NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Thousands Except Share and Per Share Amounts)
|
|
A.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Fiscal Year
- The Buckle, Inc. (the “Company”) has its fiscal year end on the Saturday nearest January 31. All references in these consolidated financial statements to fiscal years are to the calendar year in which the fiscal year begins. Fiscal
2016
represents the 52-week period ended
January 28, 2017
, fiscal
2015
represents the 52-week period ended
January 30, 2016
, and fiscal
2014
represents the 52-week period ended
January 31, 2015
.
Nature of Operations
- The Company is a retailer of medium to better-priced casual apparel, footwear, and accessories for fashion-conscious young men and women operating
467
stores located in
44
states throughout the United States as of
January 28, 2017
.
During fiscal
2016
, the Company opened
5
new stores, substantially remodeled
19
stores, and closed
6
stores. During fiscal
2015
, the Company opened
9
new stores, substantially remodeled
14
stores, and closed
1
store. During fiscal
2014
, the Company opened
16
new stores, substantially remodeled
18
stores, and closed
6
stores.
Principles of Consolidation -
The consolidated financial statements include the accounts of The Buckle, Inc. and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.
Revenue Recognition
- Retail store sales are recorded upon the purchase of merchandise by customers. Online sales are recorded when merchandise is delivered to the customer, with the time of delivery being based on estimated shipping time from the Company’s distribution center to the customer. Shipping fees charged to customers are included in revenue and shipping costs are included in selling expenses. Shipping costs were
$6,880
,
$7,420
, and
$6,549
during fiscal
2016
,
2015
, and
2014
, respectively. Merchandise returns are estimated based upon the historical average sales return percentage and accrued at the end of the period. The reserve for merchandise returns was
$669
and
$834
as of
January 28, 2017
and
January 30, 2016
, respectively. The Company recognizes revenue from sales made under its layaway program upon delivery of the merchandise to the customer.
The Company records the sale of gift cards and gift certificates as a current liability and recognizes a sale when a customer redeems the gift card or gift certificate. The amount of the gift certificate liability is determined using the outstanding balances from the prior
three years
of issuance and the gift card liability is determined using the outstanding balances from the prior
four years
of issuance. The Company records breakage as other income when the probability of redemption is remote, based on historical issuance and redemption patterns. Breakage recorded for the fiscal years ended
January 28, 2017
,
January 30, 2016
, and
January 31, 2015
was
$2,067
,
$1,934
, and
$860
, respectively. The Company recognizes a current liability for the down payment and subsequent installment payments made when merchandise is placed on layaway and recognizes layaways as a sale at the time the customer makes final payment and picks up the merchandise.
In fiscal 2016, the Company launched a new Guest Loyalty program that 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 for fiscal 2016 is net of both 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
January 28, 2017
,
$8,910
was included in "accrued store operating expenses" as a liability for estimated future rewards.
Cash and Cash Equivalents
- The Company considers all debt instruments with an original maturity of three months or less when purchased to be cash equivalents.
Investments
- Investments classified as short-term investments include securities with a maturity of greater than three months and less than one year. Available-for-sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity (net of the effect of income taxes), using the specific identification method, until they are sold. The Company reviews impairment to determine the classification of potential impairments as either temporary or other-than-temporary. A temporary impairment results in an unrealized loss being recorded in other comprehensive income. An impairment that is considered other-than-temporary would be recognized in net income. The Company considers various factors in reviewing potential impairments, including the length of time and extent to which the fair value has been less than the Company’s cost basis, the financial condition and near-term prospects of the issuer, and the Company’s intent and ability to hold the investments for a period of time sufficient to allow for any anticipated recovery in market value. The Company believes it has the ability and maintains its intent to hold these investments until recovery of market value occurs or until the ultimate maturity of the investments. Held-to-maturity securities are carried at amortized cost. Trading securities are reported at fair value, with unrealized gains and losses included in earnings, using the specific identification method.
Inventory
- Inventory is stated at the lower of cost or market. Cost is determined using an average cost method that approximates the first-in, first-out ("FIFO") method. Management makes adjustments to inventory and cost of goods sold to account for merchandise obsolescence and markdowns based on assumptions using calculations applied to current inventory levels by department within each different markdown level. Management also reviews the levels of inventory in each markdown group, and the overall aging of inventory, versus the estimated future demand for such product and the current market conditions. The calculation for estimated markdowns and/or obsolescence reduced the Company’s inventory valuation by
$11,376
and
$9,326
as of
January 28, 2017
and
January 30, 2016
, respectively. The amount charged to cost of goods sold, resulting from adjustments for estimated markdowns and/or obsolescence, was
$2,050
,
$1,356
, and
$555
, for fiscal years
2016
,
2015
, and
2014
, respectively.
Property and Equipment
- Property and equipment are stated on the basis of historical cost. Depreciation is provided using a combination of accelerated and straight-line methods based upon the estimated useful lives of the assets. The majority of property and equipment have useful lives of
five
to
ten
years with the exception of buildings, which have estimated useful lives of
31.5
to
39
years. Leasehold improvements are stated on the basis of historical cost and are amortized over the shorter of the life of the lease or the estimated economic life of the assets. When circumstances indicate the carrying values of long-lived assets may be impaired, an evaluation is performed on current net book value amounts. Judgments made by the Company related to the expected useful lives of property and equipment and the ability to realize cash flows in excess of carrying amounts of such assets are affected by factors such as changes in economic conditions and changes in operating performance. As the Company assesses the expected cash flows and carrying amounts of long-lived assets, adjustments are made to such carrying values.
Pre-Opening Expenses
- Costs related to opening new stores are expensed as incurred.
Advertising Costs
- Advertising costs are expensed as incurred and were
$16,188
,
$13,262
and
$12,041
for fiscal years
2016
,
2015
, and
2014
, respectively.
Health Care Costs
- The Company is self-funded for health and dental claims up to
$200
per individual per plan year. The Company’s plan covers eligible employees, and management makes estimates at period end to record a reserve for unpaid claims based upon historical claims information. The accrued liability as a reserve for unpaid health care claims was
$1,295
and
$765
as of
January 28, 2017
and
January 30, 2016
, respectively.
Operating Leases
- The Company leases retail stores under operating leases. Most lease agreements contain tenant improvement allowances, rent holidays, rent escalation clauses, and/or contingent rent provisions. For purposes of recognizing lease incentives and minimum rental expenses on a straight-line basis over the terms of the leases, the Company uses the date of initial possession to begin expensing rent, which is generally when the Company enters the space and begins to make improvements in preparation of intended use.
For tenant improvement allowances and rent holidays, the Company records a deferred rent liability on the consolidated balance sheets and amortizes the deferred rent over the terms of the leases as reductions to rent expense on the consolidated statements of income.
For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy, the Company records minimum rental expenses on a straight-line basis over the terms of the leases on the consolidated statements of income. Certain leases provide for contingent rents, which are determined as a percentage of gross sales in excess of specified levels. The Company records a contingent rent liability in “accrued store operating expenses” on the consolidated balance sheets and the corresponding rent expense when specified levels have been achieved or are reasonably probable to be achieved.
Other Income
- The Company’s other income is derived primarily from interest and dividends received on cash and investments.
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. 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, thus increasing net income in the period such determination was made. The Company records tax benefits only for tax positions that are more than likely to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than
50%
likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.
Financial Instruments and Credit Risk Concentrations
- Financial instruments, which potentially subject the Company to concentrations of credit risk, are primarily cash, investments, and accounts receivable. The Company’s investments are primarily in tax-free municipal bonds, auction-rate securities, corporate bonds, or U.S. Treasury securities with short-term maturities. The majority of the Company’s cash and cash equivalents are held by Wells Fargo Bank, N.A. This amount, as well as cash and investments held by certain other financial institutions, exceeds federally insured limits.
Of the Company’s
$264,622
in total cash and investments as of
January 28, 2017
,
$1,670
was comprised of investments in auction-rate securities (“ARS”). ARS have a long-term stated maturity, but are reset through a “dutch auction” process that occurs every
7
to
49
days, depending on the terms of the individual security. Until February 2008, the ARS market was highly liquid. During February 2008, however, a significant number of auctions related to these securities failed, meaning that there was not enough demand to sell the entire issue at auction. The failed auctions have limited the current liquidity of the Company’s investments in ARS. The Company does not, however, anticipate that further auction failures will have a material impact on the Company’s ability to fund its business.
Concentrations of credit risk with respect to accounts receivable are limited due to the nature of the Company’s receivables, which include primarily employee receivables that can be offset against future compensation. The Company’s financial instruments have a fair value approximating the carrying value.
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.
Use of Estimates
- The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Recently Issued Accounting Pronouncements
- In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") 605,
Revenue Recognition
. The new revenue recognition standard requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard. The new standard will become effective for the Company beginning with the first quarter of fiscal 2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company does not intend to early adopt the new standard and is currently evaluating the effect that adopting this new accounting guidance will have, but does not expect it will have a material effect on its consolidated results of operations and financial position.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory
. Under this ASU, inventory will be measured at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. The Company does not expect that the adoption of this ASU, in the first quarter of fiscal 2017, will have a material effect on its consolidated results of operations and financial position.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. This ASU replaces the existing guidance in ASC 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 will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and requires retrospective application. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated results of operations and financial position, but does expect that it will result in a significant increase in both assets and liabilities.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
. This standard is intended to simplify several aspects of the accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, and classifications in the statement of cash flows. ASU 2016-09 is effective for interim and annual periods beginning after December 15, 2016 and early adoption is permitted. The Company does not expect that the adoption of this ASU, in the first quarter of fiscal 2017, will have a material effect on its consolidated results of operations and financial position.
Supplemental Cash Flow Information
- The Company had non-cash investing activities during fiscal years
2016
,
2015
, and
2014
of
$469
,
$1,670
, and
$(1,482)
, 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 year. The liability for unpaid purchases of property, plant, and equipment included in accounts payable was
$647
,
$1,116
, and
$2,786
as of
January 28, 2017
,
January 30, 2016
, and
January 31, 2015
, respectively. Amounts reported as unpaid purchases are recorded as cash outflows from investing activities for purchases of property, plant, and equipment in the consolidated statement of cash flows in the period they are paid.
Additional cash flow information for the Company includes cash paid for income taxes during fiscal years
2016
,
2015
, and
2014
of
$65,180
,
$93,425
, and
$100,551
, respectively.
The following is a summary of investments as of
January 28, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost or
Par Value
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Other-than-
Temporary
Impairment
|
|
Estimated
Fair
Value
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
Auction-rate securities
|
$
|
1,800
|
|
|
$
|
—
|
|
|
$
|
(130
|
)
|
|
$
|
—
|
|
|
$
|
1,670
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal bonds
|
$
|
53,324
|
|
|
$
|
26
|
|
|
$
|
(34
|
)
|
|
$
|
—
|
|
|
$
|
53,316
|
|
|
|
|
|
|
|
|
|
|
|
Trading Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
$
|
12,701
|
|
|
$
|
391
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,092
|
|
The following is a summary of investments as of
January 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost or
Par Value
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Other-than-
Temporary
Impairment
|
|
Estimated
Fair
Value
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
Auction-rate securities
|
$
|
7,975
|
|
|
$
|
—
|
|
|
$
|
(525
|
)
|
|
$
|
—
|
|
|
$
|
7,450
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal bonds
|
$
|
49,992
|
|
|
$
|
163
|
|
|
$
|
(32
|
)
|
|
$
|
—
|
|
|
$
|
50,123
|
|
|
|
|
|
|
|
|
|
|
|
Trading Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
$
|
13,442
|
|
|
$
|
—
|
|
|
$
|
(593
|
)
|
|
$
|
—
|
|
|
$
|
12,849
|
|
The auction-rate securities were invested as follows as of
January 28, 2017
:
|
|
|
|
|
|
|
|
Nature
|
|
Underlying Collateral
|
|
Par Value
|
|
|
|
|
|
Municipal revenue bonds
|
|
100% insured by AAA/AA/A-rated bond insurers
|
|
$
|
1,750
|
|
Municipal bond funds
|
|
Fixed income instruments within issuers' money market funds
|
|
50
|
|
Total par value
|
|
|
|
$
|
1,800
|
|
As of
January 28, 2017
, the Company’s auction-rate securities portfolio was
100%
AA/Aa-rated.
The amortized cost and fair value of debt securities by contractual maturity as of
January 28, 2017
is as follows:
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Fair
Value
|
Held-to-Maturity Securities
|
|
|
|
Less than 1 year
|
$
|
49,994
|
|
|
$
|
49,982
|
|
1 - 5 years
|
3,330
|
|
|
3,334
|
|
Total
|
$
|
53,324
|
|
|
$
|
53,316
|
|
As of
January 28, 2017
and
January 30, 2016
,
$1,670
and
$7,450
of available-for-sale securities and
$3,330
and
$13,527
of held-to-maturity securities are classified in long-term investments. Trading securities are held in a Rabbi Trust, intended to fund the Company’s deferred compensation plan, and are classified in long-term investments.
The Company’s investments in auction-rate securities (“ARS”) are classified as available-for-sale and reported at fair market value. As of
January 28, 2017
, the reported investment amount is net of
$130
of temporary impairment to account for the impairment of certain securities from their stated par value. The
$130
temporary impairment is reported, net of tax, as an “accumulated other comprehensive loss” of
$82
in stockholders’ equity as of
January 28, 2017
. For the investments considered temporarily impaired, all of which have been in loss positions for over a year, the Company believes that these ARS can be successfully redeemed or liquidated in the future at par value plus accrued interest. The Company believes it has the ability and maintains its intent to hold these investments until such recovery of market value occurs; therefore, the Company believes the current lack of liquidity has created the temporary impairment in valuation.
As of
January 28, 2017
, the Company had
$1,800
invested in ARS, at par value, which was reported at its estimated fair value of
$1,670
. As of
January 30, 2016
, the Company had
$7,975
invested in ARS, which was reported at its estimated fair value of
$7,450
. ARS have a long-term stated maturity, but are reset through a “dutch auction” process that occurs every
7
to
49
days, depending on the terms of the individual security. Until February 2008, the ARS market was highly liquid. During February 2008, however, a significant number of auctions related to these securities failed, meaning that there was not enough demand to sell the entire issue at auction. The failed auctions have limited the current liquidity of the Company’s investments in ARS. The Company does not, however, anticipate that further auction failures will have a material impact on the Company’s ability to fund its business. During fiscal years
2016
,
2015
, and
2014
, the Company was able to successfully liquidate ARS with a par value of
$6,175
,
$75
, and
$2,925
, respectively. The Company reviews all investments for other-than-temporary impairment ("OTTI") at least quarterly or as indicators of impairment exist. Indicators of impairment include the duration and severity of decline in market value. In addition, the Company considers qualitative factors including, but not limited to, the financial condition of the investee, the credit rating of the investee, and the current and expected market and industry conditions in which the investee operates.
As of both
January 28, 2017
and
January 30, 2016
, all of the Company’s investments in ARS were classified in long-term investments.
|
|
C.
|
FAIR VALUE MEASUREMENTS
|
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:
|
|
•
|
Level 1 – Quoted market prices in active markets for identical assets or liabilities. Short-term and long-term investments with active markets or known redemption values are reported at fair value utilizing Level 1 inputs.
|
|
|
•
|
Level 2 – Observable market-based inputs (either directly or indirectly) such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or inputs that are corroborated by market data.
|
|
|
•
|
Level 3 – Unobservable inputs that are not corroborated by market data and are projections, estimates, or interpretations that are supported by little or no market activity and are significant to the fair value of the assets. The Company has concluded that certain of its ARS represent Level 3 valuation. A discounted cash flow analysis was used to value these investments. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, timing and amount of cash flows, and expected holding periods of the ARS. As of
January 28, 2017
, the unobservable inputs used by the Company and its independent third-party valuation consultant in valuing its Level 3 investments in ARS included:
|
|
|
◦
|
Duration until redemption of
6.7
years.
|
|
|
◦
|
Discount rate of
3.66%
.
|
As of
January 28, 2017
and
January 30, 2016
, the Company held certain assets that are required to be measured at fair value on a recurring basis including available-for-sale and trading securities. The Company’s available-for-sale securities include its investments in ARS, as further described in Note B. The failed auctions, beginning in February 2008, related to the Company’s investments in ARS have limited the availability of quoted market prices. The Company has determined the fair value of its ARS using Level 1 inputs for known or anticipated subsequent redemptions at par value, Level 2 inputs using observable inputs, and Level 3 using unobservable inputs where the following criteria were considered in estimating fair value:
|
|
•
|
Pricing was provided by the custodian or third-party broker for ARS;
|
|
|
•
|
Sales of similar securities;
|
|
|
•
|
Quoted prices for similar securities in active markets;
|
|
|
•
|
Quoted prices for similar assets in markets that are not active - including markets where there are few transactions for the asset, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly;
|
|
|
•
|
Pricing was provided by a third-party valuation consultant (using Level 3 inputs).
|
In addition, the Company considers other factors including, but not limited to, the financial condition of the investee, the credit rating, insurance, guarantees, collateral, cash flows, and the current and expected market and industry conditions in which the investee operates. Management believes it has used information that was reasonably obtainable in order to complete its valuation process and determine if the Company’s investments in ARS had incurred any temporary and/or other-than-temporary impairment as of
January 28, 2017
and
January 30, 2016
.
Future fluctuations in fair value of ARS that the Company judges to be temporary, including any recoveries of previous write-downs, would be recorded as an adjustment to “accumulated other comprehensive loss.” The value and liquidity of ARS held by the Company may be affected by continued auction-rate failures, the credit quality of each security, the amount and timing of interest payments, the amount and timing of future principal payments, and the probability of full repayment of the principal. Additional indicators of impairment include the duration and severity of the decline in market value. The interest rates on these investments will be determined by the terms of each individual ARS. The risks associated with the ARS held by the Company include those stated above as well as the current economic environment, downgrading of credit ratings on investments held, and the volatility of the entities backing each of the issues.
The Company’s financial assets measured at fair value on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
Quoted Prices in
Active Markets
for Identical
Assets
|
|
Significant
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
January 28, 2017
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
Auction-rate securities
|
$
|
—
|
|
|
$
|
45
|
|
|
$
|
1,625
|
|
|
$
|
1,670
|
|
Trading securities (including mutual funds)
|
13,092
|
|
|
—
|
|
|
—
|
|
|
13,092
|
|
Total
|
$
|
13,092
|
|
|
$
|
45
|
|
|
$
|
1,625
|
|
|
$
|
14,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
Quoted Prices in
Active Markets
for Identical
Assets
|
|
Significant
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
January 30, 2016
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
Auction-rate securities
|
$
|
—
|
|
|
$
|
185
|
|
|
$
|
7,265
|
|
|
$
|
7,450
|
|
Trading securities (including mutual funds)
|
12,849
|
|
|
—
|
|
|
—
|
|
|
12,849
|
|
Total
|
$
|
12,849
|
|
|
$
|
185
|
|
|
$
|
7,265
|
|
|
$
|
20,299
|
|
Securities included in Level 1 represent securities which have a known or anticipated upcoming redemption as of the reporting date and those that have publicly traded quoted prices. ARS included in Level 2 represent securities which have not experienced a successful auction subsequent to the end of fiscal 2007. The fair market value for these securities was determined by applying a discount to par value based on auction prices for similar securities and by utilizing a discounted cash flow model, using market-based inputs, to determine fair value. The Company used a discounted cash flow model to value its Level 3 investments, using estimates regarding recovery periods, yield, and liquidity. The assumptions used are subjective based upon management’s judgment and views on current market conditions, and resulted in
$125
of the Company’s recorded temporary impairment as of
January 28, 2017
. The use of different assumptions would result in a different valuation and related temporary impairment charge.
Changes in the fair value of the Company’s financial assets measured at fair value on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fifty-two Weeks Ended January 28, 2017
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
Available-for-Sale Securities
|
|
Trading Securities
|
|
|
|
Auction-rate
Securities
|
|
Mutual
Funds
|
|
Total
|
|
|
|
|
|
|
Balance, beginning of year
|
$
|
7,265
|
|
|
$
|
—
|
|
|
$
|
7,265
|
|
Total gains and losses:
|
|
|
|
|
|
|
|
|
Included in net income
|
(45
|
)
|
|
—
|
|
|
(45
|
)
|
Included in other comprehensive income
|
385
|
|
|
—
|
|
|
385
|
|
Purchases, Issuances, Sales, and Settlements:
|
|
|
|
|
|
|
|
|
Sales
|
(5,980
|
)
|
|
—
|
|
|
(5,980
|
)
|
Balance, end of year
|
$
|
1,625
|
|
|
$
|
—
|
|
|
$
|
1,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fifty-two Weeks Ended January 30, 2016
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
Available-for-Sale Securities
|
|
Trading Securities
|
|
|
|
Auction-rate
Securities
|
|
Mutual
Funds
|
|
Total
|
|
|
|
|
|
|
Balance, beginning of year
|
$
|
7,186
|
|
|
$
|
—
|
|
|
$
|
7,186
|
|
Total gains and losses:
|
|
|
|
|
|
|
|
|
Included in other comprehensive income
|
154
|
|
|
—
|
|
|
154
|
|
Purchases, Issuances, Sales, and Settlements:
|
|
|
|
|
|
|
|
|
Sales
|
(75
|
)
|
|
—
|
|
|
(75
|
)
|
Balance, end of year
|
$
|
7,265
|
|
|
$
|
—
|
|
|
$
|
7,265
|
|
There were no transfers of securities between Levels 1, 2, or 3 during the
fiscal years
ended
January 28, 2017
or
January 30, 2016
. The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period in which the transfer occurred.
The carrying value of cash equivalents approximates fair value due to the low level of risk these assets present and their relatively liquid nature, particularly given their short maturities. The Company also holds certain financial instruments that are not carried at fair value on the consolidated balance sheets, including held-to-maturity securities. Held-to-maturity securities consist 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
January 28, 2017
, the fair value of held-to-maturity securities was
$53,316
compared to the carrying amount of
$53,324
. As of
January 30, 2016
, the fair value of held-to-maturity securities was
$50,123
compared to the carrying amount of
$49,992
.
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 as of both
January 28, 2017
and
January 30, 2016
.
|
|
D.
|
PROPERTY AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
January 28,
2017
|
|
January 30,
2016
|
|
|
|
|
Land
|
$
|
2,491
|
|
|
$
|
2,491
|
|
Building and improvements
|
42,698
|
|
|
42,486
|
|
Office equipment
|
12,632
|
|
|
12,669
|
|
Transportation equipment
|
20,955
|
|
|
20,825
|
|
Leasehold improvements
|
166,564
|
|
|
161,899
|
|
Furniture and fixtures
|
183,046
|
|
|
176,761
|
|
Shipping/receiving equipment
|
29,507
|
|
|
27,891
|
|
Screenprinting equipment
|
—
|
|
|
111
|
|
Construction-in-progress
|
1,466
|
|
|
5,629
|
|
Total
|
$
|
459,359
|
|
|
$
|
450,762
|
|
|
|
E.
|
FINANCING ARRANGEMENTS
|
The Company has available an unsecured line of credit of
$25,000
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, 2017
and provides that
$10,000
of the
$25,000
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 as of
January 28, 2017
and
January 30, 2016
. There were no bank borrowings during fiscal
2016
,
2015
, and
2014
. The Company had outstanding letters of credit totaling
$1,796
and
$2,071
as of
January 28, 2017
and
January 30, 2016
, respectively.
The provision for income taxes consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
January 28,
2017
|
|
January 30,
2016
|
|
January 31,
2015
|
Current income tax expense:
|
|
|
|
|
|
Federal
|
$
|
55,541
|
|
|
$
|
78,956
|
|
|
$
|
87,679
|
|
State
|
6,029
|
|
|
9,802
|
|
|
11,128
|
|
Deferred income tax expense (benefit)
|
(3,260
|
)
|
|
(1,217
|
)
|
|
(1,675
|
)
|
Total
|
$
|
58,310
|
|
|
$
|
87,541
|
|
|
$
|
97,132
|
|
Total income tax expense for the year varies from the amount which would be provided by applying the statutory income tax rate to earnings before income taxes. The primary reasons for this difference (expressed as a percent of pre-tax income) are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
January 28,
2017
|
|
January 30,
2016
|
|
January 31,
2015
|
|
|
|
|
|
|
Statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income tax effect
|
2.5
|
|
|
2.8
|
|
|
2.8
|
|
Tax exempt interest income
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
Other
|
(0.1
|
)
|
|
(0.4
|
)
|
|
(0.3
|
)
|
Effective tax rate
|
37.3
|
%
|
|
37.3
|
%
|
|
37.4
|
%
|
Deferred income tax assets and liabilities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
January 28,
2017
|
|
January 30,
2016
|
Deferred income tax assets (liabilities):
|
|
|
|
Inventory
|
$
|
6,626
|
|
|
$
|
6,141
|
|
Stock-based compensation
|
3,304
|
|
|
3,596
|
|
Accrued compensation
|
5,716
|
|
|
4,896
|
|
Accrued store operating costs
|
4,070
|
|
|
1,140
|
|
Realized and unrealized loss on securities
|
119
|
|
|
1,173
|
|
Gift certificates redeemable
|
1,887
|
|
|
1,784
|
|
Allowance for doubtful accounts
|
1
|
|
|
3
|
|
Deferred rent liability
|
13,912
|
|
|
14,672
|
|
Property and equipment
|
(31,195
|
)
|
|
(31,561
|
)
|
Less: Valuation allowance
|
—
|
|
|
(518
|
)
|
Net deferred income tax asset (liability)
|
$
|
4,440
|
|
|
$
|
1,326
|
|
As of
January 28, 2017
and
January 30, 2016
, respectively, the net deferred income tax assets of
$4,440
and
$1,326
are classified in "other assets." There were no unrecognized tax benefits recorded in the Company’s consolidated financial statements as of
January 28, 2017
or
January 30, 2016
. Fiscal years
2015
and
2016
remain subject to potential federal examination. Additionally, fiscal years
2013
through
2016
are subject to potential examination by various state taxing authorities.
Valuation allowances are recorded to reduce the value of deferred tax assets to the amount that is more likely than not to be realized. As of
January 28, 2017
, the Company had
$215
in deferred tax assets for capital loss carryforwards, which expire in periods from fiscal 2017 through fiscal 2021, and a related valuation allowance of
$0
. As of
January 30, 2016
, the Company had a deferred tax asset of
$760
for capital loss carryforwards and a related valuation allowance of
$(518)
.
|
|
G.
|
RELATED PARTY TRANSACTIONS
|
Included in other assets is a note receivable of
$1,245
as of
January 28, 2017
and
$1,215
as of
January 30, 2016
, respectively, from a life insurance trust fund controlled by the Company’s Chairman. The note was created over
three years
, beginning in July 1994, when the Company paid life insurance premiums of
$200
each year for the Chairman on a personal policy. The note accrues interest at
5%
of the principal balance per year and is to be paid from the life insurance proceeds. The note is secured by a life insurance policy on the Chairman.
Leases
- The Company conducts its operations in leased facilities under numerous non-cancelable operating leases expiring at various dates through fiscal 2026. Most of the Company’s stores have lease terms of approximately ten years and generally do not contain renewal options. Most lease agreements contain tenant improvement allowances, rent holidays, rent escalation clauses, and/or contingent rent provisions. For purposes of recognizing lease incentives and minimum rental expenses on a straight-line basis over the terms of the leases, the Company uses the date of initial possession to begin amortization, which is generally when the Company enters the space and begins to make improvements in preparation of intended use. For tenant improvement allowances and rent holidays, the Company records a deferred rent liability on the consolidated balance sheets and amortizes the deferred rent over the terms of the leases as reductions to rent expense on the consolidated statements of income. For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy, the Company records minimum rental expenses on a straight-line basis over the terms of the leases on the consolidated statements of income. Certain leases provide for contingent rents, which are determined as a percentage of gross sales in excess of specified levels. The Company records a contingent rent liability on the consolidated balance sheets and the corresponding rent expense when specified levels have been achieved or are reasonably probable to be achieved. Operating lease base rental expense for fiscal
2016
,
2015
, and
2014
was
$68,839
,
$67,121
, and
$65,712
, respectively. Most of the rental payments are based on a minimum annual rental plus a percentage of sales in excess of a specified amount. Percentage rents for fiscal
2016
,
2015
, and
2014
were
$2,600
,
$4,334
, and
$4,434
, respectively.
Total future minimum rental commitments under these operating leases with remaining lease terms in excess of one year as of
January 28, 2017
are as follows:
|
|
|
|
|
|
Minimum Rental
|
Fiscal Year
|
Commitments
|
|
|
2017
|
$
|
68,487
|
|
2018
|
61,872
|
|
2019
|
54,088
|
|
2020
|
44,367
|
|
2021
|
35,766
|
|
Thereafter
|
90,722
|
|
Total minimum rental commitments
|
$
|
355,302
|
|
Litigation
- From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. As of the date of these consolidated financial statements, the Company was not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material effect on the Company.
The Company has a 401(k) profit sharing plan covering all eligible employees who elect to participate. Contributions to the plan are based upon the amount of the employees’ deferrals and the employer’s discretionary matching formula. The Company may contribute to the plan at its discretion.
The total expense under the profit sharing plan was
$1,473
,
$1,396
, and
$1,338
for fiscal years
2016
,
2015
, and
2014
, respectively.
The Buckle, Inc. Deferred Compensation Plan covers the Company’s executive officers. The plan is funded by participant contributions and a specified annual Company matching contribution not to exceed
6%
of the participant’s compensation. The Company’s contributions were
$193
,
$218
, and
$217
for fiscal years
2016
,
2015
, and
2014
, respectively.
|
|
J.
|
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
January 28, 2017
,
856,306
shares were available for grant under the Company’s various restricted stock plans, of which
781,682
shares were available for grant to executive officers.
Compensation expense was recognized during fiscal
2016
,
2015
, and
2014
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
January 28,
2017
|
|
January 30,
2016
|
|
January 31,
2015
|
|
|
|
|
|
|
Stock-based compensation expense, before tax
|
$
|
5,330
|
|
|
$
|
6,197
|
|
|
$
|
6,013
|
|
|
|
|
|
|
|
Stock-based compensation expense, after tax
|
$
|
3,358
|
|
|
$
|
3,904
|
|
|
$
|
3,788
|
|
FASB ASC 718 requires the benefits of tax deductions in excess of the compensation cost recognized for stock options exercised during the period to be classified as financing cash inflows. This amount is shown as “excess tax benefit from stock option exercises” on the consolidated statements of cash flows. For fiscal
2016
,
2015
, and
2014
, the excess tax benefit realized from exercised stock options was
$0
,
$0
, and
$225
, respectively.
Non-vested shares of common stock granted during each of the past three fiscal years 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 fiscal year ended
January 28, 2017
is as follows:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|
|
|
|
Non-Vested - beginning of year
|
360,784
|
|
|
$
|
49.28
|
|
Granted
|
336,600
|
|
|
28.42
|
|
Forfeited
|
(141,930
|
)
|
|
50.53
|
|
Vested
|
(110,155
|
)
|
|
45.75
|
|
Non-Vested - end of year
|
445,299
|
|
|
$
|
33.98
|
|
As of
January 28, 2017
, there was
$4,730
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
1.9 years
. The total fair value of shares vested during fiscal
2016
,
2015
, and
2014
was
$2,713
,
$4,568
, and
$7,535
respectively. During the fiscal year ended
January 28, 2017
,
130,400
shares (representing one-half of the "performance based" shares granted during fiscal 2015 under the 2005 Restricted Stock Plan) were forfeited because the Company did not achieve all of the performance targets established for the fiscal 2015 grants.
The following table provides reconciliation between basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
January 28, 2017
|
|
January 30, 2016
|
|
January 31, 2015
|
|
Income
|
|
Weighted
Average
Shares
|
|
Per Share
Amount
|
|
Income
|
|
Weighted
Average
Shares
|
|
Per Share
Amount
|
|
Income
|
|
Weighted
Average
Shares
|
|
Per Share
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
$
|
97,961
|
|
|
48,125
|
|
|
$
|
2.04
|
|
|
$
|
147,283
|
|
|
48,079
|
|
|
$
|
3.06
|
|
|
$
|
162,564
|
|
|
47,927
|
|
|
$
|
3.39
|
|
Effect of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and non-vested shares
|
—
|
|
|
131
|
|
|
(0.01
|
)
|
|
—
|
|
|
125
|
|
|
—
|
|
|
—
|
|
|
163
|
|
|
(0.01
|
)
|
Diluted EPS
|
$
|
97,961
|
|
|
48,256
|
|
|
$
|
2.03
|
|
|
$
|
147,283
|
|
|
48,204
|
|
|
$
|
3.06
|
|
|
$
|
162,564
|
|
|
48,090
|
|
|
$
|
3.38
|
|
No stock options were deemed anti-dilutive and excluded from the computation of diluted earnings per share for fiscal
2016
,
2015
or
2014
.
The Company is a retailer of medium to better priced casual apparel, footwear, and accessories. The Company operates its business as
one
reportable segment. The Company operated
467
stores located in
44
states throughout the United States as of
January 28, 2017
.
The following is information regarding the Company’s major product lines, stated as a percentage of the Company’s net sales:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
Merchandise Group
|
January 28,
2017
|
|
January 30,
2016
|
|
January 31,
2015
|
|
|
|
|
|
|
Denims
|
42.2
|
%
|
|
42.5
|
%
|
|
43.7
|
%
|
Tops (including sweaters)
|
30.8
|
|
|
31.0
|
|
|
30.8
|
|
Accessories
|
9.2
|
|
|
8.9
|
|
|
8.6
|
|
Sportswear/Fashions
|
6.5
|
|
|
6.4
|
|
|
6.2
|
|
Footwear
|
5.9
|
|
|
6.0
|
|
|
5.9
|
|
Outerwear
|
2.0
|
|
|
2.1
|
|
|
2.3
|
|
Casual bottoms
|
1.9
|
|
|
1.5
|
|
|
1.2
|
|
Other
|
1.5
|
|
|
1.6
|
|
|
1.3
|
|
Total
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
M.
|
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
Selected unaudited quarterly financial information for fiscal
2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
Fiscal 2016
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
243,543
|
|
|
$
|
212,157
|
|
|
$
|
239,213
|
|
|
$
|
279,960
|
|
Gross profit
|
$
|
94,729
|
|
|
$
|
79,882
|
|
|
$
|
96,874
|
|
|
$
|
125,683
|
|
Net income
|
$
|
23,097
|
|
|
$
|
15,472
|
|
|
$
|
23,397
|
|
|
$
|
35,995
|
|
Basic earnings per share
|
$
|
0.48
|
|
|
$
|
0.32
|
|
|
$
|
0.49
|
|
|
$
|
0.75
|
|
Diluted earnings per share
|
$
|
0.48
|
|
|
$
|
0.32
|
|
|
$
|
0.48
|
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
Fiscal 2015
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
271,345
|
|
|
$
|
236,053
|
|
|
$
|
280,187
|
|
|
$
|
332,031
|
|
Gross profit
|
$
|
113,597
|
|
|
$
|
94,595
|
|
|
$
|
117,264
|
|
|
$
|
155,945
|
|
Net income
|
$
|
33,570
|
|
|
$
|
23,481
|
|
|
$
|
35,893
|
|
|
$
|
54,339
|
|
Basic earnings per share
|
$
|
0.70
|
|
|
$
|
0.49
|
|
|
$
|
0.75
|
|
|
$
|
1.13
|
|
Diluted earnings per share
|
$
|
0.70
|
|
|
$
|
0.49
|
|
|
$
|
0.74
|
|
|
$
|
1.13
|
|
Basic and diluted shares outstanding are computed independently for each of the quarters presented and, therefore, may not sum to the totals for the year. Each of the quarters presented is a 13-week quarter.