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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 MAY 3, 2003
|_| 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
June 6, 2003 was 21,036,608 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 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Item 4. Controls and Procedures 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
THE BUCKLE, INC.
BALANCE SHEETS
(Columnar amounts in thousands)
(Unaudited)
ASSETS
- ------ May 3, February 1,
CURRENT ASSETS 2003 2003
-------- --------
Cash and cash equivalents $ 82,081 $ 92,976
Investments 16,119 15,450
Accounts receivable, net of
allowance of $217,000 and $217,000, respectively 1,792 1,390
Inventory 61,779 60,041
Prepaid expenses and other assets 8,331 8,277
-------- --------
Total current assets 170,102 178,134
PROPERTY AND EQUIPMENT 132,994 130,013
Less accumulated depreciation and amortization 67,855 65,407
-------- --------
65,139 64,606
LONG-TERM INVESTMENTS 58,606 54,548
OTHER ASSETS 3,629 2,512
-------- --------
$297,476 $299,800
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable $ 15,190 $ 13,318
Accrued employee compensation 3,431 10,556
Accrued store operating expenses 4,557 4,487
Gift certificates redeemable 2,171 2,855
Income taxes payable 3,689 2,966
-------- --------
Total current liabilities 29,038 34,182
DEFERRED COMPENSATION 1,102 946
-------- --------
Total liabilities 30,140 35,128
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, authorized 100,000,000 shares
of $.01 par value; issued 21,035,858 and
21,045,404 shares, respectively 210 210
Additional paid-in capital 17,762 18,089
Retained earnings 249,364 246,373
-------- --------
Total stockholders' equity 267,336 264,672
-------- --------
$297,476 $299,800
======== ========
See notes to financial statements.
3
THE BUCKLE, INC.
STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended
--------------------
May 3, 2003 May 4, 2002
------------ ------------
SALES, net of returns and allowances $81,713 $79,855
COST OF SALES (including buying,
distribution and occupancy costs) 58,844 56,739
------- -------
Gross profit 22,869 23,116
OPERATING EXPENSES
Selling 16,531 15,036
General and administrative 2,753 2,545
------- -------
19,284 17,581
------- -------
Income from operations 3,585 5,535
OTHER INCOME, Net 1,140 1,309
------- -------
Income before income taxes 4,725 6,844
PROVISION FOR INCOME TAXES 1,734 2,546
------- -------
NET INCOME $ 2,991 $ 4,298
======= =======
Per share amounts:
Basic income per share $ 0.14 $ 0.20
Diluted income per share $ 0.14 $ 0.20
Basic weighted average shares 21,048 21,147
Diluted weighted average shares 21,594 21,948
See notes to financial statements.
4
THE BUCKLE, INC.
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Thirteen Weeks Ended
--------------------
May 3, 2003 May 4, 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,991 $ 4,298
Adjustments to reconcile net income to net cash
flows from operating activities
Depreciation 3,022 2,820
Loss on disposal of assets 220 43
Amortization of unearned compensation-restricted stock - 31
Changes in operating assets and liabilities
Accounts receivable (402) 1,084
Inventory (1,738) 1,188
Prepaid expenses and other assets (54) 3,766
Accounts payable 1,872 3,791
Accrued employee compensation (7,125) (7,065)
Accrued store operating expenses 70 (738)
Gift certificates redeemable (684) (555)
Income taxes payable 723 702
Deferred compensation 156 114
--------- ---------
Net cash flows from operating activities (949) 9,479
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (6,943) (9,319)
Proceeds from maturities of investments 2,216 1,816
Purchase of property and equipment (3,775) (1,895)
Change in other assets (1,117) 31
--------- ---------
Net cash flows from investing activities (9,619) (9,367)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the exercise of stock options 133 362
Purchases of common stock (460) -
--------- ---------
Net cash flows from financing activities (327) 362
--------- ---------
Net (decrease) increase in cash and cash equivalents (10,895) 474
Cash and cash equivalents, Beginning of period 92,976 101,915
--------- ---------
Cash and cash equivalents, End of period $ 82,081 $ 102,389
========= =========
See notes to financial statements.
5
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED MAY 3, 2003 AND MAY 4, 2002
(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 1, 2003, included in The Buckle, Inc.'s 2002
Annual Report.
2. Description of the Business - The Company is a retailer of medium to better
priced casual apparel and footwear for fashion conscious young men and
women. The Company operates their business as one reportable industry
segment. The Company had 310 stores located in 37 states throughout the
central, northwestern and southern regions of the United States as of May
3, 2003, and 298 stores in 37 states as of May 4, 2002. During the first
quarter of fiscal 2003, the Company opened six new stores and substantially
renovated three stores. During the first quarter of fiscal 2002, the
Company opened three 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
Thirteen Weeks Ended
--------------------
Merchandise Group May 3, 2003 May 4, 2002
----------- -----------
Denims 32.6% 30.4%
Slacks/Casual Bottoms 3.0% 3.5%
Tops (including sweaters) 32.1% 31.2%
Sportswear/Fashion clothes 10.7% 10.6%
Outerwear 0.7% 0.4%
Accessories 9.1% 10.1%
Footwear 11.7% 13.4%
Other 0.1% 0.4%
------ -----
100.0% 100.0%
====== =====
3. Stock-Based Compensation - The Company has several stock-based employee
compensation plans, which are described more fully in the footnotes
included in the Company's 2002 Annual Report. As of May 3, 2003, 240,135
shares were available for grant under the various plans, of which 108,200
were available to executive officers. The Company accounts for those plans
under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. No
stock-based compensation is reflected in net income, as all options granted
under these plans had an exercise price equal to the market value of the
common stock on the date of grant. The following table illustrates the
effect on net income and earnings per share if the Company had applied the
fair value recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.
6
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED MAY 3, 2003 AND MAY 4, 2002
(Unaudited)
THIRTEEN WEEKS ENDED
--------------------
MAY 3, 2003 MAY 4, 2002
----------- -----------
Net income, as reported $ 2,991 $ 4,298
Add: Stock-based employee compensation expense
included in reported net income, net of related tax effects - 20
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (1,052) (1,029)
Pro forma net income $ 1,939 $ 3,289
======= =======
Earnings per share:
Basic - as reported $ .14 $ .20
======= =======
Basic - pro forma $ .09 $ .16
======= =======
Diluted - as reported $ .14 $ 20
======= =======
Diluted - pro forma $ .09 $ .15
======= =======
4. 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.
Thirteen Weeks Ended Thirteen Weeks Ended
May 3, 2003 May 4, 2002
--------------------------------- -----------------------------------
Per Per
Income Shares Share Income Shares Share
Amount Amount
--------------------------------- -----------------------------------
Basic EPS
Net Income $2,991 21,048 $ 0.14 $4,298 21,147 $ 0.20
Effect of Dilutive Securities
Stock Options - 546 - - 801 -
--------------------------------- -----------------------------------
Diluted EPS $2,991 21,594 $ 0.14 $4,298 21,948 $ 0.20
================================= ===================================
7
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED MAY 3, 2003 AND MAY 4, 2002
(Unaudited)
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 adoption of
SFAS No. 143 did not have a significant impact on the financial position,
results of operations, or cash flows of the Company.
In August 2001, the FASB approved the issuance of 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. SFAS No. 144 is effective for the Company beginning
February 3, 2002. 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.
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 is effective for financial statements issued on or
after May 15, 2002. 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. The adoption of SFAS No. 145 did not have a significant effect on
the Company's financial position, results of operations or cash flows.
The FASB approved the issuance of SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities in June 2002. 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. The adoption of SFAS No. 146 did not have
a significant effect on the Company's financial position, results of operations
or cash flows.
SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure,
an amendment of FASB Statement No. 123, was issued in December 2002. This
Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure
8
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED MAY 3, 2003 AND MAY 4, 2002
(Unaudited)
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. As the Company follows Accounting Principles Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees, the disclosure-only provisions of
the Statement apply to the Company.
SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, was issued in April 2003. This Statement amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities. The provisions of this
Statement that relate to Statement 133 Implementation Issues that have been
effective for fiscal quarters that began prior to June 15, 2003, should continue
to be applied in accordance with their respective effective dates. In addition,
paragraphs 7(a) and 23(a), which relate to forward purchases or sales of
when-issued securities or other securities that do not yet exist, should be
applied to both existing contracts and new contracts entered into after June 30,
2003. The adoption of SFAS No. 149 is not expected to have a significant impact
on the financial position, results of operations, or cash flows of the Company.
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity, was issued in May 2003. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This Statement concludes the first phase
of the Board's redeliberations of the Exposure Draft, Accounting for Financial
Instruments with Characteristics of Liabilities, Equity, or Both. This Statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS No. 150 is not expected to
have a significant impact on the financial position, results of operations, or
cash flows of the Company.
FASB Interpretation No. (FIN) 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, was issued in November 2002. The initial recognition and measurement
provisions should be applied only on a prospective basis to guarantees issued or
modified after December 31, 2002. FIN No. 45 clarifies the requirements for a
guarantor to recognize a liability for a guarantee at inception of the
guarantee. It specifies guarantor's financial statement disclosures for its
obligations under guarantees. Management believes the adoption of the
interpretation did not have a significant effect on the Company's financial
position, results of operations or cash flows of the Company.
FASB Interpretation No. 46, Consolidation of Variable Interest Entities - (an
Interpretation of ARB No. 51), was issued in January 2003. FIN No. 46 applies
immediately to variable interest
9
entities created after January 31, 2003, and is effective in the first fiscal
year beginning after June 15, 2003, to variable interest entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
The FIN requires an enterprise to consolidate a variable interest entity if that
enterprise has a variable interest (or combination of variable interests) that
will absorb a majority of the entity's expected losses if they occur, receive a
majority of the entity's expected residual returns if they occur or both.
Management believes the adoption of the interpretation will not have a
significant effect on the Company's financial position, results of operations or
cash flows of the Company.
5. Comprehensive Income - Unrealized gains and losses on the Company's
available-for-sale securities are included in other comprehensive income,
net of related taxes. There were no available-for-sale securities held
during the first quarter of fiscal 2003.
Thirteen Weeks Ended
May 3, 2003 May 4, 2002
----------- -----------
Net income 2,991 4,298
Unrealized gain on available-for-sale securities,
net of taxes - 12
------ ------
Total comprehensive income $2,991 $4,310
====== ======
10
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 the thirteen-week periods
ended May 3, 2003, and May 4, 2002:
Percentage of Net Sales
-----------------------
Thirteen weeks ended Percentage
May 3, May 4, increase
2003 2002 (decrease)
-------------------------------------------
Net sales 100.0% 100.0% 2.3%
Cost of sales (including
buying, distribution and
occupancy costs) 72.0% 71.1% 3.7%
-------------------------------------------
Gross profit 28.0% 28.9% (1.1)%
Selling expenses 20.2% 18.8% 9.9%
General and
administrative expenses 3.4% 3.2% 8.2%
-------------------------------------------
Income from operations 4.4% 6.9% (35.2)%
Other income, net 1.4% 1.7% (12.9)%
-------------------------------------------
Income before income taxes 5.8% 8.6% (31.0)%
Provision for income taxes 2.1% 3.2% (31.9)%
-------------------------------------------
Net income 3.7% 5.4% (30.4)%
===========================================
Net sales increased from $79.9 million in the first quarter of fiscal 2002 to
$81.7 million in the first quarter of fiscal 2003, a 2.3% increase. Comparable
store sales decreased from the first quarter of fiscal 2002 to the first quarter
of fiscal 2003 by $0.5 million or 0.7%. Sales growth of 3.0% for this thirteen
week period was attributable to the inclusion of a full three months of
operating results for the 11 stores opened in 2002 and the opening of six new
stores in the first thirteen weeks of fiscal 2003. Average sales per square foot
decreased 2.0% from $55.02 to $53.93.
Gross profit after buying, occupancy, and distribution expenses decreased $.2
million in the first quarter of fiscal 2003 to $22.9 million, a 1.1% decrease.
As a percentage of net sales, gross profit decreased from 28.9% in the first
quarter of fiscal 2002 to 28.0% in the first quarter of fiscal 2003. This
decrease was attributable primarily to higher occupancy costs partially offset
by an improvement in the actual merchandise margins.
Selling expenses increased from $15.0 million for the first quarter of fiscal
2002 to $16.5 million for the first quarter of fiscal 2003, a 9.9% increase.
Selling expenses as a percentage of net sales for the first quarter of fiscal
2003 increased to 20.2% compared to 18.8% for the first quarter of fiscal 2002.
The increase was primarily attributable to higher sales salaries, higher
advertising expenses and higher supply expenses as a percentage of net sales
partially due to a decline in leverage provided by comparable store sales.
11
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General and administrative expenses increased from $2.5 million in the first
quarter of fiscal 2002 to $2.8 million in the first quarter of fiscal 2003, an
8.2% increase. As a percentage of net sales, general and administrative expenses
for the first quarter of fiscal 2003 increased from 3.2% in fiscal 2002 to 3.4%
in fiscal 2003. The increase in general and administrative expense, as a
percentage of net sales, resulted primarily from loss on the disposal of assets
due to a store relocation.
As a result of the above changes, the Company's income from operations decreased
to $3.6 million for the first quarter of fiscal 2003 compared to $5.5 million
for the first quarter of fiscal 2002, a 35.2% decrease. Income from operations
was 4.4% of net sales in the first quarter of fiscal 2003 compared to 6.9% in
the first quarter of fiscal 2002.
For the quarter ended May 3, 2003, other income decreased 12.9% from the first
quarter of fiscal 2002. Other income decreased in the first quarter of fiscal
2003 due to a reduction in interest income.
Income tax expense as a percentage of pre-tax income was 36.7% in the first
quarter of fiscal 2003 compared to 37.2% in the first quarter of fiscal 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary ongoing cash requirements are for inventory, payroll,
store expansion, and remodeling. Historically, the Company's primary source of
working capital has been cash flow from operations. The first quarter of each
fiscal year is typically a period of decreasing cash flows created by various
operating, investing, and financing activities. During the first quarter of
fiscal 2003, the Company's operating activities used $0.9 million in net cash
flow compared to the first quarter of fiscal 2002, when the Company's operating
activities provided $9.5 million in net cash flow.
The uses of cash for both thirteen-week periods include payment of annual
bonuses accrued at fiscal year end and construction costs for opening new stores
and remodeling existing stores. The reduction in cash flow for the first quarter
of fiscal 2003 compared to the first quarter of fiscal 2002 was primarily due to
changes in inventory, prepaid expenses, accounts payable, investments and
additional purchases of 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 May 3,
2003, the Company had working capital of $141.1 million, including $82.1 million
of cash and cash equivalents and short-term investments of $16.1 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 quarter
of fiscal 2003 and 2002.
During the first quarter of fiscal 2003 and 2002, the Company invested $3.4
million and $1.7 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 $.4 million and
$.2 million in the first quarters of fiscal 2003 and 2002, respectively, in
capital expenditures for the corporate headquarters.
12
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During the remainder of fiscal 2003, the Company anticipates completing
approximately 21 additional store construction projects, including approximately
9 new stores and approximately 12 stores to be remodeled and/or relocated. As of
May 3, 2003, seven additional lease contracts have been signed, and additional
leases are in various stages of negotiation. Management now estimates that total
capital expenditures during fiscal 2003 will be approximately $19.6 million
before any landlord allowances estimated to be $2.8 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 several years.
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 reserves 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 $80,000 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.
13
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. 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 May
3, 2003:
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 $196,990 $ 28,571 $ 52,939 $ 46,696 $ 68,784
-------- -------- -------- -------- --------
Total contractual obligations $196,990 $ 28,571 $ 52,939 $ 46,696 $ 68,784
-------- -------- -------- -------- --------
Amount of Commitment Expiration Per Period
--------------------------------------------------------------------------
Other Commercial Total Amounts Less than 1-3 years 4-5 years After 5
Commitments (dollar Committed 1 year years
amounts 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 2000, 2001, and 2002, the Christmas and
back-to-school seasons accounted for approximately 40% of the Company's
14
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
fiscal year net sales. Although the operations of the Company are influenced by
general economic conditions, the Company does not believe that inflation has had
a material effect on the results of operations during the thirteen-week periods
ended May 3, 2003, and May 4, 2002.
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 May 3, 2003, 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 May 3, 2003 evaluation.
15
THE BUCKLE, INC.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
(a) None
(b) None
(c) None
(d) 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 May 3, 2003.
16
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: June 13, 2003 /s/ DENNIS H. NELSON .
----------- ----------------------------------------
DENNIS H. NELSON, President and CEO
Dated: June 13, 2003 /s/ KAREN B. RHOADS .
----------- ----------------------------------------
KAREN B. RHOADS, Vice President
of Finance and CFO
17
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 May 3, 2003;
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: June 13, 2003 /s/ DENNIS H. NELSON
--------------------------
Dennis H. Nelson
Chief Executive Officer
18
CERTIFICATIONS
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 May 3, 2003;
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: June 13, 2003 /s/ KAREN B. RHOADS
--------------------------
Karen B. Rhoads
Chief Financial Officer
19