Unassociated Document
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 August 1, 2009

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

For the Transition Period from ____________ to ____________

Commission File Number: 001-12951

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

Nebraska
47-0366193
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

2407 West 24th Street, Kearney, Nebraska  68845-4915
(Address of principal executive offices)     (Zip Code)

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

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

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

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

(Former name, former address, and former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No ¨

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 ¨  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). þ Large accelerated filer; ¨ Accelerated filer; ¨ Non-accelerated filer (Do not check if a smaller reporting company); ¨ 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 August 28, 2009, was 46,276,564.

 
 

 

 THE BUCKLE, INC.

FORM 10-Q
INDEX
 
   
Pages
Part I. Financial Information (unaudited)
     
Item 1.
Financial Statements
3
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
19
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
29
     
Item 4.
Controls and Procedures
30
     
Part II. Other Information
     
Item 1.
Legal Proceedings
31
     
Item 1A.
Risk Factors
31
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
31
     
Item 3.
Defaults Upon Senior Securities
31
     
Item 4.
Submission of Matters to a Vote of Security Holders
32
     
Item 5.
Other Information
32
     
Item 6.
Exhibits
32
     
Signatures
33

 
2

 

THE BUCKLE, INC.

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


   
August 1,
   
January 31,
 
 
 
2009
   
2009
 
ASSETS
           
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 145,736     $ 162,463  
Short-term investments
    17,288       19,150  
Accounts receivable, net of allowance of $28 and $46, respectively
    6,719       3,734  
Inventory
    106,523       83,963  
Prepaid expenses and other assets
    18,865       17,655  
Total current assets
    295,131       286,965  
                 
PROPERTY AND EQUIPMENT
    286,136       264,154  
Less accumulated depreciation and amortization
    (154,023 )     (147,460 )
      132,113       116,694  
                 
LONG-TERM INVESTMENTS
    65,448       56,213  
OTHER ASSETS
    4,650       5,468  
                 
    $ 497,342     $ 465,340  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
CURRENT LIABILITIES:
               
Accounts payable
  $ 42,546     $ 22,472  
Accrued employee compensation
    19,748       40,460  
Accrued store operating expenses
    8,397       7,701  
Gift certificates redeemable
    6,986       10,144  
Income taxes payable
    2,042       8,649  
Total current liabilities
    79,719       89,426  
                 
DEFERRED COMPENSATION
    5,761       4,090  
DEFERRED RENT LIABILITY
    35,886       34,602  
Total liabilities
    121,366       128,118  
                 
COMMITMENTS
               
                 
STOCKHOLDERS’ EQUITY:
               
Common stock, authorized 100,000,000 shares of $.01 par value; 46,277,205 and 45,906,265 shares issued and outstanding at August 1, 2009 and January 31, 2009, respectively
    463       459  
Additional paid-in capital
    74,359       68,894  
Retained earnings
    302,169       268,789  
Accumulated other comprehensive loss
    (1,015 )     (920 )
Total stockholders’ equity
    375,976       337,222  
                 
    $ 497,342     $ 465,340  

See notes to unaudited condensed financial statements.

 
3

 

THE BUCKLE, INC.

STATEMENTS OF INCOME
(Amounts in Thousands Except Per Share Amounts)
(Unaudited)


   
Thirteen Weeks Ended
   
Twenty-six Weeks Ended
 
   
August 1,
   
August 2,
   
August 1,
   
August 2,
 
   
2009
   
2008
   
2009
   
2008
 
                         
SALES, Net of returns and allowances
  $ 192,906     $ 169,765     $ 392,603     $ 330,065  
                                 
COST OF SALES (Including buying,
                               
distribution, and occupancy costs)
    110,628       99,497       223,622       194,175  
                                 
Gross profit
    82,278       70,268       168,981       135,890  
                                 
OPERATING EXPENSES:
                               
Selling
    37,507       33,480       75,104       65,039  
General and administrative
    6,647       3,477       14,025       10,172  
      44,154       36,957       89,129       75,211  
                                 
INCOME FROM OPERATIONS
    38,124       33,311       79,852       60,679  
                                 
OTHER INCOME, Net
    1,549       2,049       2,459       4,369  
                                 
INCOME BEFORE INCOME TAXES
    39,673       35,360       82,311       65,048  
                                 
PROVISION FOR INCOME TAXES
    14,679       13,084       30,455       24,055  
                                 
NET INCOME
  $ 24,994     $ 22,276     $ 51,856     $ 40,993  
                                 
                                 
EARNINGS PER SHARE:
                               
Basic
  $ 0.55     $ 0.49     $ 1.14     $ 0.91  
                                 
Diluted
  $ 0.54     $ 0.48     $ 1.11     $ 0.88  
                                 
Basic weighted average shares
    45,640       45,346       45,585       45,076  
Diluted weighted average shares
    46,623       46,587       46,572       46,418  

See notes to unaudited condensed financial statements.

 
4

 

THE BUCKLE, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)


                           
Accumulated
       
               
Additional
         
Other
       
   
Number
   
Common
   
Paid-in
   
Retained
   
Comprehensive
       
   
of Shares
   
Stock
   
Capital
   
Earnings
   
Loss
   
Total
 
                                     
FISCAL 2009
                                   
BALANCE, February 1, 2009
    45,906,265     $ 459     $ 68,894     $ 268,789     $ (920 )   $ 337,222  
                                                 
Net income
    -       -       -       51,856       -       51,856  
Dividends paid on common stock, ($0.20 per share)
    -       -       -       (18,476 )     -       (18,476 )
Common stock issued on exercise of stock options
    173,511       2       1,136       -       -       1,138  
Issuance of non-vested stock, net of forfeitures
    197,429       2       (2 )     -       -       -  
Amortization of non-vested stock grants, net of forfeitures
    -       -       2,413       -       -       2,413  
Stock option compensation expense
    -       -       109       -       -       109  
Income tax benefit related to exercise
                                               
of stock options
    -       -       1,809       -       -       1,809  
Unrealized loss on investments, net of tax
    -       -       -       -       (95 )     (95 )
                                                 
BALANCE, August 1, 2009
    46,277,205     $ 463     $ 74,359     $ 302,169     $ (1,015 )   $ 375,976  
                                                 
FISCAL 2008
                                               
BALANCE, February 3, 2008
    29,841,668     $ 298     $ 46,977     $ 291,045     $ -     $ 338,320  
                                                 
Net income
    -       -       -       40,993       -       40,993  
Dividends paid on common stock, ($0.1667 per share)
    -       -       -       (15,269 )     -       (15,269 )
Common stock issued on exercise of stock options
    669,725       8       8,868       -       -       8,876  
Issuance of non-vested stock, net of forfeitures
    139,950       1       (1 )     -       -       -  
Amortization of non-vested stock grants, net of forfeitures
    -       -       2,599       -       -       2,599  
Stock option compensation expense
    -       -       199       -       -       199  
Income tax benefit related to exercise of stock options
    -       -       7,630       -       -       7,630  
Unrealized loss on investments, net of tax
    -       -       -       -       (976 )     (976 )
                                                 
BALANCE, August 2, 2008
    30,651,343     $ 307     $ 66,272     $ 316,769     $ (976 )   $ 382,372  

See notes to unaudited condensed financial statements.

 
5

 

THE BUCKLE, INC.

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


   
Twenty-six Weeks Ended
 
   
August 1,
   
August 2,
 
   
2009
   
2008
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 51,856     $ 40,993  
Adjustments to reconcile net income to net cash flows
               
  from operating activities:
               
Depreciation and amortization
    11,438       10,383  
Amortization of non-vested stock grants, net of forfeitures
    2,413       2,599  
Stock option compensation expense
    109       199  
Gain on involuntary conversion of corporate aircraft to monetary asset
    -       (2,963 )
Realized gain on securities
    (907 )     -  
Deferred income taxes
    (936 )     -  
Other
    (113 )     50  
Changes in operating assets and liabilities:
               
Accounts receivable
    (511 )     (1,874 )
Inventory
    (22,560 )     (25,793 )
Prepaid expenses and other assets
    (769 )     (1,196 )
Accounts payable
    19,064       23,247  
Accrued employee compensation
    (20,712 )     (11,335 )
Accrued store operating expenses
    696       1,300  
Gift certificates redeemable
    (3,158 )     (2,697 )
Income taxes payable
    (7,753 )     (1,712 )
Changes in long-term liabilities and deferred compensation
    2,955       4,326  
                 
Net cash flows from operating activities
    31,112       35,527  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property and equipment
    (26,041 )     (15,044 )
Proceeds from sale of property and equipment
    307       11,587  
Change in other assets
    38       (167 )
Purchases of investments
    (22,201 )     (16,581 )
Proceeds from sales/maturities of investments
    15,584       104,503  
                 
Net cash flows from investing activities
    (32,313 )     84,298  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from the exercise of stock options
    1,138       8,876  
Excess tax benefit from stock option exercises
    1,812       6,419  
Payment of dividends
    (18,476 )     (15,269 )
                 
Net cash flows from financing activities
    (15,526 )     26  
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (16,727 )     119,851  
                 
CASH AND CASH EQUIVALENTS, Beginning of period
    162,463       64,293  
                 
CASH AND CASH EQUIVALENTS, End of period
  $ 145,736     $ 184,144  

See notes to unaudited condensed financial statements.

 
6

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

1.
Management Representation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments necessary for the fair presentation of the results of operations for the interim periods have been included. All such adjustments are of a normal recurring nature. Because of the seasonal nature of the business, results for interim periods are not necessarily indicative of a full year's operations. The accounting policies followed by the Company and additional footnotes are reflected in the financial statements for the fiscal year ended January 31, 2009, included in The Buckle, Inc.'s 2008 Form 10-K.

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 401 stores located in 41 states throughout the continental United States as of August 1, 2009 and 381 stores in 39 states as of August 2, 2008. During the second quarter of fiscal 2009, the Company opened nine new stores and substantially remodeled seven stores. During the second quarter of fiscal 2008, the Company opened seven new stores and substantially remodeled four stores.

The following is information regarding the Company’s major product lines, stated as a percentage of the Company’s net sales:

   
Percentage of Net Sales
   
Percentage of Net Sales
 
   
Thirteen Weeks Ended
   
Twenty-six Weeks Ended
 
Merchandise Group
 
August 1, 2009
   
August 2, 2008
   
August 1, 2009
   
August 2, 2008
 
                         
Denims
    35.3 %     34.9 %     38.6 %     38.4 %
Tops (including sweaters)
    39.0       40.9       37.7       38.5  
Sportswear/Fashions
    11.1       10.2       9.7       9.3  
Accessories
    8.3       7.8       7.7       7.5  
Footwear
    5.0       5.0       5.0       5.0  
Casual bottoms
    0.6       0.9       0.5       0.9  
Outerwear
    0.6       0.2       0.7       0.3  
Other
    0.1       0.1       0.1       0.1  
                                 
      100.0 %     100.0 %     100.0 %     100.0 %
 
 
7

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

3.
Earnings Per Share

Basic earnings per share data are based on the weighted average outstanding common shares during the period. Diluted earnings per share data are based on the weighted average outstanding common shares and the effect of all dilutive potential common shares, including stock options.

   
Thirteen Weeks Ended
   
Thirteen Weeks Ended
 
   
August 1, 2009
   
August 2, 2008
 
         
Weighted
               
Weighted
       
         
Average
   
Per Share
         
Average
   
Per Share
 
   
Income
   
Shares
   
Amount
   
Income
   
Shares
   
Amount
 
                                     
Basic EPS
  $ 24,994       45,640     $ 0.55     $ 22,276       45,346     $ 0.49  
                                                 
Effect of Dilutive Securities:
                                               
Stock options and non-vested shares
    -       983       (0.01 )     -       1,241       (0.01 )
                                                 
Diluted EPS
  $ 24,994       46,623     $ 0.54     $ 22,276       46,587     $ 0.48  

   
Twenty-six Weeks Ended
   
Twenty-six Weeks Ended
 
   
August 1, 2009
   
August 2, 2008
 
         
Weighted
               
Weighted
       
         
Average
   
Per Share
         
Average
   
Per Share
 
   
Income
   
Shares
   
Amount
   
Income
   
Shares
   
Amount
 
                                     
Basic EPS
  $ 51,856       45,585     $ 1.14     $ 40,993       45,076     $ 0.91  
                                                 
Effect of Dilutive Securities:
                                         
Stock options and non-vested shares
    -       987       (0.03 )     -       1,342       (0.03 )
                                                 
Diluted EPS
  $ 51,856       46,572     $ 1.11     $ 40,993       46,418     $ 0.88  

4.
Stock Split

On September 15, 2008, the Company’s Board of Directors approved a 3-for-2 stock split payable in the form of a stock dividend for shareholders of record as of October 15, 2008, with a distribution date of October 30, 2008. All share and per share data (except par value and historical stockholders’ equity data) presented in the financial statements for all periods has been adjusted to reflect the impact of this stock split.

 
8

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

5.
Investments

The following is a summary of investments as of August 1, 2009:

   
Amortized
   
Gross
   
Gross
   
Other-than-
   
Estimated
 
   
Cost or
   
Unrealized
   
Unrealized
   
Temporary
   
Fair
 
   
Par Value
   
Gains
   
Losses
   
Impairment
   
Value
 
Available-for-Sale Securities:
                             
Auction-rate securities
  $ 26,720     $ -     $ (1,611 )   $ -     $ 25,109  
Preferred stock
    4,400       -       -       (3,219 )     1,181  
    $ 31,120     $ -     $ (1,611 )   $ (3,219 )   $ 26,290  
                                         
Held-to-Maturity Securities:
                                       
State and municipal bonds
  $ 43,215     $ 509     $ (66 )   $ -     $ 43,658  
Fixed maturities
    3,000       54       (2 )     -       3,052  
Certificates of deposit
    3,720       34       -       -       3,754  
U.S. treasuries
    750       4       (1 )     -       753  
                                         
    $ 50,685     $ 601     $ (69 )   $ -     $ 51,217  
                                         
Trading Securities:
                                       
Mutual funds
  $ 6,250     $ -     $ (489 )   $ -     $ 5,761  


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

   
Amortized
   
Gross
   
Gross
   
Other-than-
   
Estimated
 
   
Cost or
   
Unrealized
   
Unrealized
   
Temporary
   
Fair
 
   
Par Value
   
Gains
   
Losses
   
Impairment
   
Value
 
Available-for-Sale Securities:
                             
Auction-rate securities
  $ 35,495     $ -     $ (1,460 )   $ (3,757 )   $ 30,278  
Preferred stock
    2,000       -       -       (1,400 )     600  
    $ 37,495     $ -     $ (1,460 )   $ (5,157 )   $ 30,878  
                                         
Held-to-Maturity Securities:
                                       
State and municipal bonds
  $ 31,965     $ 536     $ (90 )   $ -     $ 32,411  
Fixed maturities
    2,500       37       (7 )     -       2,530  
Certificates of deposit
    2,945       42       -       -       2,987  
U.S. treasuries
    2,985       19       (9 )     -       2,995  
                                         
    $ 40,395     $ 634     $ (106 )   $ -     $ 40,923  
                                         
Trading Securities:
                                       
Mutual funds
  $ 5,165     $ -     $ (1,075 )   $ -     $ 4,090  

 
9

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

The auction-rate securities were invested as follows as of August 1, 2009:

Nature
 
Underlying Collateral
 
Par Value
 
Municipal revenue bonds
 
83% insured by AAA/AA/A-rated bond insurers at Aug. 1, 2009
  $ 13,345  
Municipal bond funds
 
Fixed income instruments within issuers' money market funds
    9,625  
Student loan bonds
 
Student loans guaranteed by state entities
    3,750  
Total par value
      $ 26,720  

As of August 1, 2009, the Company’s auction-rate securities portfolio was 58% AAA/Aaa-rated, 33% AA/Aa-rated, and 9% A-rated.

The amortized cost and fair value of held-to-maturity securities by contractual maturity as of August 1, 2009 is as follows:

   
Amortized
   
Fair
 
Fiscal Periods
 
Cost
   
Value
 
             
Twelve months ending July 31, 2010
  $ 15,643     $ 15,730  
Twelve months ending July 30, 2011
    12,299       12,438  
Twelve months ending July 28, 2012
    11,624       11,703  
Twelve months ending August 3, 2013
    4,158       4,254  
Twelve months ending August 2, 2014
    850       847  
Thereafter
    6,111       6,245  
    $ 50,685     $ 51,217  

At August 1, 2009 and January 31, 2009, held-to-maturity investments of $35,042 and $22,795 are classified in long-term investments. Trading securities are held in a Rabbi Trust, intended to fund the Company’s deferred compensation plan, and are classified in long-term investments.

The Company’s investments in auction-rate securities (“ARS”) are classified as available-for-sale and reported at fair market value. As of August 1, 2009, the reported investment amount is net of $1,611 of temporary impairment and $3,219 of other-than-temporary impairment (“OTTI”). These amounts have been recorded to account for the impairment of certain securities from their stated par value. The $1,611 temporary impairment is reported, net of tax, as an “accumulated other comprehensive loss” of $1,015 in stockholders’ equity as of August 1, 2009. The Company reported the $3,219 OTTI ($2,028 net of tax) as part of the total of $5,157 OTTI ($3,249 net of tax) reported as a loss in the statement of income during both the third and fourth quarters of the fiscal year ended January 31, 2009.

The OTTI is related to investments in auction-rate preferred securities (“ARPS”) that have all been converted to perpetual preferred stock as a result of the September 2008 bankruptcy of Lehman Brothers (the broker and auction agent for all of the ARPS purchased by the Company). The converted shares are valued at the quoted price of the securities as of August 1, 2009. All of these issues of preferred stock are publicly traded and have experienced significant declines in value. The Company recorded a charge for OTTI during fiscal 2008 based on the closing price of the preferred securities as of January 31, 2009. For the investments considered temporarily impaired, the Company believes that these ARS can be successfully redeemed or liquidated through future auctions at par value plus accrued interest. The Company believes it has the ability, and maintains its intent, to hold these investments until such recovery of market value occurs; therefore, the Company believes the current lack of liquidity has created the temporary impairment in valuation.

 
10

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

As of August 1, 2009, the Company had $26,720 invested in ARS and $4,400 invested in preferred securities, at par value, which are reported at their estimated fair value of $25,109 and $1,181, respectively. As of January 31, 2009, the Company had $35,495 invested in ARS and $2,000 invested in preferred securities, which are reported at their estimated fair value of $30,278 and $600, respectively. ARS have a long-term stated maturity, but are reset through a “dutch auction” process that occurs every 7 to 49 days, depending on the terms of the individual security. Until February 2008, the ARS market was highly liquid. During February 2008, however, a significant number of auctions related to these securities failed, meaning that there was not enough demand to sell the entire issue at auction. The failed auctions have limited the current liquidity of certain of the Company’s investments in ARS and the Company has reason to believe that certain of the underlying issuers of its ARS are currently at risk. The Company does not, however, anticipate that further auction failures will have a material impact on the Company’s ability to fund its business. The Company liquidated $1,650 of its investments in ARS at par value and $3,000 of its investments in preferred securities at par value during the first half of fiscal 2009. These investments were valued at $1,062 and were liquidated for $1,969 in proceeds.

As of August 1, 2009, $1,645 of the Company’s investment in ARS and preferred securities was classified in short-term investments and $24,645 was classified in long-term investments. As of January 31, 2009, $1,550 of the Company’s investment in ARS and preferred securities was classified in short-term investments and $29,328 was classified in long-term investments.

6.
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, which was adopted in the quarter ended May 2, 2009, delayed the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for all non-financial assets and liabilities. The 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. Short-term and long-term investments with active markets or known redemption values are reported at fair value utilizing Level 1 inputs.

 
·
Level 2 – Observable market-based inputs (either directly or indirectly) such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or inputs that are corroborated by market data.

 
·
Level 3 – Unobservable inputs that are not corroborated by market data and are projections, estimates, or interpretations that are supported by little or no market activity and are significant to the fair value of the assets. The Company has concluded that certain of its ARS represent Level 3 valuation and should be valued using a discounted cash flow analysis. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of cash flows, and expected holding periods of the ARS.

 
11

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

As of August 1, 2009 and January 31, 2009, the Company held certain assets that are required to be measured at fair value on a recurring basis including available-for-sale and trading securities. The Company’s available-for-sale securities include its investments in ARS, as further described in Note 5. The failed auctions, beginning in February 2008, related to certain of the Company’s investments in ARS have limited the availability of quoted market prices. The Company has determined the fair value of its ARS using Level 1 inputs for known or anticipated subsequent redemptions at par value, Level 2 inputs using observable inputs, and Level 3 inputs using unobservable inputs where the following criteria were considered in estimating fair value:

 
·
Pricing was provided by the custodian of ARS;
 
·
Pricing was provided by a third-party broker for ARS;
 
·
Sales of similar securities;
 
·
Quoted prices for similar securities in active markets;
 
·
Quoted prices for publicly traded preferred securities;
 
·
Quoted prices for similar assets in markets that are not active - including markets where there are few transactions for the asset, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly;
 
·
Pricing was provided by a third-part valuation consultant (using Level 3 inputs).

In addition, the Company considers other factors including, but not limited to, the financial condition of the investee, the credit rating, insurance, guarantees, collateral, cash flows, and the current and expected market and industry conditions in which the investee operates. Management believes it has used information that was reasonably obtainable in order to complete its valuation process and determine if the Company’s investments in ARS had incurred any temporary and/or other-than-temporary impairment as of August 1, 2009 and January 31, 2009.

As a result of the decline in fair value for certain of the Company’s investments in ARS, the Company has reported its investments net of $1,611 of temporary impairment and $3,219 of OTTI as of August 1, 2009. The Company has reported the $1,611 of temporary impairment, net of tax, as a $1,015 reduction to stockholders’ equity in “accumulated other comprehensive loss” as of August 1, 2009. Any future fluctuation in fair value related to these securities that the Company judges to be temporary, including any recoveries of previous write-downs, would be recorded as an adjustment to “accumulated other comprehensive loss.” The Company reported the $3,219 OTTI ($2,028 net of tax) as part of the total of $5,157 OTTI ($3,249 net of tax) reported as a loss in the statement of income during both the third and fourth quarters of the fiscal year ended January 31, 2009. The Company reviews all investments for OTTI at least quarterly or as indicators of impairment exist. The value and liquidity of ARS held by the Company may be affected by continued auction-rate failures, the credit quality of each security, the amount and timing of interest payments, the amount and timing of future principal payments, and the probability of full repayment of the principal. Additional indicators of impairment include the duration and severity of the decline in market value. The interest rates on these investments will be determined by the terms of each individual ARS. The material risks associated with the ARS held by the Company include those stated above as well as the current economic environment, downgrading of credit ratings on investments held, and the volatility of the entities backing each of the issues. In addition, the Company considers other factors including, but not limited to, the financial condition of the investee, the credit rating of the investee, and the current and expected market and industry conditions in which the investee operates.

 
12

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

The Company’s financial assets measured at fair value on a recurring basis subject to the disclosure requirements of SFAS 157 as of August 1, 2009 were as follows:

   
Fair Value Measurements at Reporting Date Using
 
   
Quoted Prices in
                   
   
Active Markets
   
Significant
   
Significant
       
   
for Identical
   
Observable
   
Unobservable
       
   
Assets
   
Inputs
   
Inputs
       
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
ASSETS:
                       
Available-for-sale securities (including
                       
auction-rate securities and preferred stock)
  $ 2,824     $ 16,231     $ 7,235     $ 26,290  
Trading securities (including mutual funds)
    5,761       -       -       5,761  
Total
  $ 8,585     $ 16,231     $ 7,235     $ 32,051  

ARS and preferred securities included in Level 1 represent securities which have a known or anticipated upcoming redemption as of August 1, 2009 and those that have publicly traded quoted prices. ARS included in Level 2 represent securities which have not experienced a successful auction subsequent to February 2, 2008. The fair market value for these securities was determined by applying a discount to par value based on auction prices for similar securities and by utilizing a discounted cash flow model, using market-based inputs, to determine fair value. The Company used a discounted cash flow model to value its Level 3 investments, using estimates regarding recovery periods, yield, and liquidity. The assumptions used are subjective based upon management’s judgment and views on current market conditions and resulted in $690 of the Company’s recorded temporary impairment. The use of different assumptions would result in a different valuation and related temporary impairment charge.

Changes in the fair value of the Company’s financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3), as defined in SFAS 157, are as follows for the 26-week year-to-date period ended August 1, 2009:

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

 
13

 
 
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

7.
Comprehensive Income

Comprehensive income consists of net income and unrealized gains and losses on available-for-sale securities. Unrealized losses on the Company’s investments have been included in accumulated other comprehensive loss and are separately included as a component of stockholders’ equity, net of related income taxes.

   
Thirteen Weeks Ended
 
   
August 1, 2009
   
August 2, 2008
 
             
Net income
  $ 24,994     $ 22,276  
Changes in net unrealized losses on investments, net of taxes of $45 and $169
    (77 )     (288 )
Comprehensive Income
  $ 24,917     $ 21,988  

   
Twenty-six Weeks Ended
 
   
August 1, 2009
   
August 2, 2008
 
             
Net income
  $ 51,856     $ 40,993  
Changes in net unrealized losses on investments, net of taxes of $56 and $573
    (95 )     (976 )
Comprehensive Income
  $ 51,761     $ 40,017  

8.
Supplemental Cash Flow Information

The Company had non-cash investing activities during the twenty-six week periods ended August 1, 2009 and August 2, 2008 of $(1,010) and $184, respectively. The non-cash investing activity relates to unpaid purchases of property, plant, and equipment included in accounts payable as of the end of the quarter. Amounts reported as unpaid purchases are recorded as cash outflows from investing activities for purchases of property, plant, and equipment in the statement of cash flows in the period they are paid.

Additional cash flow information for the Company includes cash paid for income taxes during the twenty-six week periods ended August 1, 2009 and August 2, 2008 of $37,282 and $18,944, respectively.

9.
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 August 1, 2009, 642,195 shares were available for grant under the various stock option plans, of which 452,502 were available for grant to executive officers. Also as of August 1, 2009, 207,511 shares were available for grant under the various restricted stock plans, of which 128,387 were available for grant to executive officers.

 
14

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

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 two quarters of fiscal 2009 and fiscal 2008 for new awards, based on the grant date fair value, as well as for the portion of awards granted in fiscal years prior to 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.

Information regarding the impact of stock-based compensation expense is as follows:
 
   
Thirteen Weeks Ended
   
Twenty-six Weeks Ended
 
   
August 1, 2009
   
August 2, 2008
   
August 1, 2009
   
August 2, 2008
 
Stock-based compensation expense, before tax:
                       
Stock options
  $ 69     $ 57     $ 109     $ 199  
Non-vested shares of common stock
    1,188       1,299       2,413       2,599  
                                 
Total stock-based compensation expense, before tax
  $ 1,257     $ 1,356     $ 2,522     $ 2,798  
                                 
Total stock-based compensation expense, after tax
  $ 792     $ 854     $ 1,589     $ 1,763  
 
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 statements of cash flows. For the twenty-six week periods ended August 1, 2009 and August 2, 2008, the excess tax benefit realized from exercised stock options was $1,812 and $6,419, respectively.

No stock options were granted during the first half of fiscal 2009. Stock options granted during the first half of fiscal 2008 were granted under the Company’s 1993 Director Stock Option Plan. Grants were made with an exercise price equal to the market value of the Company’s common stock on the date of grant and a contractual term of ten years. Options granted under the 1993 Director Stock Option Plan typically vest over a period of three years.

The weighted average grant date fair value of options granted during the twenty-week period ended August 2, 2008 was $8.40. The fair value of options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions:

   
Twenty-six Weeks Ended
 
   
August 2, 2008
 
         
Risk-free interest rate (1)
    3.10 %
Dividend yield (2)
    2.40 %
Expected volatility (3)
    33.00 %
Expected lives - years (4)
    7.0  

 
(1)
Based on the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected lives of stock options
 
(2)
Based on expected dividend yield as of the date of grant.
 
(3)
Based on historical volatility of the Company’s common stock over a period consistent with the expected lives of stock options.
 
(4)
Based on historical and expected exercise behavior.

 
15

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

On September 15, 2008, the Board of Directors authorized another $3.00 per share ($2.00 per share after 3-for-2 stock split) special one-time cash dividend to be paid on October 27, 2008 to shareholders of record at the close of business on October 15, 2008. To preserve the intrinsic value for option holders, the Board also approved, pursuant to the terms of the Company’s various stock option plans, a proportional adjustment to both the exercise price and the number of shares covered by each award for all outstanding stock options. This adjustment did not result in any incremental compensation expense.

A summary of the Company’s stock-based compensation activity related to stock options for the twenty-six week period ended August 1, 2009 is as follows:

             
Weighted
     
         
Weighted
 
Average
     
         
Average
 
Remaining
 
Aggregate
 
 
       
Exercise
 
Contractual
 
Intrinsic
 
   
Shares
   
Price
 
Life
 
Value
 
                     
Outstanding - beginning of year
    1,635,163     $ 6.91          
Granted
    -       n/a          
Expired/forfeited
    (5,069 )     24.21          
Exercised
    (173,511 )     6.56          
                         
Outstanding - end of quarter
    1,456,583     $ 6.90  
3.76 years
  $ 35,020  
                           
Exercisable - end of quarter
    1,436,303     $ 6.65  
3.70 years
  $ 34,884  
 
The total intrinsic value of options exercised during the twenty-six week periods ended August 1, 2009 and August 2, 2008 was $5,026 and $21,764, respectively. As of August 1, 2009, there was $130 of unrecognized compensation expense related to non-vested stock options. It is expected that this expense will be recognized over a weighted average period of approximately 1.2 years.

Non-vested shares of common stock granted during the twenty-six week period ended August 2, 2008 were granted pursuant to the Company’s 2005 Restricted Stock Plan. Non-vested shares granted during the twenty-six week period ended August 1, 2009 were granted pursuant to the Company’s 2005 Restricted Stock Plan and the Company’s 2008 Director Restricted Stock Plan. Shares granted under the 2005 Plan typically vest over a period of four years, only upon certification by the Compensation Committee of the Board of Directors that the Company has achieved its pre-established performance targets for the fiscal year. Shares granted under the 2008 Director Plan vest 25% on the date of grant and then in equal portions on each of the first three anniversaries of the date of grant.

 
16

 

THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

A summary of the Company’s stock-based compensation activity related to grants of non-vested shares of common stock for the twenty-six week period ended August 1, 2009 is as follows:

         
Weighted Average
 
         
Grant Date
 
   
Shares
   
Fair Value
 
             
Non-Vested - beginning of year
    423,171     $ 23.84  
Granted
    243,800       21.20  
Forfeited
    (46,371 )     22.63  
Vested
    (45,506 )     27.54  
                 
Non-Vested - end of quarter
    575,094     $ 22.53  
 
As of August 1, 2009, there was $6,407 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 twenty-six week periods ended August 1, 2009 and August 2, 2008 was $1,393 and $1,341, respectively.

10.
Insurance Proceeds

During the second quarter of fiscal 2008, one of the Company’s corporate aircrafts was destroyed in a tornado. The Company received $11,500 of insurance proceeds, which is included in proceeds from sale of property and equipment in the statements of cash flows. During the second quarter, Company recorded a $2,963 gain from the involuntary conversion of the aircraft, which is included in general and administrative expenses. During the third quarter of fiscal 2008 the Company purchased a replacement aircraft at a cost of $14,304.

11.
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 delayed 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 adoption of SFAS 157 during fiscal 2008 for all financial instruments and the adoption during fiscal 2009 for all non-financial assets and liabilities did not have any impact on the Company’s financial position or results of operations.

Effective February 3, 2008, the Company adopted the provisions of FASB 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.

 
17

 


THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 1, 2009 AND AUGUST 2, 2008
 (Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

In May 2009, FASB issued FASB Statement No. 165 (“SFAS 165”), Subsequent Events. This statement requires management to evaluate subsequent events through the date the financial statements are issued, or are available to be issued, and requires companies to disclose the date through which such subsequent events have been evaluated. SFAS 165 is effective for financial statements issued for interim or annual reporting periods ending after June 15, 2009, therefore the Company adopted the provisions of SFAS 165 effective May 3, 2009. The adoption of SFAS 165 did not have any impact on the Company’s financial position or results of operations.

In June 2009, FASB issues FASB Statement No. 168 (“SFAS 168”), The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162. The codification will become the source of Generally Accepted Accounting Principles (“GAAP”) recognized by FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of SFAS 168, the codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the codification will become non-authoritative. SFAS 168 is effective for financial statements issued for interim or annual reporting periods ending after September 15, 2009. The Company does not anticipate that the adoption of SFAS 168 will have any impact on the Company’s financial position or results of operations.

12.
Subsequent Events

In accordance with the provisions of SFAS 165, the Company has evaluated subsequent events through September 10, 2009. All subsequent events requiring recognition as of August 1, 2009 or disclosure in this Form 10-Q have been incorporated into the financial statements contained herein.

 
18

 

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

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

EXECUTIVE OVERVIEW

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

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

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

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

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

 
19

 

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

RESULTS OF OPERATIONS

The table below sets forth the percentage relationships of sales and various expense categories in the Statements of Income for the thirteen and twenty-six week periods ended August 1, 2009 and August 2, 2008:

   
Percentage of Net Sales
   
Percentage
   
Percentage of Net Sales
   
Percentage
 
   
Thirteen Weeks Ended
   
Increase/
   
Twenty-six Weeks Ended
   
Increase/
 
   
Aug.1, 2009
   
Aug.2, 2008
   
(Decrease)
   
Aug.1, 2009
   
Aug.2, 2008
   
(Decrease)
 
                                     
Net sales
    100.0 %     100.0 %     13.6 %     100.0 %     100.0 %     18.9 %
Cost of sales (including buying, distribution, and occupancy costs)
    57.3 %     58.6 %     11.2 %     57.0 %     58.8 %     15.2 %
Gross profit
    42.7 %     41.4 %     17.1 %     43.0 %     41.2 %     24.4 %
Selling expenses
    19.4 %     19.7 %     12.0 %     19.1 %     19.7 %     15.5 %
General and administrative expenses
    3.5 %     2.1 %     91.2 %     3.6 %     3.1 %     37.9 %
Income from operations
    19.8 %     19.6 %     14.4 %     20.3 %     18.4 %     31.6 %
Other income, net
    0.8 %     1.2 %     -24.4 %     0.7 %     1.3 %     -43.7 %
Income before income taxes
    20.6 %     20.8 %     12.2 %     21.0 %     19.7 %     26.5 %
Provision for income taxes
    7.6 %     7.7 %     12.2 %     7.8 %     7.3 %     26.6 %
Net income
    13.0 %     13.1 %     12.2 %     13.2 %     12.4 %     26.5 %

Net sales increased from $169.8 million in the second quarter of fiscal 2008 to $192.9 million in the second quarter of fiscal 2009, a 13.6% increase. Comparable store sales increased by $13.8 million, or 8.6%, for the thirteen week period ended August 1, 2009 compared to the same period in the prior year. The comparable store sales increase was primarily due to a 5.0% increase in the average retail price per piece of merchandise sold during the period, a 3.0% increase in the average number of units sold per transaction, and an increase in the number of transactions at comparable stores during the period. Sales growth for the thirteen week period was also attributable to the inclusion of a full quarter of operating results for the 21 new stores opened during fiscal 2008, to the opening of 15 new stores during the first two quarters of fiscal 2009, and to growth in online sales. Online sales for the quarter (which are not included in comparable store sales) increased 39.0% to $10.1 million.

The Company’s average retail price per piece of merchandise sold increased $2.05, or 5.0%, during the second quarter of fiscal 2009 compared to the second quarter of fiscal 2008. This $2.05 increase was primarily attributable to the following changes (with their corresponding effect on the overall average price per piece): a 10.8% increase in average denim price points ($1.39), a 3.9% increase in average knit shirt price points ($0.49), a 7.8% increase in average active apparel price points ($0.28), an 11.3% increase in average woven shirt price points ($0.24), and a 7.7% increase in average footwear price points ($0.15). These increases were partially offset by the impact of a shift in the merchandise mix (-$0.50). These changes are primarily a reflection of merchandise shifts in terms of brands and product styles, fabrics, details, and finishes.

Net sales increased from $330.1 million for the first two quarters of fiscal 2008 to $392.6 million for the first two quarters of fiscal 2009, an 18.9% increase. Comparable store sales increased by $40.5 million, or 13.1%, for the twenty-six week period ended August 1, 2009 compared to the same period in the prior year. The comparable store sales increase was primarily due to a 6.0% increase in the average retail price per piece of merchandise sold during the period, a 2.5% increase in the average number of units sold per transaction, and an increase in the number of transactions at comparable stores during the period. Sales growth for the twenty-six week period was also attributable to the inclusion of a full two quarters of operating results for the 21 new stores opened during fiscal 2008, to the opening of 15 new stores during the first two quarters of fiscal 2009, and to growth in online sales. Online sales for the year-to-date period increased 56.4% to $21.8 million. Average sales per square foot increased 11.9% from $168.69 for the twenty-six week period ended August 2, 2008 to $188.68 for the twenty-six week period ended August 1, 2009.

 
20

 

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

The Company’s average retail price per piece of merchandise sold increased $2.30, or 6.0%, during the first two quarters of fiscal 2009 compared to the first two quarters of fiscal 2008. This $2.30 increase was primarily attributable to the following changes (with their corresponding effect on the overall average price per piece): a 9.8% increase in average denim price points ($1.45), a 5.1% increase in average knit shirt price points ($0.64), an 8.4% increase in average active apparel price points ($0.28), a 10.6% increase in average woven shirt price points ($0.23), a 7.6% increase in average footwear price points ($0.15), and increased average price points in certain other categories ($0.10). These increases were partially offset by the impact of a shift in the merchandise mix (-$0.55). 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 $12.0 million in the second quarter of fiscal 2009 to $82.3 million, a 17.1% increase. As a percentage of net sales, gross profit increased from 41.4% in the second quarter of fiscal 2008 to 42.7% in the second quarter of fiscal 2009. This increase was attributable to a 0.90% improvement, as a percentage of net sales, in actual merchandise margins; which was achieved through an increase in regular-price selling during the period that was partially offset by an increase in redemptions through the Company’s Primo Card loyalty program. The increase was also attributable to a 0.40% reduction, as a percentage of net sales, related to the leveraging of buying, distribution, and occupancy costs.

Year-to-date, gross profit increased $33.1 million for the first twenty-six weeks of fiscal 2009 to $169.0 million, a 24.4% increase. As a percentage of net sales, gross profit increased from 41.2% for the first half of fiscal 2008 to 43.0% for the first half of fiscal 2009. This increase was attributable to a 0.90% improvement, as a percentage of net sales, in actual merchandise margins; which was achieved through an increase in regular-price selling during the period that was partially offset by an increase in redemptions through the Company’s Primo Card loyalty program. The increase was also attributable to a 0.90% reduction, as a percentage of net sales, related to the leveraging of buying, distribution, and occupancy costs.

Selling expenses increased from $33.5 million for the second quarter of fiscal 2008 to $37.5 million for the second quarter of fiscal 2009, a 12.0% increase. As a percentage of net sales, selling expenses decreased from 19.7% in the second quarter of fiscal 2008 to 19.4% in the second quarter of fiscal 2009. The reduction was primarily attributable to a 0.40% reduction, as a percentage of net sales, in expense related to the incentive bonus accrual and to a 0.10% reduction related to the leveraging of certain other selling expenses. These reductions were, however, partially offset by an increase in internet-related fulfillment and marketing expenses (0.20%, as a percentage of net sales).

Year-to-date, selling expenses increased from $65.0 million in the first half of fiscal 2008 to $75.1 million in the first half of fiscal 2009, a 15.5% increase. As a percentage of net sales, selling expenses decreased from 19.7% in fiscal 2008 to 19.1% in fiscal 2009. The decrease was primarily attributable to a 0.40% reduction, as a percentage of net sales, in store payroll expense, a 0.10% reduction in expense related to the incentive bonus accrual, and a 0.25% reduction related to the leveraging of certain other selling expenses. These reductions were, however, partially offset by an increase in internet related fulfillment and marketing expenses (0.15%, as a percentage of net sales).

General and administrative expenses increased from $3.5 million in the second quarter of fiscal 2008 to $6.6 million in the second quarter of fiscal 2009, a 91.2% increase. As a percentage of net sales, general and administrative expenses increased from 2.1% in the second quarter of fiscal 2008 to 3.5% in the second quarter of fiscal 2009. General and administrative expenses for the second quarter of fiscal 2008 were reported net of a $3.0 million gain from the involuntary conversion of one of the Company’s corporate aircrafts to a monetary asset upon receipt of $11.5 million in insurance proceeds. The aircraft was destroyed by a tornado that hit the airport in Kearney, Nebraska on May 29, 2008. Excluding the $3.0 million gain recognized during the second quarter of fiscal 2008, general and administrative expenses were 3.8% of net sales for the second quarter of fiscal 2008 compared to 3.5% of net sales for the second quarter of fiscal 2009. The reduction was primarily attributable to a 0.10% reduction, as a percentage of net sales, in equity compensation expense, a 0.10% reduction in expense related to the incentive bonus accrual, and a 0.10% reduction related to the leveraging of certain other general and administrative expenses.

 
21

 

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

Year-to-date, general and administrative expense increased from $10.2 million for the first half of fiscal 2008 to $14.0 million for the first half of fiscal 2009, a 37.9% increase. As a percentage of net sales, general and administrative expenses increased from 3.1% in fiscal 2008 to 3.6% in fiscal 2009. Excluding the $3.0 million gain recognized during the second quarter of fiscal 2008 on the involuntary disposal of a corporate aircraft, general and administrative expenses were 4.0% of net sales for fiscal 2008 compared to 3.6% of net sales for fiscal 2009. The reduction was primarily attributable to a 0.20% reduction, as a percentage of net sales, in equity compensation expense and a 0.20% reduction 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 14.4% to $38.1 million for the second quarter of fiscal 2009 compared to $33.3 million for the second quarter of fiscal 2008. Income from operations was 19.8% of net sales for the second quarter of fiscal 2009 compared to 19.6% for the second quarter of fiscal 2008. Income from operations, for the twenty-six week period ended August 1, 2009, increased 31.6% to $79.9 million compared to $60.7 million for the twenty-six week period ended August 2, 2008. Income from operations was 20.3% of net sales for the first half of fiscal 2009 compared to 18.4% for the first half of fiscal 2008. Excluding the $3.0 million gain on the involuntary disposal of a corporate aircraft, income from operations for the thirteen and twenty-six week periods ended August 2, 2008, was 17.9% and 17.5%, respectively.

Other income decreased from $2.0 million for the second quarter of fiscal 2008 to $1.5 million for the second quarter of fiscal 2009, a decrease of 24.4%. Other income for the year-to-date period decreased 43.7% from $4.4 million for the twenty-six week period ended August 2, 2008 to $2.5 million for the twenty-six week period ended August 1, 2009. The decrease in other income for both the thirteen and twenty-six week periods is due to a reduction in income earned on the Company’s cash and investments as a result of lower interest rates.

Income tax expense as a percentage of pre-tax income was 37.0% for both the second quarter of fiscal 2009 and the second quarter of fiscal 2008, bringing net income to $25.0 million in the second quarter of fiscal 2009 compared to $22.3 million in the second quarter of fiscal 2008, an increase of 12.2%. Income tax expense was also 37.0% of pre-tax income for both the first half of fiscal 2009 and first half of fiscal 2008, bringing year-to-date net income to $51.9 million for fiscal 2009 compared to $41.0 million for fiscal 2008, an increase of 26.5%.

LIQUIDITY AND CAPITAL RESOURCES

As of August 1, 2009, the Company had working capital of $215.4 million, including $145.7 million of cash and cash equivalents and short-term investments of $17.3 million. The Company’s cash receipts are generated from retail sales and from investment income, and the Company's primary ongoing cash requirements are for inventory, payroll, occupancy costs, dividend payments, new store expansion, remodeling, and other capital expenditures. Historically, the Company's primary source of working capital has been cash flow from operations. During the first two quarters of fiscal 2009 and fiscal 2008, the Company’s cash flow from operating activities was $31.1 million and $35.5 million, respectively.

The uses of cash for both twenty-six 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, construction costs for new and remodeled stores, and other capital expenditures. The reduction in cash flow from investing activities for the first two quarters of fiscal 2009 compared to the first two quarters of fiscal 2008 was primarily a result of the large amount of proceeds received from sales/maturities of investments in 2008 as the Company liquidated a significant amount of its auction-rate securities, as well as insurance proceeds received during fiscal 2008 on the involuntary disposal of one of the Company’s corporate aircrafts and an increase in capital expenditures during the first half of fiscal 2009.

 
22

 

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

During the first half of fiscal 2009 and 2008, the Company invested $17.7 million and $13.2 million, respectively, in new store construction, store renovation, and store technology upgrades. The Company also spent $8.3 million and $1.8 million in the first half of fiscal 2009 and 2008, respectively, in capital expenditures for the corporate headquarters and distribution facility. The amount spent during fiscal 2009 for capital expenditures at the corporate headquarters includes $5.5 million invested in the expansion of our online fulfillment infrastructure within our current warehouse and distribution center in Kearney, Nebraska. The newly expanded online fulfillment center went live in June 2009 and the expansion approximately doubled the size of our previous infrastructure.

During the remainder of fiscal 2009, the Company anticipates completing approximately 13 additional store construction projects, including approximately 5 new stores and approximately 8 stores to be substantially remodeled and/or relocated. Management estimates total capital expenditures during fiscal 2009 will be approximately $44 to $48 million, prior to any costs incurred for the new distribution center which the Company plans to build to support the anticipated growth of the business over the next several years. The Company has purchased land in Kearney, Nebraska and plans to break ground during the third quarter and begin construction of a new building with a target completion date of July 2010. The Company expects the new distribution center to cost approximately $25 to $27 million; however, no capital expenditures related to this project have been included in the estimated $44 to $48 million for this year as the Company has not yet determined what portion of the capital spending related to this project will occur during fiscal 2009 versus fiscal 2010.

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 August 1, 2009, had total cash and investments of $228.5 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 $10.0 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 half of fiscal 2009 or 2008.

As of August 1, 2009, total cash and investments included $25.1 million of auction-rate securities (“ARS”) and $1.2 million of preferred securities, which compares to $30.3 million of ARS and $0.6 million of preferred securities as of January 31, 2009. Of the $26.3 million in ARS and preferred securities as of August 1, 2009, $1.6 million has been included in short-term investments and $24.7 million has been included in long-term investments. ARS have a long-term stated maturity, but are reset through a “dutch auction” process that occurs every 7 to 49 days, depending on the terms of the individual security. 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 the Company’s investments in ARS and the Company has reason to believe that certain of the underlying issuers of its ARS are currently at risk. The Company does not anticipate, however, that further auction failures will have a material impact on the Company’s ability to fund its business.

 
23

 

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

ARS and preferred securities are reported at fair market value and, as of August 1, 2009, the reported investment amount is net of a $1.6 million temporary impairment and a $3.2 million other-than-temporary impairment (“OTTI”). These amounts have been recorded to account for the impairment of certain securities from their stated par value. The Company reported the $1.6 million temporary impairment, net of tax, as an “accumulated other comprehensive loss” of $1.0 million in stockholders’ equity as of August 1, 2009. The Company has accounted for the impairment as temporary, as it currently anticipates being able to successfully liquidate its investments without loss once the ARS market resumes normal operations. The Company reported the $3.2 million OTTI ($2.0 million net of tax) as part of the total $5.2 million OTTI ($3.2 million net of tax) reported as a loss in the statement of income during both the third and fourth quarters of the fiscal year ended January 31, 2009.

The OTTI is related to investments in auction-rate preferred securities (“ARPS”) that were converted to preferred stock as a result of the Lehman bankruptcy (the broker and auction agent for all of the ARPS purchased by the Company). The converted shares are valued at the quoted price of the securities as of August 1, 2009. Since it is unlikely that the fair market value of these investments will recover in the near term, the Company recorded a charge for OTTI during fiscal 2008 based on the closing price of the converted securities as well as for each of the preferred securities underlying the ARPS that were converted subsequent to year end. Any future fluctuation in fair value related to these securities that the Company judges to be other-than-temporary, including any recoveries of previous write-downs, would be recorded in the statement of income as an adjustment to net income.

The Company reviews all investments for OTTI at least quarterly or as indicators of impairment exist. The value and liquidity of ARS held by the Company may be affected by continued auction-rate failures, the credit quality of each security, the amount and timing of interest payments, the amount and timing of future principal payments, and the probability of full repayment of the principal. Additional indicators of impairment include the duration and severity of the decline in market value. The interest rates on these investments will be determined by the terms of each individual ARS. The material risks associated with the ARS held by the Company include those stated above as well as the current economic environment, downgrading of credit ratings on investments held, and the volatility of the entities backing each of the issues. In addition, the Company considers qualitative factors including, but not limited to, the financial condition of the investee, the credit rating of the investee, and the current and expected market and industry conditions in which the investee operates. The Company believes it has the ability and intent to hold these investments until recovery of market value occurs.

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, investments, incentive bonuses, and income taxes. Management bases its estimates on past experience and on various other factors that are thought to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes that the estimates and judgments used in preparing these 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.

 
24

 

THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND 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 $7.0 million and $10.1 million as of August 1, 2009 and January 31, 2009, 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 $0.6 million as of August 1, 2009 and $0.5 million as of January 31, 2009.

2.
Inventory. Inventory is valued at the lower of cost or market. Cost is determined using an average cost method that approximates the first-in, first-out (FIFO) method. Management makes adjustments to inventory and cost of goods sold, based upon estimates, to reserve for merchandise obsolescence and markdowns that could affect market value, based on assumptions using calculations applied to current inventory levels within each 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 $5.8 million and $6.2 million as of August 1, 2009 and January 31, 2009, 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.

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.

 
25

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

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 accounts for investments in accordance with Statement of Financial Accounting Standards Board (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Investments classified as short-term investments include securities with a maturity of greater than three months and less than one year, and a portion of the Company’s investments in auction-rate securities (“ARS”), which are available-for-sale securities. Available-for-sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity (net of the effect of income taxes), using the specific identification method, until they are sold. The Company reviews impairments in accordance with Emerging 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 the other comprehensive income. Impairments that are considered other-than-temporary are recognized as a loss in the statements of 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. Held-to-maturity securities are carried at amortized cost. The Company believes it has the ability and maintains its intent to hold these investments until recovery of market value occurs. Trading securities are reported at fair value, with unrealized gains and losses included in earnings, using the specific identification method.

The Company’s investments in ARS and preferred securities are reported at fair market value, and as of August 1, 2009, the reported investment amount is net of a $1.6 million temporary impairment and a $3.2 million other-than-temporary impairment (“OTTI”). These amounts have been recorded to account for the impairment of certain securities from their stated par value. The Company reported the $1.6 million temporary impairment, net of tax, as an “accumulated other comprehensive loss” of $1.0 million in stockholders’ equity as of August 1, 2009. 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 reported the $3.2 million OTTI ($2.0 million net of tax) as part of the total $5.2 million OTTI ($3.2 million net of tax) reported as a loss in the statement of income during both the third and fourth quarters of the fiscal year ended January 31, 2009.

The Company determined the fair value of ARS using Level 1 inputs for known or anticipated subsequent redemptions at par value, Level 2 inputs using observable inputs, and Level 3 inputs using unobservable inputs, where the following criteria were considered in estimating fair value:

 
·
Pricing was provided by the custodian of ARS;
 
·
Pricing was provided by a third-party broker for ARS;
 
·
Sales of similar securities;
 
·
Quoted prices for similar securities in active markets;
 
·
Quoted prices for publicly traded preferred securities;
 
·
Quoted prices for similar assets in markets that are not active - including markets where there are few transactions for the asset, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly;
 
·
Pricing was provided by a third-part valuation consultant (using Level 3 inputs).
 
 
26

 

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

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 the decline in market value. 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 August 1, 2009.

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

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

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

The following tables identify the material obligations and commitments as of August 1, 2009:

   
Payments Due by Period
 
Contractual obligations (dollar amounts in
       
Less than 1
               
After 5
 
thousands):
 
Total
   
year
   
1-3 years
   
4-5 years
   
years
 
Long term debt and purchase obligations
  $ 3,413     $ 3,334     $ 79     $ -     $ -  
Deferred compensation
    5,761       -       -       -       5,761  
Operating leases
    273,719       45,119       76,672       58,828       93,100  
Total contractual obligations
  $ 282,893     $ 48,453     $ 76,751     $ 58,828     $ 98,861  

   
Amount of Commitment Expiration Per Period
 
Other commercial commitments (dollar
 
Total
                         
amounts in thousands):
 
Amounts
   
Less than 1
               
After 5
 
   
Committed
   
year
   
1-3 years
   
4-5 years
   
years
 
Lines of credit
  $ -     $ -     $ -     $ -     $ -  
Total commercial commitments
  $ -     $ -     $ -     $ -     $ -  

The Company has available an unsecured line of credit of $17.5 million, of which $10.0 million is available for letters of credit, which is excluded from the preceding table. This line of credit was extended through July 31, 2012. 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 half of fiscal 2009 or the first half of fiscal 2008. The Company had outstanding letters of credit totaling $1.7 million and $1.1 million at August 1, 2009 and January 31, 2009, respectively. The Company has no other off-balance sheet arrangements.

 
27

 

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

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 2008, 2007, and 2006, the holiday and back-to-school seasons accounted for approximately 37%, 38%, and 36%, 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 and twenty-six week periods ended August 1, 2009 and August 2, 2008. 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 delayed 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 adoption of SFAS 157 during fiscal 2008 for all financial instruments and the adoption during fiscal 2009 for all non-financial assets and liabilities did not have any impact on the Company’s financial position or results of operations.

Effective February 3, 2008, the Company adopted the provisions of FASB 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.

In May 2009, FASB issued FASB Statement No. 165 (“SFAS 165”), Subsequent Events. This statement requires management to evaluate subsequent events through the date the financial statements are issued, or are available to be issued, and requires companies to disclose the date through which such subsequent events have been evaluated. SFAS 165 is effective for financial statements issued for interim or annual reporting periods ending after June 15, 2009, therefore the Company adopted the provisions of SFAS 165 effective May 3, 2009. The adoption of SFAS 165 did not have any impact on the Company’s financial position or results of operations.

In June 2009, FASB issues FASB Statement No. 168 (“SFAS 168”), The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162. The codification will become the source of Generally Accepted Accounting Principles (“GAAP”) recognized by FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of SFAS 168, the codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the codification will become non-authoritative. SFAS 168 is effective for financial statements issued for interim or annual reporting periods ending after September 15, 2009. The Company does not anticipate that the adoption of SFAS 168 will have any impact on the Company’s financial position or results of operations.

 
28

 
 
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. Such factors are discussed in the section entitled “Item 1A. Risk Factors” set forth in the Company’s Form 10-K for the fiscal year ended January 31, 2009, as supplemented in Part II below and in the Company’s other filings with the Securities and Exchange Commission. 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 inherent risks in its operations as it is exposed to certain market risks, including interest rates.

Interest Rate Risk - To the extent that the Company borrows under its line of credit facility, the Company would be exposed to market risk related to changes in interest rates. As of August 1, 2009, no borrowings were outstanding under the line of credit facility. The Company is not a party to any derivative financial instruments. Additionally, the Company is exposed to market risk related to interest rate risk on the cash and investments in interest-bearing securities. These investments have carrying values that are subject to interest rate changes that could impact earnings to the extent that the Company did not hold the investments to maturity. If there are changes in interest rates, those changes would also affect the investment income the Company earns on its cash and investments. For each one-quarter percent decline in the interest/dividend rate earned on cash and investments (approximately a 25% change in the rate earned), the Company’s net income would decrease approximately $390,000 or approximately $0.01 per share. This amount could vary based upon the number of shares of the Company’s stock outstanding and the level of cash and investments held by the Company.

Other Market Risk – At August 1, 2009, the Company held $31.1 million, at par value, of investments in auction-rate securities (“ARS”) and preferred stock. The Company concluded that a $1.6 million temporary impairment and $3.2 million other-than-temporary impairment existed related to these securities as of August 1, 2009. Given current market conditions in the ARS and equity markets, the Company may incur additional temporary or other-than-temporary impairment in the future if market conditions persist and the Company is unable to recover the cost of its investments in ARS.
 
 
29

 

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

ITEM 4 – CONTROLS AND PROCEDURES

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

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

Change in Internal Control Over Financial Reporting

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

 
30

 

THE BUCKLE, INC.

PART II — OTHER INFORMATION

Item 1.    Legal Proceedings:                                                                                                None

Item 1A. Risk Factors:

The effect of economic pressures and other business factors – During the twenty-six week period ended August 1, 2009, the global recession has continued to cause uncertainty and a wide-ranging lack of liquidity. The market uncertainty has resulted in a lack of consumer confidence and a reduction of consumer spending. The success of our operations depends to a significant extent upon a number of factors relating to discretionary consumer spending, including economic conditions affecting disposable consumer income such as employment, consumer debt, interest rates, increases in energy costs, and consumer confidence. There can be no assurance that consumer spending will not be further negatively affected by general or local economic conditions, which could have an adverse impact on our continued growth and results of operations.

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 August 1, 2009:

   
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
 
                         
May 3, 2009 to May 30, 2009
    -       -       -       799,300  
May 31, 2009 to July 4, 2009
    -       -       -       799,300  
July 5, 2009 to Aug. 1, 2009
    -       -       -       799,300  
      -       -       -          

 
The Board of Directors authorized a 1,000,000 share repurchase plan on November 20, 2008. The Company has 799,300 shares remaining to complete this authorization.

Item 3.    Defaults Upon Senior Securities:                                                                        None
 
 
31

 

Item 4.    Submission of Matters to a Vote of Security Holders:

(a)
May 29, 2009, Annual Meeting
   
(b)
Board of Directors:
 
Daniel J. Hirschfeld
Robert E. Campbell
 
 
Dennis H. Nelson
John P. Peetz
 
 
Karen B. Rhoads
Michael E.Huss
 
 
James E. Shada
Bruce L. Hoberman
 
 
Bill L. Fairfield
   

           
Number of Shares*
           
For
   
Against
   
Abstain
 
Del N-Vote
(c)
    1.  
Election of Board of Directors:
                   
         
Daniel J. Hirschfeld
    42,363,561       0       1,331,805    
         
Dennis H. Nelson
    42,403,374       0       1,291,992    
         
Karen B. Rhoads
    41,161,037       0       2,534,329    
         
James E. Shada
    42,363,786       0       1,331,580    
         
Bill L. Fairfield
    41,679,225       0       2,016,141    
         
Robert E. Campbell
    42,875,019       0       820,347    
         
John P. Peetz
    43,332,446       0       362,920    
         
Michael E. Huss
    43,191,278       0       504,088    
         
Bruce L. Hoberman
    43,344,199       0       351,167    
      2.  
Ratify the Selection of Deloitte &  Touche LLP as independent registered  public accounting firm.
    43,228,039       457,548       9,779    
      3.  
Approve Company’s 2009 Management Incentive Plan
    42,508,938       1,136,813       49,615    
      4.  
Approve Awards Pursuant to Company’s 2005 Restricted  Stock Plan
    40,038,458       185,428       19,447  
3,452,033

*includes only shares represented in person or by proxy at the annual meeting

 
(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.

 
32

 

 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:   September 10 ,  2009
   /s/  DENNIS H. NELSON
 
DENNIS H. NELSON, President and CEO
 
(principal executive officer)
   
Dated:   September 10,  2009
 /s/  KAREN B. RHOADS
 
KAREN B. RHOADS, Vice President
 
of Finance and CFO
 
(principal accounting officer)
 
 
33