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 3, 2019

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

For the Transition Period from ____________ to ____________

Commission File Number: 001-12951

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

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

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

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

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
BKE
New York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o; Accelerated filer þ;
Non-accelerated filer o; Smaller reporting company o;
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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, $0.01 par value, as of September 6, 2019, was 49,223,811.



THE BUCKLE, INC.

FORM 10-Q
INDEX

 
 
Pages
Part I. Financial Information (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II. Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



THE BUCKLE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
 
 
 
 
ASSETS
August 3,
2019
 
February 2,
2019
 

 

CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
178,041

 
$
168,471

Short-term investments
52,051

 
51,546

Receivables
11,206

 
7,089

Inventory
129,068

 
125,190

Prepaid expenses and other assets
21,059

 
18,136

Total current assets
391,425

 
370,432

 


 


PROPERTY AND EQUIPMENT
453,416

 
452,187

Less accumulated depreciation and amortization
(331,285
)
 
(321,505
)
 
122,131

 
130,682

 


 


OPERATING LEASE RIGHT-OF-USE ASSETS
335,448

 

LONG-TERM INVESTMENTS
15,477

 
18,745

OTHER ASSETS
7,952

 
7,443

 


 


Total assets
$
872,433

 
$
527,302

 


 


LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

 


 


CURRENT LIABILITIES:
 

 
 

Accounts payable
$
42,531

 
$
29,008

Accrued employee compensation
11,512

 
21,452

Accrued store operating expenses
23,268

 
17,982

Gift certificates redeemable
13,305

 
16,634

Current portion of operating lease liabilities
75,992

 

Income taxes payable

 
5,142

Total current liabilities
166,608

 
90,218

 


 


DEFERRED COMPENSATION
14,984

 
13,978

NON-CURRENT OPERATING LEASE LIABILITIES
287,648

 

DEFERRED RENT LIABILITY

 
29,229

Total liabilities
469,240

 
133,425

 


 


COMMITMENTS


 


 


 


STOCKHOLDERS’ EQUITY:
 

 
 

Common stock, authorized 100,000,000 shares of $.01 par value; 49,223,811 and 49,017,395 shares issued and outstanding at August 3, 2019 and February 2, 2019, respectively
492

 
490

Additional paid-in capital
151,027

 
148,564

Retained earnings
251,674

 
244,823

Total stockholders’ equity
403,193

 
393,877

 


 


Total liabilities and stockholders’ equity
$
872,433

 
$
527,302


See notes to unaudited condensed consolidated financial statements.

3



THE BUCKLE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands Except Per Share Amounts)
(Unaudited)
 
 
 
 
 
 
 
 
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
August 3,
2019

August 4,
2018
 
August 3,
2019
 
August 4,
2018






 
 
 
 
SALES, Net of returns and allowances
$
203,817


$
201,080

 
$
405,130

 
$
405,977







 
 
 
 
COST OF SALES (Including buying, distribution, and occupancy costs)
125,120


122,149

 
249,780

 
247,355







 
 
 
 
Gross profit
78,697


78,931

 
155,350

 
158,622







 
 
 
 
OPERATING EXPENSES:





 
 

 
 
Selling
48,535


47,896

 
95,144

 
93,749

General and administrative
10,560


10,874

 
21,870

 
21,452

 
59,095


58,770

 
117,014

 
115,201







 
 
 
 
INCOME FROM OPERATIONS
19,602


20,161

 
38,336

 
43,421







 
 
 
 
OTHER INCOME, Net
2,086


972

 
3,341

 
2,459







 
 
 
 
INCOME BEFORE INCOME TAXES
21,688


21,133

 
41,677

 
45,880







 
 
 
 
PROVISION FOR INCOME TAXES
5,314


5,474

 
10,211

 
11,883







 
 
 
 
NET INCOME
$
16,374


$
15,659

 
$
31,466

 
$
33,997







 
 
 
 






 
 
 
 
EARNINGS PER SHARE:
 


 

 
 
 
 
Basic
$
0.34


$
0.32

 
$
0.65

 
$
0.70







 
 
 
 
Diluted
$
0.34


$
0.32

 
$
0.65

 
$
0.70







 
 
 
 
Basic weighted average shares
48,550


48,379

 
48,551

 
48,379

Diluted weighted average shares
48,760


48,592

 
48,747

 
48,571


See notes to unaudited condensed consolidated financial statements.

4



THE BUCKLE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
August 3,
2019
 
August 4,
2018
 
August 3,
2019
 
August 4,
2018
 
 
 
 
 
 
 
 
NET INCOME
$
16,374

 
$
15,659

 
$
31,466

 
$
33,997

 
 
 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME, NET OF TAX:
 
 
 
 
 

 
 

Change in unrealized loss on investments, net of tax of $0, $31, $0, and $31, respectively

 
89

 

 
89

Other comprehensive income

 
89

 

 
89

 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME
$
16,374

 
$
15,748

 
$
31,466

 
$
34,086


See notes to unaudited condensed consolidated financial statements.

5



THE BUCKLE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number
of Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
FISCAL 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, May 5, 2019
 
49,231,625

 
$
492

 
$
149,860

 
$
247,606

 
$

 
$
397,958

Net income
 

 

 

 
16,374

 

 
16,374

Dividends paid on common stock, ($0.25 per share)
 

 

 

 
(12,306
)
 

 
(12,306
)
Issuance of non-vested stock, net of forfeitures
 
(3,262
)
 

 

 

 

 

Amortization of non-vested stock grants, net of forfeitures
 

 

 
1,235

 

 

 
1,235

Common stock purchased and retired
 
(4,552
)
 

 
(68
)
 

 

 
(68
)
BALANCE, August 3, 2019
 
49,223,811

 
$
492

 
$
151,027

 
$
251,674

 
$

 
$
403,193

 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, February 3, 2019
 
49,017,395

 
$
490

 
$
148,564

 
$
244,823

 
$

 
$
393,877

Net income
 

 

 

 
31,466

 

 
31,466

Dividends paid on common stock, ($0.50 per share)
 

 

 

 
(24,615
)
 

 
(24,615
)
Issuance of non-vested stock, net of forfeitures
 
210,968

 
2

 
(2
)
 

 

 

Amortization of non-vested stock grants, net of forfeitures
 

 

 
2,533

 

 

 
2,533

Common stock purchased and retired
 
(4,552
)
 

 
(68
)
 

 

 
(68
)
BALANCE, August 3, 2019
 
49,223,811

 
$
492

 
$
151,027

 
$
251,674

 
$

 
$
403,193

 
 
 
 
 
 
 
 
 
 
 
 
 
FISCAL 2018
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, May 6, 2018
 
49,044,895

 
$
490

 
$
145,761

 
$
253,036

 
$
(89
)
 
$
399,198

Net income
 

 

 

 
15,659

 

 
15,659

Dividends paid on common stock, ($0.25 per share)
 

 

 

 
(12,251
)
 

 
(12,251
)
Issuance of non-vested stock, net of forfeitures
 
(26,700
)
 

 

 

 

 

Amortization of non-vested stock grants, net of forfeitures
 

 

 
1,412

 

 

 
1,412

Change in unrealized loss on investments, net of tax
 

 

 

 

 
89

 
89

Cumulative effect of change in accounting upon adoption of ASC Topic 606
 

 

 

 

 

 

BALANCE, August 4, 2018
 
49,018,195

 
$
490

 
$
147,173

 
$
256,444

 
$

 
$
404,107

 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, February 4, 2018
 
48,816,170

 
$
488

 
$
144,279

 
$
246,570

 
$
(89
)
 
$
391,248

Net income
 

 

 

 
33,997

 

 
33,997

Dividends paid on common stock, ($0.50 per share)
 

 

 

 
(24,512
)
 

 
(24,512
)
Issuance of non-vested stock, net of forfeitures
 
202,025

 
2

 
(2
)
 

 

 

Amortization of non-vested stock grants, net of forfeitures
 

 

 
2,896

 

 

 
2,896

Change in unrealized loss on investments, net of tax
 

 

 

 

 
89

 
89

Cumulative effect of change in accounting upon adoption of ASC Topic 606
 

 

 

 
389

 

 
389

BALANCE, August 4, 2018
 
49,018,195

 
$
490

 
$
147,173

 
$
256,444

 
$

 
$
404,107


See notes to unaudited condensed consolidated financial statements.

6



THE BUCKLE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
 
 
 
 
 
Twenty-Six Weeks Ended
 
August 3,
2019
 
August 4,
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
31,466

 
$
33,997

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

 
 

Depreciation and amortization
12,427

 
13,917

Amortization of non-vested stock grants, net of forfeitures
2,533

 
2,896

Deferred income taxes
(608
)
 
(750
)
Other
279

 
524

Changes in operating assets and liabilities:
 

 
 

Receivables
534

 
993

Inventory
(3,878
)
 
(10,196
)
Prepaid expenses and other assets
(2,923
)
 
(785
)
Accounts payable
13,520

 
17,499

Accrued employee compensation
(9,940
)
 
(10,455
)
Accrued store operating expenses
4,131

 
5,643

Gift certificates redeemable
(3,329
)
 
(4,099
)
Income taxes payable
(9,793
)
 
(16,874
)
Other assets and liabilities
1,124

 
(1,438
)
 
 
 
 
Net cash flows from operating activities
35,543

 
30,872

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchases of property and equipment
(4,152
)
 
(6,097
)
Change in other assets
99

 
94

Purchases of investments
(25,167
)
 
(25,388
)
Proceeds from sales/maturities of investments
27,930

 
28,894

 
 
 
 
Net cash flows from investing activities
(1,290
)
 
(2,497
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Purchases of common stock
(68
)
 

Payment of dividends
(24,615
)
 
(24,512
)
 
 
 
 
Net cash flows from financing activities
(24,683
)
 
(24,512
)
 
 
 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
9,570

 
3,863

 
 
 
 
CASH AND CASH EQUIVALENTS, Beginning of period
168,471

 
165,086

 
 
 
 
CASH AND CASH EQUIVALENTS, End of period
$
178,041

 
$
168,949


See notes to unaudited condensed consolidated financial statements.

7



THE BUCKLE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 3, 2019 AND AUGUST 4, 2018
(Dollar Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)

1.
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments necessary for the fair presentation of the results of operations for the interim periods have been included. All such adjustments are of a normal recurring nature. Because of the seasonal nature of the business, results for interim periods are not necessarily indicative of a full year's operations. The accounting policies followed by the Company and additional footnotes are reflected in the consolidated financial statements for the fiscal year ended February 2, 2019, included in The Buckle, Inc.'s 2018 Form 10-K. The condensed consolidated balance sheet as of February 2, 2019 is derived from audited financial statements.

For purposes of this report, unless the context otherwise requires, all references herein to the “Company”, “Buckle”, “we”, “us”, or similar terms refer to The Buckle, Inc. and its subsidiary.

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

There were no significant changes to the Company's significant accounting policies as disclosed in Note A to the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2019, except as set forth below.

Leases - In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which superseded the requirements in ASC Topic 840, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

The Company adopted Topic 842 on February 3, 2019, using the modified retrospective transition method. Under this transition method, the prior period comparative information has not been adjusted and continues to be reported under Topic 840. The Company has elected to apply the "practical expedient package," which permits it to not reassess previous conclusions around lease identification, lease classification, and initial direct costs. Topic 842 also provides a practical expedient to not separate lease and non-lease components for new leases as well as existing leases through transition, which the Company has elected to apply for each class of underlying assets. The Company did not elect the use of the hindsight practical expedient. Further, the Company has made an accounting policy election to exclude short-term leases from the recognition requirements.

As a result of the adoption of the standard, the Company recognized net ROU assets and operating lease liabilities of approximately $362,589 and $389,849, respectively, as of February 3, 2019 based on the present value of the total fixed payments for retail store and corporate office operating leases. These payments were discounted using the Company's incremental borrowing rate which was determined based on information available at the commencement date, including lease term. The adoption of Topic 842 did not have a material impact on the Company's results of operations for the twenty-six week period ended August 3, 2019. See Footnote 6, Leases, for further details.

2.
Revenues

The Company is a retailer of medium to better priced casual apparel, footwear, and accessories for fashion conscious young men and women. The Company operates its business as one reportable segment. The Company sells its merchandise through its retail stores and e-Commerce platform. The Company had 449 stores located in 42 states throughout the United States as of August 3, 2019 and 455 stores in 43 states as of August 4, 2018. During the twenty-six week period ended August 3, 2019, the Company opened 1 new store, substantially remodeled 3 stores, and closed 2 stores; which includes 1 new store, 2 substantial remodels, and 1 closed store during the second quarter. During the twenty-six week period ended August 4, 2018, the Company did not open any new stores, substantially remodeled 3 stores, and closed 2 stores; which includes 3 substantial remodels and 1 closed store during the second quarter.

8



For the twenty-six week periods ended August 3, 2019 and August 4, 2018, online revenues accounted for 11.7% and 10.9%, respectively, of the Company's net sales. No sales to an individual customer or country, other than the United States, accounted for more than 10% of net sales.

The following is information regarding the Company’s major product lines, stated as a percentage of the Company’s net sales:
 
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
Merchandise Group
August 3,
2019
 
August 4,
2018
 
August 3,
2019
 
August 4,
2018
 
 
 
 
 
 
 
 
Denims
33.0
%
 
32.3
%
 
37.7
%
 
37.6
%
Tops (including sweaters)
33.8

 
34.6

 
31.8

 
32.4

Sportswear/Fashions
12.8

 
13.9

 
10.8

 
11.4

Accessories
9.7

 
9.7

 
9.1

 
9.0

Footwear
7.6

 
6.5

 
7.5

 
6.6

Casual bottoms
1.0

 
1.1

 
1.1

 
1.0

Outerwear
0.6

 
0.4

 
0.7

 
0.7

Other
1.5

 
1.5

 
1.3

 
1.3

 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%

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.


Thirteen Weeks Ended

Thirteen Weeks Ended

August 3, 2019

August 4, 2018

Net Income

Weighted
Average
Shares (a)

Per Share
Amount

Net Income

Weighted
Average
Shares (a)

Per Share
Amount


















Basic EPS
$
16,374


48,550


$
0.34


$
15,659


48,379


$
0.32

Effect of Dilutive Securities:
 


 


 


 


 


 

Non-vested shares


210






213



Diluted EPS
$
16,374


48,760


$
0.34


$
15,659


48,592


$
0.32

 
 
 
 
 
 
 
 
 
 
 
 
 
Twenty-Six Weeks Ended
 
Twenty-Six Weeks Ended
 
August 3, 2019
 
August 4, 2018
 
Net Income
 
Weighted
Average
Shares (a)
 
Per Share
Amount
 
Net Income
 
Weighted
Average
Shares (a)
 
Per Share
Amount
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
$
31,466

 
48,551

 
$
0.65

 
$
33,997

 
48,379

 
$
0.70

Effect of Dilutive Securities:
 

 
 

 
 

 
 

 
 

 
 

Non-vested shares

 
196

 

 

 
192

 

Diluted EPS
$
31,466

 
48,747

 
$
0.65

 
$
33,997

 
48,571

 
$
0.70


(a) Shares in thousands.


9



4.
Investments

The following is a summary of investments as of August 3, 2019:
 
 
Amortized
Cost or
Par Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Other-than-
Temporary
Impairment
 
Estimated
Fair
Value
Held-to-Maturity Securities:
 
 
 

 
 

 
 

 
 

State and municipal bonds
$
52,544

 
$
127

 
$

 
$

 
$
52,671

 
 
 
 
 
 
 
 
 
 
Trading Securities:
 

 
 

 
 

 
 

 
 

Mutual funds
$
13,905

 
$
1,079

 
$

 
$

 
$
14,984

 
The following is a summary of investments as of February 2, 2019:
 
 
Amortized
Cost or
Par Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Other-than-
Temporary
Impairment
 
Estimated
Fair
Value
Held-to-Maturity Securities:
 
 
 

 
 

 
 

 
 

State and municipal bonds
$
56,313

 
$
65

 
$
(7
)
 
$

 
$
56,371

 
 
 
 
 
 
 
 
 
 
Trading Securities:
 

 
 

 
 

 
 

 
 

Mutual funds
$
13,364

 
$
614

 
$

 
$

 
$
13,978


The amortized cost and fair value of debt securities by contractual maturity as of August 3, 2019 is as follows:
 
 
Amortized
Cost
 
Fair
Value
Held-to-Maturity Securities
 
 
 
Less than 1 year
$
52,051

 
$
52,176

1 - 5 years
493

 
495

 
$
52,544

 
$
52,671

 
As of August 3, 2019 and February 2, 2019, $493 and $4,767 of held-to-maturity securities are classified in long-term investments. Trading securities are held in a Rabbi Trust, intended to fund the Company’s deferred compensation plan, and are classified in long-term investments.


10



5.
Fair Value Measurements

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

Level 1 – Quoted market prices in active markets for identical assets or liabilities. Short-term and long-term investments with active markets or known redemption values are reported at fair value utilizing Level 1 inputs.
Level 2 – Observable market-based inputs (either directly or indirectly) such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or inputs that are corroborated by market data.
Level 3 – Unobservable inputs that are not corroborated by market data and are projections, estimates, or interpretations that are supported by little or no market activity and are significant to the fair value of the assets.

As of August 3, 2019 and February 2, 2019, the Company held certain assets that are required to be measured at fair value on a recurring basis including its investments in trading securities.

The Company’s financial assets measured at fair value on a recurring basis are as follows:
 
 
Fair Value Measurements at Reporting Date Using
 
Quoted Prices in
Active Markets
for Identical
Assets
 
Significant
Observable
Inputs
 
Significant
Unobservable
Inputs
 
 
August 3, 2019
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
 
 
 
 
 
 
 
 
Trading securities (including mutual funds)
$
14,984

 
$

 
$

 
$
14,984

 
 
Fair Value Measurements at Reporting Date Using
 
Quoted Prices in
Active Markets
for Identical
Assets
 
Significant
Observable
Inputs
 
Significant
Unobservable
Inputs
 
 
February 2, 2019
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
 
 
 
 
 
 
 
 
Trading securities (including mutual funds)
$
13,978

 
$

 
$

 
$
13,978

 
Securities included in Level 1 represent securities which have publicly traded quoted prices. There were no transfers of securities between Levels 1, 2, or 3 during the twenty-six week periods ended August 3, 2019 or August 4, 2018. The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period in which the transfer occurred.

The carrying value of cash equivalents approximates fair value due to the low level of risk these assets present and their relatively liquid nature, particularly given their short maturities. The Company also holds certain financial instruments that are not carried at fair value on the condensed consolidated balance sheets, including held-to-maturity securities. Held-to-maturity securities consist primarily of state and municipal bonds. The fair values of these debt securities are based on quoted market prices and yields for the same or similar securities, which the Company determined to be Level 2 inputs. As of August 3, 2019, the fair value of held-to-maturity securities was $52,671 compared to the carrying amount of $52,544. As of February 2, 2019, the fair value of held-to-maturity securities was $56,371 compared to the carrying amount of $56,313.


11



The carrying values of receivables, accounts payable, accrued expenses, and other current liabilities approximates fair value because of their short-term nature. From time to time, the Company measures certain assets at fair value on a non-recurring basis, specifically long-lived assets evaluated for impairment. These are typically store specific assets, which are reviewed for impairment when circumstances indicate impairment may exist due to the questionable recoverability of the carrying values of long-lived assets. If expected future cash flows related to a store’s assets are less than their carrying value, an impairment loss would be recognized for the difference between the carrying value and the estimated fair value of the store's assets. The fair value of the store's assets is estimated utilizing an income-based approach based on the expected cash flows over the remaining life of the store's lease. The amount of impairment related to long-lived assets was immaterial for all periods presented.

6.
Leases

The Company's lease portfolio is primarily comprised of leases for retail store locations. The Company also leases certain equipment and corporate office space. Store leases for new stores typically have an initial term of 10 years, with options to renew for an additional 1 to 5 years. The exercise of lease renewal options is at the Company's sole discretion and is included in the lease term for calculations of its right-of-use assets and liabilities when it is reasonably certain that the Company plans to renew these leases. Certain store lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Lease agreements do not contain any residual value guarantees, material restrictive covenants, or options to purchase the leased property.

As part of the Company's adoption of Topic 842, as previously discussed in Footnote 1, the Company elected to apply the practical expedient to account for lease components (e.g. fixed payments for rent, insurance, and real estate taxes) and nonlease components (e.g. fixed payments for common area maintenance) together as a single component for all underlying asset classes. Additionally, the Company elected as an accounting policy to exclude short-term leases from the recognition requirements.

Lease expense is included in cost of sales in the condensed consolidated statements of income. The components of total lease cost are as follows:

 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
August 3,
2019
 
August 3,
2019
 
 
 
 
Operating lease cost
$
21,680

 
$
43,226

Variable lease cost (a)
8,592

 
17,836

Total lease cost
$
30,272

 
$
61,062

(a) Includes short-term leases with periods of less than twelve months.

Supplemental cash flow information related to leases is as follows:

 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
August 3,
2019
 
August 3,
2019
 
 
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows from operating leases
$
21,746

 
$
43,265

 
 
 
 
Right-of-use assets obtained in exchange for new lease obligations:
 
 
 
Operating leases
$
5,678

 
$
6,096



12



The Company uses its incremental borrowing rate as the discount rate to determine the present value of lease payments. As of August 3, 2019, the weighted-average remaining lease term was 5.5 years and the weighted-average discount rate was 4.0% .

The table below reconciles undiscounted future lease payments (e.g. fixed payments for rent, insurance, real estate taxes, and common area maintenance) for each of the next five fiscal years and the total of the remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet as of August 3, 2019:

Fiscal Year
 
Operating Leases (a)
2019 (remaining)
 
$
44,190

2020
 
88,890

2021
 
73,865

2022
 
62,267

2023
 
52,195

Thereafter
 
84,471

Total lease payments
 
405,878

Less: Imputed interest
 
42,238

Total operating lease liability
 
$
363,640

(a) Operating lease payments exclude $10,565 of legally binding minimum lease payments for leases signed, but not yet commenced.

As previously disclosed in our 2018 Annual Report on Form 10-K, under the previous lease accounting standard our future minimum rent payments for operating leases with remaining lease terms in excess of one year as of February 2, 2019 were as follows:

Fiscal Year
 
Minimum Rental Commitments
2019
 
$
66,303

2020
 
55,914

2021
 
45,908

2022
 
38,357

2023
 
31,528

Thereafter
 
49,249

Total minimum rental commitments
 
$
287,259


7.
Supplemental Cash Flow Information

The Company had non-cash investing activities during the twenty-six week periods ended August 3, 2019 and August 4, 2018 of ($3) and ($24), respectively. The non-cash investing activity relates to the change in the balance of unpaid purchases of property, plant, and equipment included in accounts payable as of the end of the period. The liability for unpaid purchases of property, plant, and equipment included in accounts payable was $412 and $409 as of August 3, 2019 and February 2, 2019, respectively. Amounts reported as unpaid purchases are recorded as cash outflows from investing activities for purchases of property, plant, and equipment in the condensed consolidated statement of cash flows in the period they are paid.

Additional cash flow information for the Company includes cash paid for income taxes during the twenty-six week periods ended August 3, 2019 and August 4, 2018 of $20,611 and $29,506, respectively.


13



8.
Stock-Based Compensation

The Company has several stock option plans which allow for granting of stock options to employees, executives, and directors. The Company has not granted any stock options since fiscal 2008 and there are currently no stock options outstanding. 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 3, 2019, 850,723 shares were available for grant under the Company’s various restricted stock plans, of which 822,412 shares were available for grant to executive officers.

Compensation expense was recognized during fiscal 2019 and fiscal 2018 for equity-based grants, based on the grant date fair value of the awards. The fair value of grants of non-vested common stock awards is the stock price on the date of grant.

Information regarding the impact of compensation expense related to grants of non-vested shares of common stock is as follows:

 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
August 3,
2019
 
August 4,
2018
 
August 3,
2019
 
August 4,
2018
 
 
 
 
 
 
 
 
Stock-based compensation expense, before tax
$
1,235

 
$
1,412

 
$
2,533

 
$
2,896

 
 
 
 
 
 
 
 
Stock-based compensation expense, after tax
$
932

 
$
1,046

 
$
1,912

 
$
2,146


Non-vested shares of common stock granted during the twenty-six week periods ended August 3, 2019 and August 4, 2018 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 are typically "performance based" and 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. Certain shares granted under the 2005 Plan, however, are "non-performance based" and vest over a period of four years without being subject to the achievement of performance targets. Shares granted under the 2008 Director Plan vest 25% on the date of grant and then in equal portions on each of the first three anniversaries of the date of grant.

A summary of the Company’s stock-based compensation activity related to grants of non-vested shares of common stock for the twenty-six week period ended August 3, 2019 is as follows:
 
 
Shares
 
Weighted Average
Grant Date
Fair Value
 
 
 
 
Non-Vested - beginning of year
503,173

 
$
20.67

Granted
371,000

 
17.38

Forfeited
(160,032
)
 
19.56

Vested
(39,355
)
 
19.36

Non-Vested - end of quarter
674,786

 
$
19.20

 
As of August 3, 2019, there was $6,709 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 2.1 years. The total fair value of shares vested during the twenty-six week periods ended August 3, 2019 and August 4, 2018 was $694 and $698, respectively. During the twenty-six week period ended August 3, 2019, 146,150 shares (representing one-half of the "performance based" shares granted during fiscal 2018 under the 2005 Restricted Stock Plan) were forfeited because the Company did not achieve all of the performance targets established for the fiscal 2018 grants.


14



9.
Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value investments. The amendments are effective for all entities for annual and interim periods in fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact this pronouncement will have on its consolidated financial statements.

10.
Commitments and Contingencies

Data Security Incident

On June 16, 2017, the Company announced that it had become aware that it was a victim of a data security incident in which a threat actor accessed certain guest payment information following purchases at some of the Company's retail stores between October 28, 2016, and April 14, 2017. The Company immediately launched a thorough investigation and engaged leading third-party forensic experts to review its systems and secure the affected part of its network. Through that investigation, the Company learned that its store payment data systems were infected with a form of malicious code, which was removed. The Company has taken actions that it believes have contained the issue and has implemented additional security enhancements. Based on the forensic investigation, the Company believes that no social security numbers, email addresses, or physical addresses were obtained by those criminally responsible. There is also no evidence that the buckle.com website or buckle.com guests were impacted by this event.

Buckle self-reported the incident to the payment card brands and cooperated fully with the card brands, their forensic experts, and law enforcement during the investigation. To the extent that any card brand imposes a potential assessment, fine, penalty, or other liability in connection with this incident, the Company does not expect that such amounts, whether individually or in the aggregate, would have a material effect on the Company's consolidated result of operations and financial position.



15



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

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto of the Company included in this Form 10-Q. All references herein to the “Company”, “Buckle”, “we”, “us”, or similar terms refer to The Buckle, Inc. and its subsidiary. The following is management’s discussion and analysis of certain significant factors which have affected the Company’s financial condition and results of operations during the periods included in the accompanying condensed consolidated financial statements.

EXECUTIVE OVERVIEW

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

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

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

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

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


16



RESULTS OF OPERATIONS

The following table sets forth certain financial data expressed as a percentage of net sales and the percentage change in the dollar amount of such items compared to the prior period:

 
Percentage of Net Sales

 
 
Percentage of Net Sales
 
 
 
For Thirteen Weeks Ended
 
Percentage
 
For Twenty-Six Weeks Ended
 
Percentage
 
August 3,
2019

August 4,
2018

Increase/(Decrease)
 
August 3,
2019
 
August 4,
2018
 
Increase/(Decrease)
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
100.0
%
 
100.0
%
 
1.4
 %
 
100.0
%
 
100.0
%
 
(0.2
)%
Cost of sales (including buying, distribution, and occupancy costs)
61.4
%
 
60.8
%
 
2.4
 %
 
61.6
%
 
60.9
%
 
1.0
 %
Gross profit
38.6
%
 
39.2
%
 
(0.3
)%
 
38.4
%
 
39.1
%
 
(2.1
)%
Selling expenses
23.8
%
 
23.8
%
 
1.3
 %
 
23.5
%
 
23.1
%
 
1.5
 %
General and administrative expenses
5.2
%
 
5.4
%
 
(2.9
)%
 
5.4
%
 
5.3
%
 
1.9
 %
Income from operations
9.6
%
 
10.0
%
 
(2.8
)%
 
9.5
%
 
10.7
%
 
(11.7
)%
Other income, net
1.0
%
 
0.5
%
 
114.8
 %
 
0.8
%
 
0.6
%
 
35.9
 %
Income before income taxes
10.6
%
 
10.5
%
 
2.6
 %
 
10.3
%
 
11.3
%
 
(9.2
)%
Provision for income taxes
2.6
%
 
2.7
%
 
(2.9
)%
 
2.5
%
 
2.9
%
 
(14.1
)%
Net income
8.0
%
 
7.8
%
 
4.6
 %
 
7.8
%
 
8.4
%
 
(7.4
)%
 
Net sales increased from $201.1 million in the second quarter of fiscal 2018 to $203.8 million in the second quarter of fiscal 2019, a 1.4% increase. Comparable store net sales for the thirteen week quarter ended August 3, 2019 increased 1.8% from comparable store net sales for the prior year thirteen week period ended August 4, 2018. The comparable store sales increase for the quarter was primarily attributable to a 3.1% increase in the number of transactions and a 2.8% increase in the average number of units sold per transaction, partially offset by a 4.1% decrease in the average unit retail. Total net sales for the quarter were also impacted by the Company's closing of 7 stores during fiscal 2018 and 2 stores during the first half of fiscal 2019. Online sales for the quarter increased 9.2% to $23.1 million for the thirteen week period ended August 3, 2019 compared to $21.2 million for the thirteen week period ended August 4, 2018.

Net sales decreased from $406.0 million for the first two quarters of fiscal 2018 to $405.1 million for the first two quarters of fiscal 2019, a 0.2% decrease. Comparable store net sales for the twenty-six week period ended August 3, 2019 increased 0.3% from comparable store net sales for prior year twenty-six week period ended August 4, 2018. The comparable store sales increase for the twenty-six week period was primarily attributable to a 1.0% increase in the number of transactions and a 3.3% increase in the average number of units sold per transaction, partially offset by a 3.9% decrease in the average unit retail. Total net sales for the year-to-date period were also impacted by the Company's closing of 7 stores during fiscal 2018 and 2 stores during the first half of fiscal 2019. Online sales for the year-to-date period increased 7.3% to $47.5 million for the twenty-six week period ended August 3, 2019 compared to $44.3 million for the twenty-six week period ended August 4, 2018. Average sales per square foot decreased 0.2% from $155.81 for the twenty-six week period ended August 4, 2018 to $155.47 for the twenty-six week period ended August 3, 2019. Total square footage as of August 3, 2019 was 2.320 million compared to 2.339 million as of August 4, 2018.

The Company's average retail price per piece of merchandise sold decreased $1.72, or 4.1%, during the second quarter of fiscal 2019 compared to the second quarter of fiscal 2018. This $1.72 decrease was primarily attributable to the following changes (with their corresponding effect on the overall average price per piece): a 13.2% reduction in average accessories price points (-$0.60), a 3.2% reduction in average knit shirt price points (-$0.35), a 1.8% reduction in average denim price points (-$0.25), a reduction in average price points for certain other merchandise categories (-$0.26), and a shift in the merchandise mix (-$0.26). These changes are primarily a reflection of merchandise shifts in terms of brands and product styles, fabrics, details, and finishes.


17



For the year-to-date period, the Company's average retail price per piece of merchandise sold decreased $1.73, or 3.9%, compared to the same period in fiscal 2018. This $1.73 decrease was primarily attributable to the following changes (with their corresponding effect on the overall average price per piece): a 3.3% reduction in average denim price points (-$0.54), a 10.8% reduction in average accessories price points (-$0.47), a 2.7% reduction in average knit shirt price points (-$0.29), a reduction in average price points for certain other merchandise categories (-$0.31), and a shift in the merchandise mix (-$0.12). 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 decreased from $78.9 million in the second quarter of fiscal 2018 to $78.7 million in the second quarter of fiscal 2019. As a percentage of net sales, gross profit decreased from 39.2% in the second quarter of fiscal 2018 to 38.6% in the second quarter of fiscal 2019. The gross margin decline was the result of a reduction in merchandise margins (0.70%, as a percentage of net sales), partially offset by leveraged occupancy, buying, and distribution expenses (0.10%, as a percentage of net sales).

Year-to-date, gross profit decreased from $158.6 million for the twenty-six week period ended August 4, 2018 to $155.4 million for the twenty-six week period ended August 3, 2019. As a percentage of net sales, gross profit decreased from 39.1% for the first two quarters of fiscal 2018 to 38.4% for the first two quarters of fiscal 2019. The gross margin decline for the year-to-date period was the result of a reduction in merchandise margins (0.50%, as a percentage of net sales) and an increase in occupancy, buying, and distribution expenses (0.20%, as a percentage of net sales).

Selling expenses increased from $47.9 million in the second quarter of fiscal 2018 to $48.5 million in the second quarter of fiscal 2019. As a percentage of net sales, selling expenses remained flat at 23.8%. Increases in store compensation expense (0.30%, as a percentage of net sales) and online fulfillment and marketing expenses (0.30%, as a percentage of net sales) were offset by reductions in certain other selling expenses (0.60%, as a percentage of net sales).

Year-to-date, selling expenses increased from $93.7 million for the first two quarters of fiscal 2018 to $95.1 million for the first two quarters of fiscal 2019. As a percentage of net sales, selling expenses increased from 23.1% in fiscal 2018 to 23.5% in fiscal 2019. Increases in store compensation expense (0.50%, as a percentage of net sales) and online fulfillment and marketing expenses (0.30%, as a percentage of net sales) were partially offset by reductions in certain other selling expenses (0.40%, as a percentage of net sales).

General and administrative expenses decreased from $10.9 million in the second quarter of fiscal 2018 to $10.6 million in the second quarter of fiscal 2019. As a percentage of net sales, general and administrative expenses decreased from 5.4% in the second quarter of fiscal 2018 to 5.2% in the second quarter of fiscal 2019, driven by reductions across several expense categories.

Year-to-date, general and administrative expenses increased from $21.5 million for the first two quarters of fiscal 2018 to $21.9 million for the first two quarters of fiscal 2019. As a percentage of net sales, general and administrative expenses increased from 5.3% in fiscal 2018 to 5.4% in fiscal 2019. Increased information technology investments, both in terms of increased home office payroll as well as spending for other strategic initiatives, (0.20%, as a percentage of net sales) were partially offset by reductions across several other expense categories (0.10%, as a percentage of net sales).

As a result of the above changes, the Company's income from operations was $19.6 million in the second quarter of fiscal 2019 compared to $20.2 million in the second quarter of fiscal 2018. Income from operations was 9.6% of net sales in the second quarter of fiscal 2019 compared to 10.0% of net sales in the second quarter of fiscal 2018.

Year-to-date, income from operations was $38.3 million for the twenty-six week period ended August 3, 2019 compared to $43.4 million for the twenty-six week period ended August 4, 2018. Income from operations was 9.5% of net sales for the first two quarters of fiscal 2019 compared to 10.7% of net sales for the first two quarters of fiscal 2018.

Other income increased from $1.0 million in the second quarter of fiscal 2018 to $2.1 million in the second quarter of fiscal 2019. Other income for the year-to-date period increased from $2.5 million for the twenty-six week period ended August 4, 2018 to $3.3 million for the twenty-six week period ended August 3, 2019. The Company's other income is derived primarily from investment income related to the Company's cash and investments.

Income tax expense as a percentage of pre-tax income was 24.5% in the second quarter of fiscal 2019 compared to 25.9% in the second quarter of fiscal 2018, bringing net income to $16.4 million in the second quarter of fiscal 2019 compared to $15.7 million in the second quarter of fiscal 2018.


18



Income tax expense as a percentage of pre-tax income was 24.5% for the first two quarters of fiscal 2019 compared to 25.9% for the first two quarters of fiscal 2018, bringing year-to-date net income to $31.5 million for fiscal 2019 compared to $34.0 million for fiscal 2018.

LIQUIDITY AND CAPITAL RESOURCES

As of August 3, 2019, the Company had working capital of $224.8 million, including $178.0 million of cash and cash equivalents and $52.1 million of short-term investments. 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 2019 and fiscal 2018, the Company's cash flow from operations was $35.5 million and $30.9 million, respectively.
 
The uses of cash for both twenty-six week periods primarily include payment of annual bonuses accrued at fiscal year end, inventory purchases, dividend payments, construction costs for new and remodeled stores, other capital expenditures, and purchases of investment securities.

During the first two quarters of fiscal 2019 and 2018, the Company invested $3.9 million and $5.2 million, respectively, in new store construction, store renovation, and store technology upgrades. The Company also spent $0.3 million and $0.9 million in the first two quarters of fiscal 2019 and 2018, respectively, in capital expenditures for the corporate headquarters and distribution facility.

During the remainder of fiscal 2019, the Company anticipates completing one additional full remodel project. Management estimates that total capital expenditures during fiscal 2019 will be approximately $8.0 to $12.0 million, which includes primarily planned store projects and technology investments. 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 from operations each year and, as of August 3, 2019, had total cash and investments of $245.6 million, including $15.5 million of long-term investments. 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 material 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 $25.0 million with Wells Fargo Bank, N.A. for operating needs and letters of credit. The line of credit agreement has an expiration date of July 31, 2021 and provides that $10.0 million of the $25.0 million line is available for letters of credit. Borrowings under the line of credit provide for interest to be paid at a rate based on LIBOR. The Company has, from time to time, borrowed against these lines of credit. There were no bank borrowings during the first two quarters of fiscal 2019 or 2018. The Company had no bank borrowings as of August 3, 2019 and was in compliance with the terms and conditions of the line of credit agreement.


19



CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon The Buckle, Inc.’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires that management make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the financial statement date, and the reported amounts of sales and expenses during the reporting period. The Company regularly evaluates its estimates, including those related to inventory, investments, incentive bonuses, and income taxes. Management bases its estimates on past experience and on various other factors that are thought to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes that the estimates and judgments used in preparing these consolidated financial statements were the most appropriate at that time. Presented below are those critical accounting policies that management believes require subjective and/or complex judgments that could potentially affect reported results of operations. The critical accounting policies and estimates utilized by the Company in the preparation of its condensed consolidated financial statements for the period ended August 3, 2019 have not changed materially from those utilized for the fiscal year ended February 2, 2019, included in The Buckle Inc.’s 2018 Annual Report on Form 10-K, except as described in Note 1 to the condensed consolidated financial statements.

1.
Revenue Recognition. Retail store sales are recorded, net of expected returns, upon the purchase of merchandise by customers. Online sales are recorded, net of expected returns, when merchandise is tendered for delivery to the common carrier. Shipping fees charged to customers are included in revenue and shipping costs are included in selling expenses. The Company recognizes revenue from sales made under its layaway program upon delivery of the merchandise to the customer. Revenue is not recorded when gift cards and gift certificates are sold, but rather when a card or certificate is redeemed for merchandise. A current liability for unredeemed gift cards and certificates is recorded at the time the card or certificate is purchased. The liability recorded for unredeemed gift cards and gift certificates was $13.3 million and $16.6 million as of August 3, 2019 and February 2, 2019, respectively. Gift card and gift certificate breakage is recognized as revenue in proportion to the redemption pattern of customers by applying an estimated breakage rate. The estimated breakage rate is based on historical issuance and redemption patterns and is re-assessed by the Company on a regular basis. Sales tax collected from customers is excluded from revenue and is included as part of “accrued store operating expenses” on the Company's condensed consolidated balance sheets.

The Company establishes a liability for estimated merchandise returns, based upon the historical average sales return percentage, that is recognized at the transaction value. The Company also recognizes a return asset and a corresponding adjustment to cost of sales for the Company's right to recover returned merchandise, which is measured at the estimated carrying value, less any expected recovery costs. 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 $3.1 million as of August 3, 2019 and $2.2 million as of February 2, 2019.

The Company's Guest Loyalty program allows participating guests to earn points for every qualifying purchase, which (after achievement of certain point thresholds) are redeemable as a discount off a future purchase. Reported revenue is net of both current period reward redemptions and accruals for estimated future rewards earned under the Guest Loyalty program. A liability has been recorded for future rewards based on the Company's estimate of how many earned points will turn into rewards and ultimately be redeemed prior to expiration. As of August 3, 2019 and February 2, 2019, $10.9 million and $10.9 million was included in "accrued store operating expenses" as a liability for estimated future rewards.

Through partnership with Comenity Bank, the Company offers a private label credit card ("PLCC"). Customers with a PLCC are enrolled in our B-Rewards incentive program and earn points for every qualifying purchase on their card. At the end of each rewards period, customers who have exceeded a minimum point threshold receive a reward to be redeemed on a future purchase. The B-Rewards program also provides other discount and promotional opportunities to cardholders on a routine basis. Reported revenue is net of both current period reward redemptions, current period discounts and promotions, and accruals for estimated future rewards earned under the B-Rewards program. A liability has been recorded for future rewards based on the Company's estimate of how many earned points will turn into rewards and ultimately be redeemed prior to expiration, which is included in "gift certificates redeemable" on the Company's consolidated balance sheets.


20



2.
Inventory. Inventory is valued at the lower of cost or net realizable value. 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 account for merchandise obsolescence and markdowns that could affect net realizable value, based on assumptions using calculations applied to current inventory levels within each different markdown level. Management also reviews the levels of inventory in each markdown group and the overall aging of the inventory versus the estimated future demand for such product and the current market conditions. Such judgments could vary significantly from actual results, either favorably or unfavorably, due to fluctuations in future economic conditions, industry trends, consumer demand, and the competitive retail environment. Such changes in market conditions could negatively impact the sale of markdown inventory, causing further markdowns or inventory obsolescence, resulting in increased cost of goods sold from write-offs and reducing the Company’s net earnings. The adjustment to inventory for markdowns and/or obsolescence was $11.3 million as of August 3, 2019 and $10.6 million as of February 2, 2019. The Company is not aware of any events, conditions, or changes in demand or price that would indicate that its inventory valuation may not be materially accurate at this time.

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.
Leases. During the first quarter of fiscal 2019, the Company adopted ASU 2016-02, Leases (Topic 842). As a result of the adoption of the standard, the Company recognized net ROU assets and lease liabilities of approximately $362.6 million and $389.8 million, respectively, as of February 3, 2019 based on the present value of the total fixed payments for retail store and corporate office operating leases. Refer to Footnote 1, Basis of Presentation, and Footnote 6, Leases, for further details.
 
5.
Investments. Investments classified as short-term investments include securities with a maturity of greater than three months and less than one year. Available-for-sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity (net of the effect of income taxes), using the specific identification method, until they are sold. Held-to-maturity securities are reported at amortized cost. Trading securities are reported at fair value, with unrealized gains and losses included in earnings, using the specific identification method.


21



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

As referenced in the table 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 the Company believes to be similar to those of other comparable retail companies.

The following table identifies the material obligations and commitments as of August 3, 2019:

 
Payments Due by Period
Contractual obligations (dollar amounts in thousands):
Total
 
Less than 1
year
 
1-3 years
 
4-5 years
 
After 5
years
 
 
 
 
 
 
 
 
 
 
Purchase obligations
$
14,918

 
$
5,078

 
$
6,549

 
$
2,550

 
$
741

Deferred compensation
14,984

 

 

 

 
14,984

Total contractual obligations
$
29,902

 
$
5,078

 
$
6,549

 
$
2,550

 
$
15,725


The Company has available an unsecured line of credit of $25.0 million, which is excluded from the preceding table. The line of credit agreement has an expiration date of July 31, 2021 and provides that $10.0 million of the $25.0 million line is available for letters of credit. 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 two quarters of fiscal 2019 or the first two quarters of fiscal 2018. The Company had outstanding letters of credit totaling $4.6 million and $2.0 million as of August 3, 2019 and February 2, 2019, respectively. The Company has no other off-balance sheet arrangements.

SEASONALITY

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 2018, 2017, and 2016, the holiday and back-to-school seasons accounted for approximately 35% of the Company's fiscal year net sales. 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.

FORWARD LOOKING STATEMENTS

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


22



ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk - 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, the Company’s net income would decrease approximately $0.5 million, or less than $0.01 per share. This amount could vary based upon the number of shares of the Company’s stock outstanding and the level of cash and investments held by the Company.

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.


23



THE BUCKLE, INC.

PART II -- OTHER INFORMATION

Item 1.    Legal Proceedings:    None

Item 1A. Risk Factors:

There have been no material changes from the risk factors disclosed under “Item 1A - Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2019.

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 3, 2019:

 
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 5, 2019 to June 1, 2019
4,552
 
14.92
 
4,552
 
435,655

June 2, 2019 to July 6, 2019
-
 
-
 
-
 
435,655

July 7, 2019 to Aug. 3, 2019
-
 
-
 
-
 
435,655

 
4,552
 
14.92
 
4,552
 
 

 
The Board of Directors authorized a 1,000,000 share repurchase plan on November 20, 2008. The Company has 435,655 shares remaining to complete this authorization.

Item 3.    Defaults Upon Senior Securities:        None

Item 4.    Mine Safety Disclosures:        None

Item 5.    Other Information:    None

Item 6.    Exhibits:

Exhibit 10.1
Revolving Line of Credit Note and Fourth Amendment to Credit Agreement, dated July 26, 2019 between The Buckle, Inc. and Buckle Brands, Inc. and Wells Fargo Bank, N.A. for a $25.0 million line of credit
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer (Section 302 of the Sarbanes-Oxley Act of 2002)
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer (Section 302 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101
The following materials from The Buckle, Inc.’s Quarterly Report on Form 10-Q for the quarter ended August 3, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Income; (iii) Condensed Consolidated Statements of Comprehensive Income; (iv) Condensed Consolidated Statements of Stockholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and in detail.
    

24



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.
 
 
 
 
Date:
September 12, 2019
By:
/s/ DENNIS H. NELSON
 
 
 
DENNIS H. NELSON,
 
 
 
President and CEO
 
 
 
(principal executive officer)
 
 
 
 
Date:
September 12, 2019
By:
/s/ THOMAS B. HEACOCK
 
 
 
THOMAS B. HEACOCK,
 
 
 
Senior Vice President of Finance, Treasurer, and CFO
 
 
 
(principal accounting officer)


25



EXHIBIT INDEX

Revolving Line of Credit Note and Fourth Amendment to Credit Agreement, dated July 26, 2019 between The Buckle, Inc. and Buckle Brands, Inc. and Wells Fargo Bank, N.A. for a $25.0 million line of credit
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer (Section 302 of the Sarbanes-Oxley Act of 2002)
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer (Section 302 of the Sarbanes-Oxley Act of 2002)
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101
The following materials from The Buckle, Inc.’s Quarterly Report on Form 10-Q for the quarter ended August 3, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Income; (iii) Condensed Consolidated Statements of Comprehensive Income; (iv) Condensed Consolidated Statements of Stockholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and in detail.


26

Exhibit


EXHIBIT 10.1
REVOLVING LINE OF CREDIT NOTE

$25,000,000.00
 
Lincoln, Nebraska
 
 
July 26, 2019

FOR VALUE RECEIVED, the undersigned THE BUCKLE, INC. and BUCKLE BRANDS, INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at MAC N8032-034, 1248 O Street, 3rd Floor, Lincoln, Nebraska 68508, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Twenty-Five Million Dollars ($25,000,000.00), or so much thereof as may be advanced and be outstanding pursuant to the terms of the Credit Agreement, as defined herein, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein.

DEFINITIONS:

As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined:

(a)    "Daily One Month LIBOR" means, for any day, the rate of interest equal to LIBOR then in effect for delivery for a one (1) month period.

(b)    "LIBOR" means the rate of interest per annum determined by Bank based on the rate for United States dollar deposits for delivery of funds for one (1) month as published by the ICE Benchmark Administration Limited, a United Kingdom company, at approximately 11:00 a.m., London time, or, for any day not a London Business Day, the immediately preceding London Business Day (or if not so published, then as determined by Bank from another recognized source or interbank quotation); provided, however, that if LIBOR determined as provided above would be less than zero percent (0.0%), then LIBOR shall be deemed to be zero percent (0.0%).

(c)    "London Business Day" means any day that is a day for trading by and between banks in dollar deposits in the London interbank market.

INTEREST:

(a)    Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) at a fluctuating rate per annum determined by Bank to be one and twenty-five hundredths percent (1.25%) above Daily One Month LIBOR in effect from time to time. Bank is hereby authorized to note the date and interest rate applicable to this Note and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted.

(b)    Taxes and Regulatory Costs. Borrower shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due hereunder, any and all (i) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority and related in any manner to LIBOR, and (ii) costs, expenses and liabilities arising from or in connection with reserve percentages prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), assessment rates imposed by the Federal Deposit Insurance Corporation, or similar requirements or costs imposed by any domestic or foreign governmental authority or resulting from compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority and related in any manner to LIBOR. In determining which of the foregoing are attributable to any LIBOR option available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower.

(c)    Default Interest. The Bank shall have the option in its sole and absolute discretion to have the outstanding principal balance of this Note bear interest at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note (i) from and after the maturity date of this Note; (ii) from and after the date prior to the maturity date of this Note when all principal owing hereunder becomes due and payable by acceleration or otherwise; and/or (iii) upon the occurrence and during the continuance of any Event of Default.






BORROWING AND REPAYMENT:

(a)    Borrowing and Repayment of Principal. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on July 31, 2021.

(b)    Payment of Interest. Interest accrued on this Note shall be payable on the last day of each month, commencing July 31, 2019, and on the maturity date set forth above.

(c)    Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (i) DENNIS H. NELSON, or THOMAS B. HEACOCK, any one acting alone (subject to any of Bank’s applicable authentication policies or procedures, which may require that a particular individual-including another specific individual listed above-provide verification of the identity of the requestor), who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any deposit account of Borrower, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by Borrower.

(d)    Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof.

PREPAYMENT:

Borrower may prepay principal on this Note at any time, in any amount and without penalty. If principal under this Note is payable in more than one installment, then any prepayments of principal shall be applied to the most remote principal installment or installments then unpaid.

EVENTS OF DEFAULT:

This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated January 31, 2011, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note.

MISCELLANEOUS:

(a)    Remedies. Upon the sale, transfer, hypothecation, assignment or other encumbrance, whether voluntary, involuntary or by operation of law, of all or any interest in any real property securing this Note, if any, or upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note whether or not suit is brought, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Borrower or any other person or entity.

    





(b)    Collateral Exclusion. No lien or security interest created by or arising under any deed of trust, mortgage, security deed, or similar real estate collateral agreement (“Lien Document”) shall secure the Note Obligations unless such Lien Document specifically describes the promissory note(s), instrument(s) or agreement(s) evidencing Note Obligations as a part of the indebtedness secured thereby. This exclusion shall apply notwithstanding (i) the fact that such Lien Document may appear to secure the Note Obligations by virtue of a cross-collateralization provision or other provisions expanding the scope of the secured obligations, and (ii) whether such Lien Document was entered into prior to, concurrently with, or after the date hereof. As used herein, “Note Obligations” means any obligations under this Note, as amended, extended, renewed, refinanced, supplemented or otherwise modified from time to time, or under any other evidence of indebtedness that has been modified, renewed or extended in whole or in part by this Note, as amended, extended, renewed, refinanced, supplemented or otherwise modified from time to time.

(c)    Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several.

(d)    Governing Law. This Note shall be governed by and construed in accordance with the laws of Nebraska, but giving effect to federal laws applicable to national banks, without reference to the conflicts of law or choice of law principles thereof.

(e)    Effective Date. The effective date of this Note shall be the date that Bank has accepted this Note and all conditions to the effectiveness of the Credit Agreement have been fulfilled to Bank’s satisfaction.  Notwithstanding the occurrence of the effective date of this Note, Bank shall not be obligated to extend credit under this Note until all conditions to each extension of credit set forth in the Credit Agreement have been fulfilled to Bank's satisfaction.
    
IN WITNESS WHEREOF, the undersigned has executed this Note to be effective as of the effective date set forth herein.

THE BUCKLE, INC.

By: /s/ DENNIS H. NELSON        
DENNIS H. NELSON,
PRESIDENT, CHIEF EXECUTIVE OFFICER

BUCKLE BRANDS, INC.

By: /s/ DENNIS H. NELSON        
DENNIS H. NELSON,
PRESIDENT, CHIEF EXECUTIVE OFFICER
FOURTH AMENDMENT TO CREDIT AGREEMENT

THIS AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of July 26, 2019, by and between THE BUCKLE, INC. and BUCKLE BRANDS, INC., both a Nebraska corporation (each individually, a "Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). Each reference herein to “Borrower” shall mean each and every party, collectively and individually, defined above as a Borrower.

RECITALS

WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of January 31, 2011, as amended from time to time ("Credit Agreement").

WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows:

1.    Section 1.1. (a) is hereby amended by deleting "July 31, 2019" as the last day on which Bank will make advances under the Line of Credit, and by substituting for said date "July 31, 2021." Any promissory note delivered in connection with this Amendment shall replace and be deemed the Line of Credit Note defined in and made pursuant to the Credit Agreement.

2.    Section 1.1. (b) is hereby deleted in its entirety, and the following substituted therefor:

“(b) Letter of Credit Subfeature. As a subfeature under the Line of Credit, Bank agrees from time to time during the term thereof to issue or cause a branch, a subsidiary or an affiliate to issue standby letters of credit and sight commercial letters of credit for the account of Borrower ("Subfeature Letters of Credit"); provided however, that the aggregate undrawn amount of all outstanding Subfeature Letters of Credit shall not at any time exceed Ten Million Dollars ($10,000,000.00). Bank shall have no obligation to issue a Subfeature Letter of Credit if (i) any order, judgment, or decree of any governmental authority or arbitrator shall, by its terms, purport to enjoin or restrain Bank from issuing such Subfeature Letter of Credit, or any law applicable to Bank or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over Bank shall prohibit or request that Bank refrain from the issuing of letters of credit generally or such Subfeature Letter of Credit in particular, or (ii) such Subfeature Letter of Credit would violate one or more policies of Bank applicable to letters of credit generally, or (iii) if amounts demanded to be paid under any Subfeature Letter of Credit will or may not be in United States Dollars. The form and substance of each Subfeature Letter of Credit shall be subject to approval by Bank, in its sole discretion. No Subfeature Letter of Credit shall have an expiration date more than three hundred sixty-five days (365) days beyond the maturity date of the Line of Credit. The undrawn amount of all Subfeature Letters of Credit shall be reserved under the Line of Credit and shall not be available for borrowings thereunder. Each Subfeature Letter of Credit shall be subject to the additional terms and conditions of Bank's standard standby letter of credit agreement or Bank’s standard commercial letter of credit agreement and all applications and related documents required by Bank in connection with the issuance thereof. Each drawing paid under a Subfeature Letter of Credit shall be deemed an advance under the Line of Credit and shall be repaid by Borrower in accordance with the terms and conditions of this Agreement applicable to such advances; provided however, that if advances under the Line of Credit are not available, for any reason, at the time any drawing is paid, then Borrower shall immediately pay to Bank the full amount drawn, together with interest thereon from the date such drawing is paid to the date such amount is fully repaid by Borrower, at the rate of interest applicable to advances under the Line of Credit.”

3.    Section 1.2. (a) is hereby deleted in its entirety, and the following substituted therefor:

“(a)    Interest. The outstanding principal balance of each credit subject hereto shall bear interest at the rate of interest set forth in each promissory note or other instrument or document executed in connection therewith.”






4.    Section 1.2. (c) is hereby deleted in its entirety, and the following substituted therefor and the following is hereby added to the Credit Agreement as Section 1.2. (d):

“(c)     Commercial Subfeature Letter of Credit Fees and Commissions.  Borrower shall pay to Bank:

(i) non-refundable up front issuance fees or commissions for the issuance, extension or increase of each commercial Subfeature Letter of Credit in an amount equal to 1.00% of the face or increased amount, as applicable, of such commercial Subfeature Letter of Credit, subject to Bank’s standard minimum dollar amount then in effect for such activity), with such fees and commissions payable at the time of issuance, extension or increase or, if applicable, by such later date as may be specified in a billing for such amount sent by Bank to Borrower; and

(ii) fees or commissions for each drawing under any such commercial Subfeature Letter of Credit and for the occurrence of any transfer, assignment, amendment, cancellation or other activity with respect to any such commercial Subfeature Letter of Credit (including without limitation fees for document examination, discrepancies, acceptances, deferred payment, reinstatement, document delivery, special handling and other trade services), determined in accordance with Bank’s standard fees and charges then in effect for such activity, and correspondent bank fees and fees of any adviser, confirming institution or entity or other nominated person, with such fees and commissions payable at the time of such activity or, if applicable, by such later date as may be specified in a billing for such amount sent by Bank to Borrower.

(d)    Standby Subfeature Letter of Credit Fees and Commissions.  Borrower shall pay to Bank;

(i) non-refundable up front issuance fees or commissions for the issuance, extension or increase (including any auto-extension) of each standby Subfeature Letter of Credit in an amount equal to 1.00% per annum (computed on the basis of a 360 day year, actual days projected to elapse) of the face or increased amount, as applicable, of such standby Subfeature Letter of Credit calculated over the projected term thereof (up to the scheduled expiration date), with such fees and commissions payable at the time of issuance, extension or increase or, if applicable, by such later date as may be specified in a billing for such amount sent by Bank to Borrower; and

(ii) fees or commissions for each drawing under any such standby Subfeature Letter of Credit and for the occurrence of any transfer, assignment, amendment, cancellation or other activity with respect to such standby Subfeature Letter of Credit (including without limitation fees for document examination, discrepancies, reinstatement, document delivery, special handling and other trade services), determined in accordance with Bank’s standard fees and charges then in effect for such activity, and correspondent bank fees and fees of any adviser, confirming institution or entity or other nominated person, with such fees and commissions payable at the time of such activity or, if applicable, by such later date as may be specified in a billing for such amount sent by Bank to Borrower.”

5.    Sections 3.2. (b) and (c) are hereby deleted in their entirety, and the following substituted therefor:

“(b)    Documentation. Bank shall have received all additional documents which may be required in connection with such extension of credit including without limitation, the following:

(i)    For the issuance of a commercial letter of credit under any credit subject to this Agreement, Bank's standard Application for Commercial Letter of Credit.

(ii)    For the issuance of a standby letter of credit under any credit subject to this Agreement, Bank's standard Application for Standby Letter of Credit.
    
(c)    Letter of Credit Documentation. Prior to the issuance of any letter of credit, Bank shall have received a Letter of Credit Agreement and any other letter of credit documentation required by Bank, in each case completed and duly executed by Borrower.”






6.    Section 4.2. is hereby deleted in its entirety, and the following substituted therefor:

"SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower. If at any time any change in generally accepted accounting principles would affect the computation of any covenant (including the computation of any financial covenant) and/or pricing grid set forth in this Agreement or any other Loan Document, Borrower and Bank shall negotiate in good faith to amend such covenant and/or pricing grid to preserve the original intent in light of such change; provided, that, until so amended, (i) such covenant and/or pricing grid shall continue to be computed in accordance with the application of generally accepted accounting principles prior to such change and (ii) Borrower shall provide to Bank a written reconciliation in form and substance reasonably satisfactory to Bank, between calculations of such covenant and/or pricing grid made before and after giving effect to such change in generally accepted accounting principles."

7.    The Bank’s address under Section 7.2. is hereby deleted in its entirety, and the following substituted therefor:

“BANK:        WELLS FARGO BANK, NATIONAL ASSOCIATION
MAC N8032-034
1248 O Street, 3rd Floor
Lincoln, Nebraska 68508”
    
8.    The effective date of this Amendment shall be the date that all of the following conditions set forth in this Section have been satisfied, as determined by Bank and evidenced by Bank’s system of record. Notwithstanding the occurrence of the effective date of this Amendment, Bank shall not be obligated to extend credit under this Amendment or any other Loan Document until all conditions to each extension of credit set forth in the Credit Agreement have been fulfilled to Bank's satisfaction.

(a)    Approval of Bank Counsel. All legal matters incidental to the effectiveness of this Amendment shall be satisfactory to Bank's counsel.

(b)    Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed by all parties:

(i)
This Amendment and each promissory note or other instrument or document required hereby.
(ii)
Corporate Resolutions and Certificate of Incumbency: Borrower (2).
(iii)
Such other documents as Bank may require under any other Section of this Amendment.

(c)    Regulatory and Compliance Requirements. All regulatory and compliance requirements, standards and processes shall be completed to the satisfaction of Bank.

9.    Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document.

10.    Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default.

11.    Borrower hereby covenants that Borrower shall provide to Bank from time to time such other information as Bank may request for the purpose of enabling Bank to fulfill its regulatory and compliance requirements, standards and processes. Borrower hereby represents and warrants to Bank that all information provided from time to time by Borrower or any Third Party Obligor to Bank for the purpose of enabling Bank to fulfill its regulatory and compliance requirements, standards and processes was complete and correct at the time such information was provided and, except as specifically identified to Bank in a subsequent writing, remains complete and correct today, and shall be complete and correct at each time Borrower is required to reaffirm the representations and warranties set forth in the Credit Agreement.
    





A CREDIT AGREEMENT MUST BE IN WRITING TO BE ENFORCEABLE UNDER NEBRASKA LAW. TO PROTECT THE PARTIES FROM ANY MISUNDERSTANDINGS OR DISAPPOINTMENTS, ANY CONTRACT, PROMISE, UNDERTAKING OR OFFER TO FOREBEAR REPAYMENT OF MONEY OR TO MAKE ANY OTHER FINANCIAL ACCOMMODATION IN CONNECTION WITH THIS LOAN OF MONEY OR GRANT OR EXTENSION OF CREDIT, OR ANY AMENDMENT OF, CANCELLATION OF, WAIVER OF, OR SUBSTITUTION FOR ANY OR ALL OF THE TERMS OR PROVISIONS OF ANY INSTRUMENT OR DOCUMENT EXECUTED IN CONNECTION WITH THIS LOAN OF MONEY OR GRANT OR EXTENSION OF CREDIT, MUST BE IN WRITING TO BE EFFECTIVE.    

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Amendment to be effective as of the effective date set forth herein.


 
 
 
WELLS FARGO BANK,
THE BUCKLE, INC.
 
NATIONAL ASSOCIATION
 
 
 
 
 
By:
/s/ DENNIS H. NELSON
 
By:
/s/ JENNI L. CHRISTIANSEN
 
DENNIS H. NELSON,
 
 
JENNI L. CHRISTIANSEN
 
PRESIDENT, CHIEF EXECUTIVE
 
 
VICE PRESIDENT
 
OFFICER
 
 
 
 
 
 
 
 
BUCKLE BRANDS, INC.
 
 
 
 
 
 
 
 
By:
/s/ DENNIS H. NELSON
 
 
 
 
DENNIS H. NELSON,
 
 
 
 
PRESIDENT, CHIEF EXECUTIVE
 
 
 
 
OFFICER
 
 
 



Exhibit


EXHIBIT 31.1
CERTIFICATIONS

I, Dennis H. Nelson, certify that:

1.
I have reviewed this report of The Buckle, Inc. on Form 10-Q for the quarterly period ended August 3, 2019;
2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
 
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:
 
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
 
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.


Date: September 12, 2019
By:
/s/  DENNIS H. NELSON
 
 
DENNIS H. NELSON,
 
 
President and CEO
 
 
(principal executive officer)





Exhibit


EXHIBIT 31.2
CERTIFICATIONS

I, Thomas B. Heacock, certify that:

1.
I have reviewed this report of The Buckle, Inc. on Form 10-Q for the quarterly period ended August 3, 2019;
2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.


Date: September 12, 2019
By:
/s/  THOMAS B. HEACOCK
 
 
THOMAS B. HEACOCK,
 
 
Senior Vice President of Finance, Treasurer, and CFO
 
 
(principal accounting officer)





Exhibit


EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Buckle, Inc. (the “Company”) on Form 10-Q for the period ended August 3, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis H. Nelson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:
/s/  DENNIS H. NELSON
 
DENNIS H. NELSON,
 
President and CEO
 
(principal executive officer)
 
September 12, 2019





Exhibit


EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Buckle, Inc. (the “Company”) on Form 10-Q for the period ended August 3, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas B. Heacock, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:
/s/  THOMAS B. HEACOCK
 
THOMAS B. HEACOCK,
 
Senior Vice President of Finance, Treasurer, and CFO
 
(principal accounting officer)
 
September 12, 2019





bke-20190803.xml
Attachment: XBRL INSTANCE DOCUMENT


bke-20190803.xsd
Attachment: XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT


bke-20190803_cal.xml
Attachment: XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT


bke-20190803_def.xml
Attachment: XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT


bke-20190803_lab.xml
Attachment: XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT


bke-20190803_pre.xml
Attachment: XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT