% in the first
quarter of fiscal 2007 to 40.9% in the first quarter of fiscal 2008. This
increase was attributable to a 0.8% improvement in actual merchandise margins,
which was primarily achieved through an increase in regular-price selling during
the period that was partially offset by a slight reduction, as a percentage
of
net sales, in private label merchandise sales. The increase was also
attributable to a 2.7% reduction, as a percentage of net sales, related to
leveraged buying, distribution, and occupancy costs. These improvements were,
however, partially offset by an increase in expense related to the incentive
bonus accrual (0.2%, as a percentage of net sales).
17
THE
BUCKLE, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Selling
expenses increased from $23.4 million for the first quarter of fiscal 2007
to
$31.6 million for the first quarter of fiscal 2008, a 34.7% increase. As a
percentage of net sales, selling expenses increased from 19.4% in the first
quarter of fiscal 2007 to 19.7% in the first quarter of fiscal 2008. The
increase was primarily attributable to an increase in expense related to the
incentive bonus accrual (1.0%, as a percentage of net sales), as well as
increases in payroll tax expense (0.2%, as a percentage of net sales) and
bankcard fees (0.1%, as a percentage of net sales). These increases were,
however, partially offset by a 0.5% reduction, as a percentage of net sales,
in
store payroll expense and a 0.5% reduction related to the leveraging of certain
other selling expenses.
General
and administrative expenses increased from $5.0 million in the first quarter
of
fiscal 2007 to $6.7 million in the first quarter of fiscal 2008, a 34.5%
increase. As a percentage of net sales, general and administrative expenses
increased from 4.1% in the first quarter of fiscal 2007 to 4.2% in the first
quarter of fiscal 2008. The increase was primarily driven by an increase in
expense related to the incentive bonus accrual (0.3%, as a percentage of net
sales), which was partially offset by a 0.2% reduction, as a percentage of
net
sales, related to the leveraging of certain other general and administrative
expenses..
As
a
result of the above changes, the Company's income from operations increased
60.1% to $27.4 million for the first quarter of fiscal 2008 compared to $17.1
million for the first quarter of fiscal 2007. Income from operations was 17.0%
of net sales for the first quarter of fiscal 2008 compared to 14.1% for the
first quarter of fiscal 2007.
Other
income increased from $2.1 million for the quarter ended May 5, 2007 to $2.3
million for the quarter ended May 3, 2008, an increase of 9.3%. This increase
in
other income is primarily due to an increase in income earned on the Company’s
cash and investments, resulting from higher average balances of cash and
investments, which was partially offset by the impact of insurance proceeds
received during the first quarter of fiscal 2007 related to Hurricane Katrina
and Hurricane Rita insurance claims as further described in Note 7 to the
financial statements.
Income
tax expense as a percentage of pre-tax income was 37.0% in the first quarter
of
fiscal 2008 compared to 36.6% in the first quarter of fiscal 2007, bringing
net
income to $18.7 million in the first quarter of fiscal 2008 compared to $12.2
million in the first quarter of fiscal 2007, an increase of 53.5%.
LIQUIDITY
AND CAPITAL RESOURCES
As
of May
3, 2008, the Company had working capital of $214.6 million, including $141.2
million of cash and cash equivalents and short-term investments of $39.0
million. The Company's primary ongoing cash requirements are for inventory,
payroll, occupancy costs, dividend payments, new store expansion, and
remodeling. Historically, the Company's primary source of working capital has
been cash flow from operations. During the first quarters of fiscal 2008 and
fiscal 2007, the Company’s cash flow from operating activities was $12.2 million
and $11.0 million, respectively.
The
uses
of cash for both thirteen week periods include payment of annual bonuses accrued
at fiscal year end, changes in inventory and accounts payable for build up
of
inventory levels, dividend payments, and construction costs for new and
remodeled stores. The increase in cash flow for the first quarter of fiscal
2008
compared to the first quarter of fiscal 2007 was primarily due to the
liquidation of auction-rate securities and growth in net income, which were
partially offset by a larger change in accrued employee compensation.
18
THE
BUCKLE, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
During
the first quarter of fiscal 2008 and 2007, the Company invested $6.8 million
and
$5.8 million, respectively, in new store construction, store renovation, and
store technology upgrades. The Company also spent $0.8 million and $0.5 million
in the first quarter of fiscal 2008 and 2007, respectively, in capital
expenditures for the corporate headquarters and distribution
facility.
During
the remainder of fiscal 2008, the Company anticipates completing approximately
25 additional store construction projects, including approximately 14 new stores
and approximately 11 stores to be substantially remodeled and/or relocated.
Management estimates that total capital expenditures during fiscal 2008 will
be
approximately $30 to $32 million. 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 3, 2008, had
total cash and investments of $259.0 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.
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 $17.5 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 $10 million.
Borrowings under the line of credit provide for interest to be paid at a rate
equal to the prime rate established by the Bank. The Company has, from time
to
time, borrowed against these lines during periods of peak inventory build-up.
There were no bank borrowings during the first quarters of fiscal 2008 or
2007.
As
of May
3, 2008, total cash and investments included $73.3 million of auction-rate
securities (“ARS”), which compares to $145.8 million of ARS as of February 2,
2008. ARSs have a long-term stated maturity, but are reset through a “dutch
auction” process that occurs every 7 to 49 days, depending on the terms of the
individual security. Until February 2008, the ARS market was highly liquid.
During February 2008, however, a significant number of auctions related to
these
securities failed, meaning that there was not enough demand to sell the entire
issue at auction. The impact of the failed auctions on holders of ARS is that
the holder cannot sell the securities and the issuer’s interest rate is
generally reset to a higher “penalty” rate. The failed auctions have limited the
current liquidity of certain of the Company’s investments in ARS; however, the
Company has no reason to believe that any of the underlying issuers of its
ARS
are currently at risk or that further auction failures will have a material
impact on the Company’s ability to fund its business.
Of
the
$73.3 million in ARS held as of May 3, 2008, $17.1 million has been included
in
short-term investments and $56.2 million has been included in long-term
investments. Of the $145.8 million in ARS held as of February 2, 2008, $88.9
million has been included in short-term investments and $56.9 million has been
included in long-term investments.
ARS
are
reported at fair market value, and at the end of the first quarter of fiscal
2008 the reported investment amount is net of a $1.1 million unrealized loss
which was recorded during the first quarter of fiscal 2008 to account for the
temporary impairment of certain securities from their stated par value. The
unrealized loss is reported net of tax as an “Accumulated Other Comprehensive
Loss” of $0.7 million in Stockholders’ Equity as of May 3, 2008. The
Company
has accounted for the impairment as temporary, as it currently expects to be
able to successfully liquidate its investments without loss once the ARS market
resumes normal operations.
19
THE
BUCKLE, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management’s
Discussion and Analysis of Financial Condition and Results of Operations are
based upon The Buckle, Inc.’s financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of
America. The preparation of these 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 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 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.
| 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 accounts for layaway sales in accordance with SAB No.
101, Revenue
Recognition,
recognizing
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
amount of the gift certificate liability is determined using the
outstanding balances from the prior three years of issuance
and the gift card liability is determined using the outstanding balances
from the prior four years of issuance. The
liability recorded for unredeemed gift cards and gift certificates
was
$6.4 million and $8.5 million as of May 3, 2008 and February 2, 2008,
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 $0.4 million
as
of both May 3, 2008 and February 2, 2008.
|
| 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 by
department within
each of four
different markdown levels. 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 $5.6
million and $5.8 million as of May 3, 2008 and February 2, 2008,
respectively. The Company is not aware of any events, conditions
or
changes in demand or price that would indicate that our inventory
valuation may not be materially accurate at this
time.
|
20
THE
BUCKLE, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
| 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.
|
| 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 expenses 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 balance
sheets and amortizes the deferred rent over the terms of the leases
as
reductions to rent expense on the 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 expenses on a straight-line basis over the terms of
the
leases on the 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 balance sheets
and the corresponding rent expense when specified levels have been achieved
or
are reasonably probable to be achieved.
| 5. |
Investments.
The Company invests a portion of its short and long-term investments
in
auction-rate securities (“ARS”). As of May 3, 2008 and February 2, 2008,
$73.3 million and $145.8 million, respectively, of investments were
in
auction-rate securities. ARSs
have a long-term stated maturity, but are reset through a “dutch auction”
process that occurs every 7 to 49 days, depending on the terms of
the
individual security. Until February 2008, the ARS market was highly
liquid. During February 2008, however, a significant number of auctions
related to these securities failed, meaning that there was not enough
demand to sell the entire issue at auction. The impact of the failed
auctions on holders of ARS is that the holder cannot sell the securities
and the issuer’s interest rate is generally reset to a higher “penalty”
rate. The failed auctions have limited the current liquidity of certain
of
the Company’s investments in ARS; however, the Company has no reason to
believe that any of the underlying issuers of its ARS are currently
at
risk or that further auction failures will have a material impact
on the
Company’s ability to fund its
business.
|
Of
the
$73.3 million in ARS held as of May 3, 2008, $17.1 million has been included
in
short-term investments and $56.2 million has been included in long-term
investments. Of the $145.8 million in ARS held as of February 2, 2008, $88.9
million has been included in short-term investments and $56.9 million has been
included in long-term investments.
The
Company reviews impairments in accordance with Emerging Issues Task Force (EITF)
03-1 and FSP SFAS 115-1 and 124-1, The
Meaning of Other-Than-Temporary-Impairment and its Application to Certain
Investments,
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 impairments, including the length of time and
extent to which the fair value has been less than the Company’s cost basis, the
financial condition and near-term prospects of the issuer, 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.
21
THE
BUCKLE, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
Company’s investments in ARS
are
reported at fair market value, and at the end of the first quarter of fiscal
2008 the reported investment amount is net of a $1.1 million unrealized loss
which was recorded during the first quarter of fiscal 2008 to account for the
temporary impairment of certain securities from their stated par value. The
unrealized loss is reported net of tax as an “Accumulated Other Comprehensive
Loss” of $0.7 million in Stockholders’ Equity as of May 3, 2008. The
Company
has accounted for the impairment as temporary, as it currently expects to be
able to successfully liquidate its investments without loss once the ARS market
resumes normal operations. The Company was able to successfully liquidate
$76,065 of its investments in auction-rate securities at par value during the
first quarter.
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
following tables identify the material obligations and commitments as of May
3,
2008:
|
Payments
Due by Period
|
||||||||||||||||
|
Contractual
obligations (dollar amounts in thousands):
|
Total
|
Less
than 1
year
|
1-3
years
|
4-5
years
|
After
5
years
|
|||||||||||
|
Long
term debt and purchase obligations
|
$
|
2,447
|
$
|
2,171
|
$
|
276
|
$
|
-
|
$
|
-
|
||||||
|
Deferred
compensation
|
|
4,996
|
|
-
|
|
-
|
|
-
|
|
4,996
|
||||||
|
Operating
leases
|
|
221,252
|
|
40,206
|
|
67,529
|
|
48,014
|
|
65,503
|
||||||
|
Total
contractual obligations
|
$
|
228,695
|
$
|
42,377
|
$
|
67,805
|
$
|
48,014
|
$
|
70,499
|
||||||
|
|
|
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
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
- |
$
|
-
|
22
THE
BUCKLE, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
Company has available an unsecured line of credit of $17.5 million, of which
$10
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 2008 or the first quarter of fiscal 2007.
The
Company had outstanding letters of credit totaling $.9 million and $0.8 million
at May 3, 2008 and February 2, 2008, respectively. The Company has no other
off-balance sheet arrangements.
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 2007, 2006, and 2005, the holiday and back-to-school
seasons accounted for approximately 38%, 36%, and 37%, respectively, 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 3, 2008 and May 5, 2007. 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
Effective
February 3, 2008, the Company adopted the provisions of FASB Statement
No. 157 (“SFAS 157”), Fair
Value Measurements.
This
standard defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. The provisions of SFAS
157 apply to all financial instruments that are being measured and reported
on a
fair value basis. In addition, in February 2008, FASB issued FASB Staff Position
(“FSP) FAS 157-2, Effective
Date of FASB Statement No. 157.
This
FSP delays the effective date of SFAS 157 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for all
non-financial assets and liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis. The
partial adoption of SFAS 157 did not have any impact on the Company’s financial
position or results of operations.
Effective
February 3, 2008, the Company adopted the provisions of FASB Statement No.
159
(“SFAS 159”), The
Fair Value Option for Financial Assets and Financial
Liabilities.
This
standard provides an option for companies to report selected financial assets
and liabilities at fair value. Although the Company adopted the provisions
of
SFAS 159 effective with the beginning of the Company’s 2008 fiscal year, it did
not elect the fair value option for any financial instruments or other items
held by the Company. Therefore, the adoption of SFAS 159 did not have any impact
on the Company’s financial position or results of operations.
23
THE
BUCKLE, INC.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND 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.
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 no market risk sensitive instruments for which these
additional disclosures are required.
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 our 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 the 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
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
3,
2008:
|
Total
Number
of
Shares
Purchased
|
Average
Price
Paid
Per
Share
|
Total
Number of
Shares
Purchased
as
Part of Publicly
Announced
Plans
|
Maximum
Number of
Shares
that May
Yet
Be Purchased
Under
Publicly
Announced
Plans
|
||||||||||
|
Feb.
3, 2008 to March 1, 2008
|
-
|
$
|
0
|
-
|
237,600
|
||||||||
|
March
2, 2008 to April 5, 2008
|
-
|
$
|
0
|
-
|
237,600
|
||||||||
|
April
6, 2008 to May 3, 2008
|
-
|
$
|
0
|
-
|
237,600
|
||||||||
|
|
$
|
0
|
-
|
|
|
The
Board of Directors authorized a 500,000 share repurchase plan on
November
27, 2007. The Company has 237,600 shares remaining to complete this
authorization.
|
| Item 3. Defaults Upon Senior Securities: | None |
| Item 4. Submission of Matters to a Vote of Security Holders: | None |
|
(a)
None
|
|
|
(b)
None
|
|
|
(c)
None
|
|
|
(d)
None
|
| Item 5. Other Information: | None |
| Item 6. Exhibits: |
|
(a)
Exhibits 31.1 and 31.2 certifications, as well as Exhibits 32.1
and 32.2
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to
Section 906 of the Sarbanes-Oxley Act of
2002.
|
25
THE
BUCKLE, INC.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
| |
|
|
| THE BUCKLE, INC. | ||
| Dated: June 12 , 2008 | /s/ DENNIS H. NELSON | |
|
DENNIS H. NELSON, President and CEO |
||
| |
|
|
| Dated: June 12 , 2008 | /s/ KAREN B. RHOADS | |
|
KAREN
B. RHOADS, Vice President
of
Finance and CFO
|
||
26