- Given the information available in the statements below from the latest 10Q and the financial statements found at the end of the exam, answer the following questions.
- Why do you suppose this company is paying dividends in the first place? It might seem, on the surface, unlikely for a medium-sized retail firm to pay dividends. You might connect your discussion to the capital structure decisions above and consideration of the type of business investment opportunities available.
- The company has indicated a desire to defer the decision about resumption of the dividend until the next Board meeting. What specific information do you think the Board will want to see in the emerging financials in order to justify a resumption of payments? Be as specific and quantifiable as you can in framing your parameters.
- Alternatively, assuming the company plans to not resume prior dividend per share levels but decided to use the equivalent amount of cash to repurchase stock, discuss the impact for shareholders. Given the Boards reticence to approve dividend payments at the current moment, would a repurchase strategy be preferable and, if so, why or why not?
I am looking for a demonstration of the principles of dividend policy here including an understanding of the strength and weaknesses of dividend payment versus stock repurchase. Also, I am looking for connection between dividend policy and the underlying business operation and strategy.
Excerpts from the latest The Buckle, Inc. 10 Q
As announced on June 2, 2020, at its quarterly meeting of the Board of Directors, held on June 1, 2020, the Board temporarily suspended the Companys quarterly dividend payments. Previously, at its March 23, 2020 meeting, the Board had deferred making a decision on dividend payments until its next regularly scheduled Board meeting to allow more time to assess the impact of the COVID-19 pandemic on the Company. The Board determined that suspending the quarterly dividends was important to maintaining the Companys cash position, providing the Company with financial flexibility to deal with any ongoing uncertainty related to COVID-19. (p. 17, Buckle, Inc. 10Q, 8/1/2020)
THE BUCKLE, INC. THE BUCKLE, INC. CXONDENSER CXINSCHLIDATEI BALANCH SHEETS (Amounts in Thousands Excepl Slure and Per Slure Ameunis) (Unandited) CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands Except Per Share Amounts) (Unaudited) August February 1, 2020 ASSETS Thiricco Wecks Baded August 1 August 3. 2020 2019 Twenty-Six Wecks Ended August 1. August 3, 2020 2019 S 5 S CURRENT ASSETS Cash and cash equivalents Sharminvements Receivables Inventory Propies and where set Tobler 265,714 12AXY 2,394 116,479 20388 413612 220969 12.512 3.136 121,258 21.015 37 RNO SALES, Nct of cturns and allowances $ 216,025 S 203.817 S 331.438 $ 405,130 COST OF SALES (Including buying, distribution, and occupancy costs) 122649 125,120 211,231 249,280 PROPERTY AND EQUIPMENT Less occutulated depreciation and an 431,999 1345,20 10,079 452,25 (338.357) 112.848 Gross profil 93382 78.697 120.207 155,350 OPERATING LEASE RIGHT-OF-USE ASSETS LONG-TERM INVESTMENTS OTHER ASSETS 305,914 16,585 UR 350.00 15,6 I OPERATING EXPENSES: Selling Gencral and administrative 48,535 Tools 855,123 567.890 38.257 9.599 47.851) 10.560 71,761 19.096 901,857 95.144 21,870 117.014 59,095 LIABILITIES AND STOCKHOLDERS' EQUITY INCOME FROM OPERATIONS 45,532 19,6012 29,350 38.3.16 26.491 OTHER INCOME, Nct 404 2,086 978 3,341 CURRENT LIABILITIES Accounts payable Arrial emple comensation Arriere apating expe Gift certificates redeemable Current portion of operating lesse lichilities Inoxne laxes payable Terreni Mobilities 43,142 S 0 19 21,579 12,611 5142 17,837 15,319 INCOME BEFORE INCOME TAXES 45.936 21.688 30,328 41,677 173,50 2.731 172.541 INCOME TAX EXPENSE 11264 5,314 7,430 10.211 DEFERRED COMPENSATION NON-CURRENT OPERATING LEASE LIABILITIES Tonalities 26.536 251.430 441,316 15,863 290,238 479,742 NET INCOME 34,682 S 16,174 S 22.898 $ 31466 CUMMITMENTS EARNINGS PER SHARE: Basic 0.71 S 0.34 S 0.47 $ 0.65 STOCKIKILLERS' BOLLY: Comme stock, authorized 100,000.00 shares at $0.01 prva: 9,407.731 and 9,205,61 stares sed olsandi alam 1, 2020 and Feisty 1, 202D respectively Athiliui mit-in utilal Recitaluri Total stuckholders'city 494 154,517 259.295 414 307 492 152.258 236 M 389,148 567.890 Diluted 0.71 S 0.34 S 047 0.65 855,523 Tallibilities and suckholders' equily Basic weighted average scares Diluted weighted average shares 48,714 48.911 48,550 48,760 48,719 48,918 48,551 48,747 THE BUCKLE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) (Unaudited) Twenty-Six Weeks Ended August 1, August 3, 2020 2019 22,898 $ 31,466 11,010 2,633 (632) 58 12,427 2,533 (608) 279 CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization Amortization of non-vested stock grants, net of forfeitures Deferred income taxes Other Changes in operating assets and liabilities: Receivables Inventory Prepaid expenses and other assets Accounts payable Accrued employee compensation Accrued store operating expenses Gift certificates redeemable Income taxes payable Other assets and liabilities 1,278 4,779 547 21,734 (13,538) 3,279 (2,708) (3,287) 1,115 534 (3,878) (2,923) 13,520 (9,940) 4,131 (3,329) (9,793) 1,124 Net cash flows from operating activities 49,166 35,543 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment Change in other assets Purchases of investments Proceeds from sales/maturities of investments (3,382) 111 (15,953) 15,175 (4,152) 99 (25,167) 27,930 Net cash flows from investing activities (4,049) (1,290) CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of common stock Payment of dividends (372) (68) (24,615) Net cash flows from financing activities (372) (24,683) NET INCREASE IN CASH AND CASH EQUIVALENTS 44,745 9,570 CASH AND CASH EQUIVALENTS, Beginning of period 220,969 168,471 CASH AND CASH EQUIVALENTS, End of period 265,714 $ 178,041 THE BUCKLE, INC. THE BUCKLE, INC. CXONDENSER CXINSCHLIDATEI BALANCH SHEETS (Amounts in Thousands Excepl Slure and Per Slure Ameunis) (Unandited) CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands Except Per Share Amounts) (Unaudited) August February 1, 2020 ASSETS Thiricco Wecks Baded August 1 August 3. 2020 2019 Twenty-Six Wecks Ended August 1. August 3, 2020 2019 S 5 S CURRENT ASSETS Cash and cash equivalents Sharminvements Receivables Inventory Propies and where set Tobler 265,714 12AXY 2,394 116,479 20388 413612 220969 12.512 3.136 121,258 21.015 37 RNO SALES, Nct of cturns and allowances $ 216,025 S 203.817 S 331.438 $ 405,130 COST OF SALES (Including buying, distribution, and occupancy costs) 122649 125,120 211,231 249,280 PROPERTY AND EQUIPMENT Less occutulated depreciation and an 431,999 1345,20 10,079 452,25 (338.357) 112.848 Gross profil 93382 78.697 120.207 155,350 OPERATING LEASE RIGHT-OF-USE ASSETS LONG-TERM INVESTMENTS OTHER ASSETS 305,914 16,585 UR 350.00 15,6 I OPERATING EXPENSES: Selling Gencral and administrative 48,535 Tools 855,123 567.890 38.257 9.599 47.851) 10.560 71,761 19.096 901,857 95.144 21,870 117.014 59,095 LIABILITIES AND STOCKHOLDERS' EQUITY INCOME FROM OPERATIONS 45,532 19,6012 29,350 38.3.16 26.491 OTHER INCOME, Nct 404 2,086 978 3,341 CURRENT LIABILITIES Accounts payable Arrial emple comensation Arriere apating expe Gift certificates redeemable Current portion of operating lesse lichilities Inoxne laxes payable Terreni Mobilities 43,142 S 0 19 21,579 12,611 5142 17,837 15,319 INCOME BEFORE INCOME TAXES 45.936 21.688 30,328 41,677 173,50 2.731 172.541 INCOME TAX EXPENSE 11264 5,314 7,430 10.211 DEFERRED COMPENSATION NON-CURRENT OPERATING LEASE LIABILITIES Tonalities 26.536 251.430 441,316 15,863 290,238 479,742 NET INCOME 34,682 S 16,174 S 22.898 $ 31466 CUMMITMENTS EARNINGS PER SHARE: Basic 0.71 S 0.34 S 0.47 $ 0.65 STOCKIKILLERS' BOLLY: Comme stock, authorized 100,000.00 shares at $0.01 prva: 9,407.731 and 9,205,61 stares sed olsandi alam 1, 2020 and Feisty 1, 202D respectively Athiliui mit-in utilal Recitaluri Total stuckholders'city 494 154,517 259.295 414 307 492 152.258 236 M 389,148 567.890 Diluted 0.71 S 0.34 S 047 0.65 855,523 Tallibilities and suckholders' equily Basic weighted average scares Diluted weighted average shares 48,714 48.911 48,550 48,760 48,719 48,918 48,551 48,747 THE BUCKLE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) (Unaudited) Twenty-Six Weeks Ended August 1, August 3, 2020 2019 22,898 $ 31,466 11,010 2,633 (632) 58 12,427 2,533 (608) 279 CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization Amortization of non-vested stock grants, net of forfeitures Deferred income taxes Other Changes in operating assets and liabilities: Receivables Inventory Prepaid expenses and other assets Accounts payable Accrued employee compensation Accrued store operating expenses Gift certificates redeemable Income taxes payable Other assets and liabilities 1,278 4,779 547 21,734 (13,538) 3,279 (2,708) (3,287) 1,115 534 (3,878) (2,923) 13,520 (9,940) 4,131 (3,329) (9,793) 1,124 Net cash flows from operating activities 49,166 35,543 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment Change in other assets Purchases of investments Proceeds from sales/maturities of investments (3,382) 111 (15,953) 15,175 (4,152) 99 (25,167) 27,930 Net cash flows from investing activities (4,049) (1,290) CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of common stock Payment of dividends (372) (68) (24,615) Net cash flows from financing activities (372) (24,683) NET INCREASE IN CASH AND CASH EQUIVALENTS 44,745 9,570 CASH AND CASH EQUIVALENTS, Beginning of period 220,969 168,471 CASH AND CASH EQUIVALENTS, End of period 265,714 $ 178,041
