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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 NOVEMBER 2, 2002
[ ] 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: 000-20132
THE BUCKLE, INC.
(Exact name of Registrant as specified in its charter)
NEBRASKA 47-0366193
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2407 WEST 24TH STREET, KEARNEY, NEBRASKA 68845-4915
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (308) 236-8491
- -----------------------------------------------------------
(Former name, former address and former fiscal year if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares issued of the Registrant's Common Stock, outstanding as of
December 3, 2002 was 21,041,935 shares of Common Stock.
THE BUCKLE, INC.
FORM 10-Q
INDEX
Pages
-----
Part I. Financial Information (unaudited)
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4 Controls and Procedures 14
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
THE BUCKLE, INC.
BALANCE SHEETS
(Columnar amounts in thousands)
(Unaudited)
ASSETS
- ------ November 2, February 2,
CURRENT ASSETS 2002 2002
----------- -----------
Cash and cash equivalents $ 63,036 $ 101,915
Investments:
Held-to-maturity 61,413 40,368
Available-for-sale 625 951
Accounts receivable, net of
allowance of $175,000 and $250,000, respectively 1,643 2,021
Inventory 86,105 54,297
Prepaid expenses and other assets 8,288 7,357
--------- ---------
Total current assets 221,110 206,909
--------- ---------
PROPERTY AND EQUIPMENT 126,458 111,443
Less accumulated depreciation and amortization 63,074 57,151
--------- ---------
63,384 54,292
--------- ---------
OTHER ASSETS 3,440 3,456
--------- ---------
$ 287,934 $ 264,657
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 16,790 $ 11,133
Accrued employee compensation 7,076 10,755
Accrued store operating expenses 5,047 4,231
Gift certificates redeemable 1,738 2,482
Income taxes payable 4,348 1,397
--------- ---------
Total current liabilities 34,999 29,998
DEFERRED COMPENSATION 945 957
--------- ---------
Total liabilities 35,944 30,955
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, authorized 100,000,000 shares
of $.01 par value; issued 21,041,628 and
21,115,538 shares, respectively 210 211
Additional paid-in capital 17,871 19,320
Retained earnings 233,940 214,309
Unearned compensation - restricted stock (31) (126)
Accumulated other comprehensive loss - (12)
--------- ---------
Total stockholders' equity 251,990 233,702
--------- ---------
$ 287,934 $ 264,657
========= =========
See notes to financial statements.
3
THE BUCKLE, INC.
STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
---------- ----------- ----------- -----------
SALES, net of returns and allowances $114,436 $111,142 $277,807 $266,177
COST OF SALES (including buying,
distribution and occupancy costs) 74,198 72,412 190,643 182,409
-------- -------- -------- --------
Gross profit 40,238 38,730 87,164 83,768
-------- -------- -------- --------
OPERATING EXPENSES:
Selling 20,526 18,932 51,474 48,354
General and administrative 2,518 3,051 7,590 8,066
-------- -------- -------- --------
23,044 21,983 59,064 56,420
-------- -------- -------- --------
Income from operations 17,194 16,747 28,100 27,348
OTHER INCOME 770 775 3,187 3,252
-------- -------- -------- --------
Income before income taxes 17,964 17,522 31,287 30,600
Income tax expense 6,700 6,501 11,656 11,431
-------- -------- -------- --------
NET INCOME $ 11,264 $ 11,021 $ 19,631 $ 19,169
======== ======== ======== ========
Per share amounts:
Basic income per share $ 0.53 $ 0.53 $ 0.93 $ 0.93
======== ======== ======== ========
Diluted income per share $ 0.52 $ 0.51 $ 0.90 $ 0.89
======== ======== ======== ========
Basic weighted average shares 21,127 20,740 21,144 20,635
Diluted weighted average shares 21,738 21,537 21,874 21,524
See notes to financial statements.
4
THE BUCKLE, INC.
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Thirty-nine Weeks Ended
-----------------------
November 2, November 3,
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 19,631 $ 19,169
Adjustments to reconcile net income to net cash
flows from operating activities
Depreciation 8,762 8,748
(Gain) loss on disposal of assets (187) 266
Amortization of unearned compensation-restricted stock 95 93
Forfeiture of restricted stock -
(483)
Changes in operating assets and liabilities
Accounts receivable 378 (2,924)
Inventory (31,808) (25,116)
Prepaid expenses and other assets (931) 2,671
Accounts payable 5,657 3,931
Accrued employee compensation (3,679) (3,899)
Accrued store operating expenses 816 297
Gift certificates redeemable (744) (592)
Income taxes payable 2,951 (481)
Deferred compensation (12) 38
--------- ---------
Net cash flows from operating activities 929 1,718
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (32,534) (12,546)
Proceeds from maturities of investments 11,815 14,448
Purchase of property and equipment (17,667) (9,362)
Change in other assets 28 (82)
--------- ---------
Net cash flows from investing activities (38,358) (7,542)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchases of common stock (1,986) (1,281)
Proceeds from the exercise of stock options 536 2,623
--------- ---------
Net cash flows from financing activities (1,450) 1,342
--------- ---------
Net decrease in cash and cash equivalents (38,879) (4,482)
Cash and cash equivalents, Beginning of period 101,915 69,155
--------- ---------
Cash and cash equivalents, End of period $ 63,036 $ 64,673
========= =========
See notes to financial statements.
5
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED
NOVEMBER 2, 2002 AND NOVEMBER 3, 2001
(Unaudited)
1. Management Representation - The accompanying unaudited financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. In the opinion
of management, all adjustments necessary for a fair presentation of the
results of operations for the interim periods have been included. All such
adjustments are of a normal recurring nature. Because of the seasonal
nature of the business, results for interim periods are not necessarily
indicative of a full year's operations. The accounting policies followed
by the Company and additional footnotes are reflected in the financial
statements for the fiscal year ended February 2, 2002, included in The
Buckle, Inc.'s 2001 Annual Report.
2. Description of the Business - The Company is a retailer of medium to
better priced casual apparel, footwear and accessories for fashion
conscious young men and women. The Company operates their business as one
reportable industry segment. The Company had 305 stores located in 37
states throughout the central, northwestern and southern areas of the
United States as of November 2, 2002, and 298 stores in 37 states as of
November 3, 2001. During the third quarter of fiscal 2002, the Company
opened five new stores. During the third quarter of fiscal 2001, the
Company opened ten new stores and substantially renovated one store.
The following is information regarding the Company's major product lines,
stated as a percentage of the Company's net sales:
Percentage of Net Sales Percentage of Net Sales
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
Merchandise Group Nov. 2, 2002 Nov. 3, 2001 Nov. 2, 2002 Nov. 3, 2001
------------ ------------ ------------ ------------
Denims 35.6% 31.5% 32.3% 28.2%
Slacks/Casual bottoms 4.0% 5.6% 3.5% 5.4%
Tops (incl. sweaters) 31.9% 34.0% 31.9% 33.3%
Sportswear/Fashions 1.3% 1.9% 6.7% 7.5%
Outerwear 6.1% 4.6% 3.0% 2.2%
Accessories 10.4% 9.3% 10.6% 10.1%
Footwear 10.6% 11.9% 11.8% 12.0%
Little Guys/Gals .1% 1.1% .2% 1.2%
Other - .1% - .1%
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
3. Net Income Per Share - Basic earnings per share data are based on the
weighted average outstanding common shares during the period. Diluted
earnings per share data are based on the weighted average outstanding
common shares and the effect of all dilutive potential common shares,
including stock options.
6
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED
NOVEMBER 2, 2002 AND NOVEMBER 3, 2001
(Unaudited)
Thirteen Weeks Ended Thirteen Weeks Ended
November 2, 2002 November 3, 2001
Per Share Per Share
Income Shares Amount Income Shares Amount
-------------------------------------- --------------------------------------
Basic EPS
Net Income $11,264 21,127 $ 0.53 $11,021 20,740 $ 0.53
Effect of Dilutive
Securities
Stock Options - 611 (0.01) - 797 (0.02)
------- ------- ------ ------- ------- ------
Diluted EPS $11,264 21,738 $ 0.52 $11,021 21,537 $ 0.51
======= ======= ====== ======= ======= ======
Thirty-nine Weeks Ended Thirty-nine Weeks Ended
November 2, 2002 November 1, 2001
Per Share Per Share
Income Shares Amount Income Shares Amount
-------------------------------------- --------------------------------------
Basic EPS
Net Income $19,631 21,144 $ 0.93 $19,169 20,635 $ 0.93
Effect of Dilutive
Securities
Stock Options - 730 (0.03) - 889 (0.04)
------- ------- ------ ------- ------- ------
Diluted EPS $19,631 21,874 $ 0.90 $19,169 21,524 $ 0.89
======= ======= ====== ======= ======= ======
4. Accounting Pronouncements - In June 2001, the FASB approved the issuance
of SFAS No. 143, Accounting for Asset Retirement Obligations. This
Statement addresses financial accounting and reporting obligations
associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 is effective for the
Company beginning February 2, 2003. The Company does not believe the
adoption of SFAS No. 143 will have a significant impact on the financial
position, results of operations, or cash flows of the Company.
Effective at the beginning of fiscal 2002, the Company adopted SFAS No.
144, Accounting for the Impairment and Disposal of Long-Lived Assets. This
Statement replaces SFAS No. 121, Accounting for Impairment or Disposal of
Long-Lived Assets, and replaces the provisions of APB Opinion No. 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business for the disposal of segments of a business.
The Statement develops one accounting model for long-lived assets to be
disposed of by sale and broadens the reporting of discontinued operations.
The adoption of SFAS No. 144 did not have a significant impact on the
financial position, results of operations, or cash flows of the Company.
7
BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED
NOVEMBER 2, 2002 AND NOVEMBER 3, 2001
(Unaudited)
In April 2002, the FASB approved the issuance of SFAS No. 145, Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections which will be effective for the Company February
2, 2003. This Statement rescinds SFAS No. 4, Reporting Gains and Losses
from Extinguishment of Debt, and an amendment of that Statement, SFAS No.
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.
This Statement also rescinds SFAS No. 44, Accounting for Intangible Assets
of Motor Carriers. This Statement amends SFAS No. 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed
conditions. Management anticipates that the adoption of SFAS No. 145 will
not have a significant effect on the Company's results of operations or
its financial position.
In June 2002, the FASB approved the issuance of SFAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities. This Statement
addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force
(EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." The provisions of this
Statement are effective for exit or disposal activities that are initiated
after December 31, 2002. Management does not believe the adoption of SFAS
No. 146 will have a significant effect on the Company's results of
operations or its financial position.
5. Comprehensive Income - Unrealized gain and loss on the Company's
available-for-sale securities are included in other comprehensive income,
net of related taxes.
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net Income $ 11,264 $ 11,021 $ 19,631 $ 19,169
Unrealized gain (loss) on available
for sale securities, net of taxes - 14 - (10)
-------- -------- -------- --------
Total Comprehensive Income $ 11,264 $ 11,035 $ 19,631 $ 19,159
======== ======== ======== ========
8
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and results of
operations during the periods included in the accompanying financial statements.
RESULTS OF OPERATIONS
The table below sets forth the percentage relationships of sales and various
expense categories in the Statements of Income for each of the thirteen and
thirty-nine week periods ended November 2, 2002, and November 3, 2001:
THE BUCKLE, INC.
RESULTS OF OPERATIONS
Percentage of Net Sales Percentage of Net Sales
----------------------- -----------------------
Thirteen weeks ended Percentage Thirty-nine weeks ended Percentage
Nov. 2, Nov. 3, increase Nov. 2, Nov. 3, increase
2002 2001 (decrease) 2002 2001 (decrease)
------------ ----------- ------------- ----------- ----------- ------------
Net sales 100.0% 100.0% 3.0% 100.0% 100.0% 4.4%
Cost of sales (including
buying, distribution and
occupancy costs) 64.8% 65.2% 2.5% 68.6% 68.5% 4.5%
------------ ----------- ------------- ----------- ----------- ------------
Gross profit 35.2% 34.8% 3.9% 31.4% 31.5% 4.1%
Selling expenses 18.0% 17.0% 8.4% 18.5% 18.2% 6.5%
General and
administrative expenses 2.2% 2.7% (17.5)% 2.7% 3.0% (5.9)%
------------ ----------- ------------- ----------- ----------- ------------
Income from operations 15.0% 15.1% 2.7% 10.2% 10.3% 2.7%
Other income .7% .7% (.6)% 1.1% 1.2% (2.0)%
------------ ----------- ------------- ----------- ----------- ------------
Income before income
taxes 15.7% 15.8% 2.5% 11.3% 11.5% 2.2%
Income tax expense 5.9% 5.9% 3.1% 4.2% 4.3% 2.0%
------------ ----------- ------------- ----------- ----------- ------------
Net income 9.8% 9.9% 2.2% 7.1% 7.2% 2.4%
============ =========== ============= =========== =========== ============
Net sales increased from $111.1 million in the third quarter of fiscal 2001 to
$114.4 million in the third quarter of fiscal 2002, a 3.0% increase. Comparable
store sales decreased from the third quarter of fiscal 2001 to the third quarter
of fiscal 2002 by $0.6 million or 0.5%. The comparable store sales decrease
resulted partially from a 0.7% decrease in the average price per piece of
merchandise sold compared with the fiscal 2001 third quarter.
Net sales increased from $266.2 million in the first nine months of fiscal 2001
to $277.8 million for the first nine months of fiscal 2002, a 4.4% increase.
Comparable store sales for the thirty-nine weeks ended November 2, 2002 compared
to the thirty-nine weeks ended November 3, 2001 decreased by $0.5 million or
0.2%. Sales growth for this thirty-nine week period was attributable to the
inclusion of a full nine months of operating results for the 24 stores opened in
2001 and the opening of 10 new stores in the first thirty-nine weeks of fiscal
2002. Average sales per square foot decreased 1.0% from $192.98 to $190.98 for
the nine months ended November 2, 2002.
9
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Gross profit after buying, occupancy, and distribution expenses increased $1.5
million in the third quarter of fiscal 2002 to $40.2 million, a 3.9% increase.
As a percentage of net sales, gross profit increased from 34.8% in the third
quarter of fiscal 2001 to 35.2% in the third quarter of fiscal 2002. Gross
profit increased $3.4 million for the first thirty-nine weeks of fiscal 2002 to
$87.2 million, a 4.1% increase. As a percentage of net sales, gross profit in
the first nine months decreased from 31.5% for fiscal 2001, to 31.4% for fiscal
2002. The primary reason for improvement in gross profit as a percentage of net
sales for the third quarter of fiscal 2002 compared to the third quarter of
fiscal 2001 is improvement in actual merchandise margins partially offset by
higher occupancy and distribution costs. The decrease in gross profit as a
percentage of net sales for the nine month period of fiscal 2002 compared to the
same period of fiscal 2001 was primarily attributable to higher occupancy costs
outweighing improvement in the actual merchandise margins.
Selling expense increased from $18.9 million in the third quarter of fiscal 2001
to $20.5 million for the third quarter of fiscal 2002, an 8.4% increase. Selling
expenses as a percentage of net sales increased from 17.0% for the third quarter
of fiscal 2001 to 18.0% for the third quarter of fiscal 2002. Year-to-date
selling expense rose 6.5% from $48.4 million through the first nine months of
fiscal 2001 to $51.5 million for the first nine months of fiscal 2002. As a
percentage of net sales, selling expense in the first nine months increased from
18.2% for fiscal 2001, to 18.5% for fiscal 2002. The increase in selling
expense, as a percentage of net sales, for both the three and nine month periods
of fiscal 2002 compared to the same periods of fiscal 2001 resulted primarily
from higher advertising costs as well as increased payroll and travel expenses.
General and administrative expenses decreased from $3.1 million for the third
quarter of fiscal 2001 to $2.5 million for the third quarter of fiscal 2002, a
17.5% decrease. As a percentage of net sales, general and administrative
expenses decreased from 2.7% for the third quarter of fiscal 2001 to 2.2% for
the third quarter of fiscal 2002. For the first nine months of fiscal 2002,
general and administrative expense fell 5.9% from $8.1 million for the nine
months ended November 3, 2001, to $7.6 million for the nine months ended
November 2, 2002. As a percentage of net sales, general and administrative
expense decreased to 2.7% for the first nine months of fiscal 2002 compared to
3.0% for the first nine months of fiscal 2001. Decreases in general and
administrative expenses, as a percentage of net sales, for the three and nine
month periods of fiscal 2002 compared to the same periods of fiscal 2001
resulted primarily from a gain on sale of assets plus slight decreases in bonus
accrual and general supplies expense.
As a result of the above changes, the Company's income from operations increased
to $17.2 million for the third quarter of fiscal 2002 compared to $16.7 million
for the third quarter of fiscal 2001, a 2.7% increase. Income from operations as
a percentage of net sales was 15.0% for the third quarter of fiscal 2002
compared to 15.1% for the third quarter of fiscal 2001. Income from operations,
year-to-date through November 2, 2002, was $28.1 million, a $0.8 million
increase from the first nine months of the prior year. Income from operations
was 10.2% of net sales for the first nine months of fiscal 2002 compared to
10.3% for the first nine months of fiscal 2001.
For the quarter ended November 2, 2002, other income remained unchanged at $0.8
million. For the nine months ended November 2, 2002, other income decreased $0.1
million. Other income decreased in the nine month period of fiscal 2002 compared
to the same period of fiscal 2001 due to a decrease in income received from
state tax incentive programs, partially offset by an increase in interest
income.
Income tax expense as a percentage of pre-tax income was 37.3% in both the third
quarter and first nine months of fiscal 2002 compared to 37.1% and 37.4% in the
third quarter and first nine months of fiscal 2001, respectively.
10
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary ongoing cash requirements are for inventory, payroll, new
store expansion and remodeling. Historically, the Company's primary source of
working capital has been cash flow from operations. During the first three
quarters of fiscal 2002 and 2001, the Company's cash flow provided by operating
activities was $0.9 million and $1.7 million, respectively.
The uses of cash for both thirty-nine week periods include payment of annual
bonuses accrued at fiscal year end, changes in inventory and accounts payable
for build up of inventory levels, and construction costs for new and remodeled
stores. The differences in cash flow for the first three quarters of fiscal 2002
compared to the first three quarters of fiscal 2001 were primarily due to
increases in inventory, prepaid expenses, short-term investments and property
and equipment.
The Company has available an unsecured operating line of credit of $7.5 million
and a $10.0 million unsecured line of credit for foreign and domestic letters of
credit, with Wells Fargo Bank Nebraska, N.A. Borrowings under the lending
arrangements provide for interest to be paid at a rate equal to the prime rate
published in the Wall Street Journal on the date of the borrowings. As of
November 2, 2002, the Company had working capital of $186.1 million, including
$63.0 million of cash and cash equivalents and investments of $62.0 million. The
Company has, from time to time, borrowed against these lines during periods of
peak inventory build-up. There were no bank borrowings during the first three
quarters of fiscal 2002 or fiscal 2001.
During the first nine months of fiscal 2002 and 2001 the Company invested $8.1
million and $8.8 million, respectively, in new store construction, store
renovation and upgrading store technology, net of any construction allowances
received from landlords. The Company also spent approximately $0.5 million and
$0.6 million in the first nine months of fiscal 2002 and 2001, respectively, in
capital expenditures for the corporate headquarters and distribution center. In
the third quarter of fiscal 2002, the Company purchased a corporate aircraft and
sold its Citation III aircraft at a net additional cost of $9.1 million.
During the remainder of fiscal 2002, the Company anticipates completing
approximately four additional store construction projects, including
approximately one new store and approximately three stores to be remodeled
and/or relocated. As of November 2, 2002, five additional lease contracts have
been signed, and additional leases are in various stages of negotiation.
Management now estimates that total capital expenditures during fiscal 2002 will
be approximately $23.0 million before any landlord allowances, estimated to be
at approximately $2.9 million. The Company believes that existing cash and cash
flow from operations will be sufficient to fund current and long-term
anticipated capital expenditures and working capital requirements for the next
year.
11
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations are based upon The Buckle, Inc.'s financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
that management make estimates and judgments that affect the reported amounts of
assets and liabilities, and 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 merchandise returns, inventory, bad debts, health
care costs 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. The Company's certain critical accounting policies
are listed below.
1. Merchandise Returns. The Company establishes a liability for estimated
merchandise returns at the end of the period. Customer returns could
potentially exceed those reserved for, reducing future net sales results.
2. Inventory. Inventory is valued at the lower of cost or market. Cost is
determined using the average cost method and management makes estimates to
reserve for obsolescence and markdowns that could effect market value,
based on assumptions regarding future demand and market conditions. Such
judgments may have a material impact on current and future operating
results and financial position.
3. Bad Debts. The Company books an allowance for doubtful accounts based upon
historical data and current trends. Management believes the reserve is
adequate; however, customers' ability to pay could deteriorate causing
actual losses to exceed those anticipated in the allowance.
4. Health Care Costs. The Company is self-funded for health and dental claims
up to $60,000 per individual per plan year. This plan covers eligible
employees and management makes estimates at period end to record a reserve
for future claims. The number and amount of claims submitted could vary
from the amounts reserved, effecting current and future net earnings
results.
5. Income Taxes. The Company records a deferred tax asset for future tax
benefits for difference between book and tax revenue and expense
recognition. If the Company is unable to realize all or part of its
deferred tax asset in the future, an adjustment would be charged to income
in the period such determination was made.
12
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
As referenced in the tables below, the Company has contractual obligations and
commercial commitments that may affect the financial condition of the Company.
Based on management's review of the terms and conditions of its contractual
obligations and commercial commitments, there is no known trend, demand,
commitment, event or uncertainty that is reasonably likely to occur which would
have a material effect on the Company's financial condition or results of
operations or cash flows. In addition, the commercial obligations and
commitments made by the Company are customary transactions, which are similar to
those of other comparable retail companies.
The following tables identify the material obligations and commitments as of
November 2, 2002:
- -----------------------------------------------------------------------------------------------------------
Payments Due by Period
- -----------------------------------------------------------------------------------------------------------
Contractual obligations Total Less than 1-3 years 4-5 years After 5 years
(dollar amounts in 1 year
thousands)
- -----------------------------------------------------------------------------------------------------------
Long term debt $ - $ - $ - $ - $ -
- -----------------------------------------------------------------------------------------------------------
Operating leases $ 198,888 $ 27,403 $ 52,589 $ 44,660 $ 74,236
- -----------------------------------------------------------------------------------------------------------
Total contractual $ 198,888 $ 27,403 $ 52,589 $ 44,660 $ 74,236
obligations
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Amount of Commitment Expiration Per Period
- -----------------------------------------------------------------------------------------------------------
Other Commercial Total Amounts Less than 1-3 years 4-5 years After 5 years
Commitments (dollar amounts Committed 1 year
in thousands)
- -----------------------------------------------------------------------------------------------------------
Lines of credit $ 7,500 $ 7,500 $ - $ - $ -
- -----------------------------------------------------------------------------------------------------------
Letters of credit $ 10,000 $ 10,000 $ - $ - $ -
- -----------------------------------------------------------------------------------------------------------
Total commercial commitments $ 17,500 $ 17,500 $ - $ - $ -
- -----------------------------------------------------------------------------------------------------------
SEASONALITY AND INFLATION
The Company's business is seasonal, with the Christmas 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 1999, 2000, and 2001, the Christmas and
back-to-school seasons accounted for an average of approximately 40% of the
Company's fiscal year net sales. Although the operations of the Company are
influenced by general economic conditions, the Company does not believe that
inflation has had a material effect on the results of operations during the
thirty-nine week periods ended November 2, 2002, and November 3, 2001.
13
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Information in this report, other than historical information, may be considered
to be forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "1995 Act"). Such statements are made in good
faith by the Company pursuant to the safe-harbor provisions of the 1995 Act. In
connection with these safe-harbor provisions, this management's discussion and
analysis contains certain forward-looking statements, which reflect management's
current views and estimates of future economic conditions, company performance
and financial results. The statements are based on many assumptions and factors
that could cause future results to differ materially. Such factors include, but
are not limited to, changes in product mix, changes in fashion trends,
competitive factors and general economic conditions, economic conditions in the
retail apparel industry, as well as other risks and uncertainties inherent in
the Company's business and the retail industry in general. Any changes in these
factors could result in significantly different results for the Company. The
Company further cautions that the forward-looking information contained herein
is not exhaustive or exclusive. The Company does not undertake to update any
forward-looking statements, which may be made from time to time by or on behalf
of the Company.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has evaluated the disclosure requirements of Item 305 of S-K
"Quantitative and Qualitative Disclosures about Market Risk," and has concluded
that the Company has no market risk sensitive instruments for which these
additional disclosures are required.
ITEM 4. CONTROLS AND PROCEDURES
Internal controls are procedures, effected by a company's board of directors,
management and other personnel, designed to provide reasonable assurance
regarding the achievement of reliability of financial reporting, effectiveness
and efficiency of operations, and compliance with applicable laws and
regulations. Disclosure controls and procedures are internal controls and other
procedures that are designed to ensure that information required to be disclosed
in the reports filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in the reports filed or
submitted under the Securities Exchange Act of 1934 is accumulated and
communicated to management, including the principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure. As reported in the "Certifications" Section of this
Quarterly Report on Form 10-Q, the Company's principal executive officer and
principal financial officer evaluated the Company's disclosure controls and
procedures as of November 2, 2002, concluding that the Company's disclosure
controls and procedures were effective. There have been no significant changes
in the Company's internal controls or in other factors that could significantly
affect these controls subsequent to the November 2, 2002 evaluation.
14
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities and Use of Proceeds: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits 99.1 and 99.2 Certifications Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) No reports on Form 8-K were filed by the Company during the
quarter ended November 2, 2002.
15
THE BUCKLE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BUCKLE, INC.
Dated: December 17, 2002 /s/ DENNIS H. NELSON
--------------------- -----------------------------------
DENNIS H. NELSON, President and CEO
Dated: December 17, 2002 /s/ KAREN B. RHOADS
--------------------- -----------------------------------
KAREN B. RHOADS, Vice President
of Finance and CFO
16
CERTIFICATIONS
I, Dennis H. Nelson, certify that:
1. I have reviewed this quarterly report of The Buckle, Inc. on Form
10-Q for the quarterly period ended November 2, 2002;
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
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures for the
registrant and we have:
a. designed such disclosure controls and procedures 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 quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board or directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; 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; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: December 17, 2002 /s/ DENNIS H. NELSON
--------------------------------------------
Dennis H. Nelson
Chief Executive Officer
17
I, Karen B. Rhoads, certify that:
1. I have reviewed this quarterly report of The Buckle, Inc. on Form
10-Q for the quarterly period ended November 2, 2002;
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
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures for the
registrant and we have:
a. designed such disclosure controls and procedures 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 quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board or directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; 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; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: December 17, 2002 /s/ KAREN B. RHOADS
--------------------------------------------
Karen B. Rhoads
Chief Financial Officer
18