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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 1, 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
December 12, 2003 was 21,161,771 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 16
Item 4. Controls and Procedures 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
THE BUCKLE, INC.
BALANCE SHEETS
(Columnar amounts in thousands)
(Unaudited)
ASSETS November 1, February 1,
CURRENT ASSETS 2003 2003
----------- ----------
Cash and cash equivalents $ 87,338 $ 92,976
Investments 16,701 15,450
Accounts receivable, net of
allowance of $181,000 and $217,000, respectively 3,681 1,390
Inventory 84,081 60,041
Prepaid expenses and other assets 9,431 8,277
--------- ---------
Total current assets 201,232 178,134
PROPERTY AND EQUIPMENT 136,461 130,013
Less accumulated depreciation and amortization 70,265 65,407
--------- ---------
66,196 64,606
LONG-TERM INVESTMENTS 53,789 54,548
OTHER ASSETS 3,658 2,512
--------- ---------
$ 324,875 $ 299,800
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 18,086 $ 13,318
Accrued employee compensation 6,728 10,556
Accrued store operating expenses 5,751 4,487
Gift certificates redeemable 1,827 2,855
Income taxes payable 8,893 2,966
--------- ---------
Total current liabilities 41,285 34,182
DEFERRED COMPENSATION 1,336 946
--------- ---------
Total liabilities 42,621 35,128
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, authorized 100,000,000 shares
of $.01 par value; issued 21,376,489 and
21,045,404 shares, respectively 214 210
Additional paid-in capital 22,019 18,089
Retained earnings 263,001 246,373
Unearned compensation (2,980) --
--------- ---------
Total stockholders' equity 282,254 264,672
--------- ---------
$ 324,875 $ 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 Thirty-nine Weeks Ended
------------------------ ----------------------------
November 1, November 2, November 1, November 2,
2003 2002 2003 2002
---------- ----------- ----------- ------------
SALES, net of returns and allowances $121,325 $114,436 $288,721 $277,807
COST OF SALES (including buying,
distribution and occupancy costs) 77,680 74,198 197,609 190,643
-------- -------- -------- --------
Gross profit 43,645 40,238 91,112 87,164
-------- -------- -------- --------
OPERATING EXPENSES:
Selling 21,353 20,526 54,312 51,474
General and administrative 3,822 2,518 9,998 7,590
-------- -------- -------- --------
25,175 23,044 64,310 59,064
-------- -------- -------- --------
Income from operations 18,470 17,194 26,802 28,100
OTHER INCOME, Net 776 770 2,848 3,187
-------- -------- -------- --------
Income before income taxes 19,246 17,964 29,650 31,287
PROVISION FOR INCOME TAXES 7,063 6,700 10,885 11,656
-------- -------- -------- --------
NET INCOME $ 12,183 $ 11,264 $ 18,765 $ 19,631
======== ======== ======== ========
Per share amounts:
Basic income per share $ 0.57 $ 0.53 $ 0.89 $ 0.93
======== ======== ======== ========
Diluted income per share $ 0.56 $ 0.52 $ 0.87 $ 0.90
======== ======== ======== ========
Basic weighted average shares 21,207 21,127 21,091 21,144
Diluted weighted average shares 21,682 21,738 21,603 21,874
See notes to financial statements.
4
THE BUCKLE, INC.
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Thirty-nine Weeks Ended
---------------------------------------
November 1, 2003 November 2, 2002
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 18,765 $ 19,631
Adjustments to reconcile net income to net cash
flows from operating activities
Depreciation 9,369 8,762
(Gain)/loss on disposal of assets 546 (187)
Amortization of unearned compensation-restricted stock 802 95
Changes in operating assets and liabilities
Accounts receivable (2,291) 378
Inventory (24,040) (31,808)
Prepaid expenses and other assets (1,154) (931)
Accounts payable 4,768 5,657
Accrued employee compensation (3,828) (3,679)
Accrued store operating expenses 1,264 816
Gift certificates redeemable (1,028) (744)
Income taxes payable 5,927 2,951
Deferred compensation 390 (12)
--------- ---------
Net cash flows from operating activities 9,490 929
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (23,161) (32,534)
Proceeds from maturities of investments 22,669 11,815
Purchase of property and equipment (11,505) (17,667)
Change in other assets (1,146) 28
--------- ---------
Net cash flows from investing activities (13,143) (38,358)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the exercise of stock options 1,553 536
Purchases of common stock (1,401) (1,986)
Dividends paid to shareholders (2,137) --
--------- ---------
Net cash flows from financing activities (1,985) (1,450)
--------- ---------
Net decrease in cash and cash equivalents (5,638) (38,879)
Cash and cash equivalents, Beginning of period 92,976 101,915
--------- ---------
Cash and cash equivalents, End of period $ 87,338 $ 63,036
========= =========
See notes to financial statements.
5
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED
NOVEMBER 1, 2003 AND NOVEMBER 2, 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, footwear and accessories for fashion conscious young
men and women. The Company operates their business as one reportable industry
segment. The Company had 319 stores located in 38 states throughout the
central, northwestern and southern regions of the United States as of
November 1, 2003, and 305 stores in 37 states as of November 2, 2002. During
the third quarter of fiscal 2003, the Company opened six new stores and
substantially renovated six stores. During the third quarter of fiscal 2002,
the Company opened five new stores.
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. 1, 2003 Nov. 2, 2002 Nov. 1, 2003 Nov. 2, 2002
------------ ------------ ------------ ------------
Denims 39.6% 35.6% 35.3% 32.3%
Slacks/Casual bottoms 5.1% 4.0% 3.9% 3.5%
Tops (incl. sweaters) 31.4% 31.9% 32.3% 31.9%
Sportswear/Fashions 1.0% 1.3% 6.5% 6.7%
Outerwear 4.6% 6.1% 2.3% 3.0%
Accessories 10.1% 10.4% 10.0% 10.6%
Footwear 8.2% 10.6% 9.6% 11.8%
Other 0.0% 0.1% 0.1% 0.2%
----- ----- ----- -----
100.0% 100.0% 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 November 1, 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.
6
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED NOVEMBER 1, 2003 AND NOVEMBER 2, 2002
(Unaudited)
The Company also has a restricted stock plan. During the second quarter of
2003, the Compensation Committee of the Board of Directors of the Buckle,
Inc., granted 169,840 shares of performance-based restricted stock to
certain key members of management, subject to shareholder approval. The
total estimated value of these restricted shares as of November 1, 2003 is
approximately $3.8 million.
These shares are restricted based upon the Company attaining certain
financial performance goals set for the last three quarters of the current
fiscal year, which ends on January 31, 2004. If the Company achieves the
performance goals set, the shares granted will then vest on January 29,
2005, which is the last day of the Company's 2004 fiscal year. The Company
anticipates recording the associated compensation expense ratably through
the completion of the vesting period. The company recorded compensation
expense of $.6 million in the third quarter of fiscal 2003 and $.8 million
year-to-date for fiscal 2003 related to the restricted stock 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.
Thirteen Weeks Ended Thirty-nine Weeks Ended
--------------------------- ----------------------------
Nov. 1, 2003 Nov. 2, 2002 Nov. 1, 2003 Nov. 2, 2002
--------------------------- ----------------------------
Net income, as reported $ 12,183 $ 11,264 $ 18,765 $ 19,631
Add: Stock-based employee
compensation expense included in
reported net income, net of
related tax effects 377 20 509 60
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects (1,053) (742) (2,536) (2,224)
----------------------- --------------------------
Pro forma net income $ 11,507 $ 10,542 $ 16,738 $ 17,467
======================= ==========================
Earnings per share:
Basic - as reported $ .57 $ .53 $ .89 $ .93
======================= ==========================
Basic - pro forma $ .54 $ .50 $ .79 $ .83
======================= ==========================
Diluted - as reported $ .56 $ .52 $ .87 $ .90
======================= ==========================
Diluted - pro forma $ .53 $ .48 $ .77 $ .80
======================= ==========================
7
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED NOVEMBER 1, 2003 AND NOVEMBER 2, 2002
(Unaudited)
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
November 1, 2003 November 2, 2002
--------------------------------- ---------------------------------
Per Per
Income Shares Share Income Shares Share
Amount Amount
--------------------------------- ---------------------------------
Basic EPS
Net Income $12,183 21,207 $ 0.57 $11,264 21,127 $ 0.53
Effect of Dilutive Securities
Stock Options -- 475 (0.01) -- 611 (0.01)
------------------------------- -------------------------------
Diluted EPS $12,183 21,682 $ 0.56 $11,264 $21,738 $ 0.52
=============================== ===============================
Thirty-nine Weeks Ended Thirty-nine Weeks Ended
November 1, 2003 November 2, 2002
--------------------------------- --------------------------------
Per Per
Income Shares Share Income Shares Share
Amount Amount
--------------------------------- --------------------------------
Basic EPS
Net Income $18,765 21,091 $ 0.89 $19,631 21,144 $ 0.93
Effect of Dilutive Securities
Stock Options -- 512 (0.02) -- 730 (0.03)
------------------------------- -------------------------------
Diluted EPS $18,765 21,603 $ 0.87 $19,631 21,874 $ 0.90
=============================== ===============================
5. 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.
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 AND THIRTY-NINE WEEKS ENDED
NOVEMBER 1, 2003 AND NOVEMBER 2, 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 effective date for mandatorily redeemable financial instruments
issued by non-public entities is fiscal periods beginning after December 15,
2004. 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.
9
THE BUCKLE, INC
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED
NOVEMBER 1, 2003 AND NOVEMBER 2, 2002
(Unaudited)
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 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. In October 2003, the FASB deferred
the effective date of FIN No. 46 to the end of the first interim or annual
period ending after December 15, 2003 for those arrangements entered into
prior to 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.
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 each of the thirteen and
thirty-nine week periods ended November 1, 2003, and November 2, 2002:
THE BUCKLE, INC.
RESULTS OF OPERATIONS
Percentage of Net Sales Percentage of Net Sales
------------------------------------- -------------------------------------
Thirteen weeks ended Percentage Thirty-nine weeks ended Percentage
Nov. 1, Nov. 2, increase Nov. 1, Nov. 2, increase
2003 2002 (decrease) 2003 2002 (decrease)
------------------------------------ -------------------------------------
Net sales 100.0% 100.0% 6.0% 100.0% 100.0% 3.9%
Cost of sales (including
buying, distribution and
occupancy costs) 64.0% 64.8% 4.7% 68.4% 68.6% 3.7%
---------------------------------- ----------------------------------
Gross profit 36.0% 35.2% 8.5% 31.6% 31.4% 4.5%
Selling expenses 17.6% 18.0% 4.0% 18.8% 18.5% 5.5%
General and
administrative expenses 3.2% 2.2% 51.8% 3.5% 2.7% 31.7%
---------------------------------- ----------------------------------
Income from operations 15.2% 15.0% 7.4% 9.3% 10.2% (4.6)%
Other income, net 0.6% 0.7% 0.8% 1.0% 1.1% (10.6)%
---------------------------------- ---------------------------------
Income before income
Taxes 15.8% 15.7% 7.1% 10.3% 11.3% (5.2)%
Provision for income tax 5.8% 5.9% 5.4% 3.8% 4.2% (6.6)%
---------------------------------- ---------------------------------
Net income 10.0% 9.8% 8.2% 6.5% 7.1% (4.4)%
================================== =================================
Net sales increased from $114.4 million in the third quarter of fiscal 2002 to
$121.3 million in the third quarter of fiscal 2003, a 6.0% increase. Comparable
store sales increased from the third quarter of fiscal 2002 to the third quarter
of fiscal 2003 by $1.5 million or 1.3%. Comparable store sales increased despite
a 3.8% decrease in the average price per piece of merchandise sold compared with
the fiscal 2002 third quarter.
Net sales increased from $277.8 million in the first nine months of fiscal 2002
to $288.7 million for the first nine months of fiscal 2003, a 3.9% increase.
Comparable store sales for the thirty-nine weeks ended November 1, 2003 compared
to the thirty-nine weeks ended November 2, 2002 decreased $0.4 million or 0.1%.
Sales growth for this thirty-nine week period was attributable to the inclusion
of a full nine months of operating results for the 11 stores opened in 2002 and
the opening of 15 new stores in the first thirty-nine weeks of fiscal 2003.
Average sales per square foot decreased 1.4% from $190.98 to $188.40 for the
nine months ended November 1, 2003.
11
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Gross profit after buying, occupancy, and distribution expenses increased $3.4
million in the third quarter of fiscal 2003 to $43.6 million, an 8.5% increase.
As a percentage of net sales, gross profit increased from 35.2% in the third
quarter of fiscal 2002 to 36.0% in the third quarter of fiscal 2003. Gross
profit increased $3.9 million for the first thirty-nine weeks of fiscal 2003 to
$91.1 million, a 4.5% increase. As a percentage of net sales, gross profit in
the first nine months increased from 31.4% for fiscal 2002, to 31.6% for fiscal
2003. The primary reason for improvement in gross profit as a percentage of net
sales, for both the three and nine month periods of fiscal 2003 compared to the
same periods of fiscal 2002, is improvement in actual merchandise margins
partially offset by higher occupancy costs.
Selling expense increased from $20.5 million in the third quarter of fiscal 2002
to $21.4 million for the third quarter of fiscal 2003, a 4.0% increase. Selling
expenses as a percentage of net sales decreased from 18.0% for the third quarter
of fiscal 2002 to 17.6% for the third quarter of fiscal 2003. Year-to-date
selling expense rose 5.5% from $51.5 million through the first nine months of
fiscal 2002 to $54.3 million for the first nine months of fiscal 2003. As a
percentage of net sales, selling expense in the first nine months increased from
18.5% for fiscal 2002, to 18.8% for fiscal 2003. Decreases in selling expense,
as a percentage of net sales, for the three-month period of fiscal 2003 compared
to the same period of fiscal 2002, resulted primarily from improvements in
payroll expenses along with slight improvements in some other expense
categories. Year-to-date, the third quarter improvement in payroll expense is
offset by the increases in the same category during the first two quarters of
fiscal 2003, resulting in selling expense for the nine month period of fiscal
2003 up 5.5% compared to the same nine month period of fiscal 2002.
General and administrative expenses increased from $2.5 million in the third
quarter of fiscal 2002 to $3.8 million for the third quarter of fiscal 2003, a
51.8% increase. As a percentage of net sales, general and administrative
expenses increased from 2.2% for the third quarter of fiscal 2002 to 3.2% for
the third quarter of fiscal 2003. For the first nine months of fiscal 2003,
general and administrative expense rose 31.7% from $7.6 million for the nine
months ended November 2, 2002, to $10.0 million for the nine months ended
November 1, 2003. As a percentage of net sales, general and administrative
expense increased to 3.5% for the first nine months of fiscal 2003 compared to
2.7% for the first nine months of fiscal 2002. Increases in general and
administrative expenses, as a percentage of net sales, for both the three and
nine month periods of fiscal 2003 compared to the same periods of fiscal 2002,
resulted primarily from higher payroll expenses and from a loss on disposal of
assets for fiscal 2003 compared to a gain on disposal of assets for fiscal 2002.
As a result of the above changes, the Company's income from operations increased
$1.3 million to $18.5 million for the third quarter of fiscal 2003 compared to
$17.2 million for the third quarter of fiscal 2002, a 7.4% increase. Income from
operations was 15.2% of net sales for the third quarter of fiscal 2003 compared
to 15.0% of net sales for the third quarter of fiscal 2002. Income from
operations, year-to-date through November 1, 2003, was $26.8 million, a $1.3
million decrease from the first nine months of the prior year. Income from
operations was 9.3% of net sales for the first nine months of fiscal 2003
compared to 10.2% for the first nine months of fiscal 2002.
For the quarter ended November 1, 2003, other income remained the same at $0.8
million. For the nine months ended November 1, 2003, other income decreased $0.3
million. Other income decreased in the nine-month period of fiscal 2003 compared
to the same period of fiscal 2002 due to a reduction in interest income.
12
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income tax expense as a percentage of pre-tax income was 36.7% in both the third
quarter and first nine months of fiscal 2003 compared to 37.3% in both the third
quarter and first nine months of fiscal 2002.
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 nine months
of fiscal 2003 and 2002, the Company's cash flow provided by operating
activities was $9.5 and $0.9 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 nine months of fiscal 2003
compared to the first nine months of fiscal 2002 were primarily due to changes
in investments, a lower build-up of inventory and decreased purchases of
property and equipment. During the third quarter of fiscal 2003, the Company
paid its first ever quarterly dividend of $.10 per share, resulting in a cash
pay out of $2.1 million.
The Company has available an unsecured line of credit of $17.5 million with
Wells Fargo Bank, N.A. for operating needs and letters of credit. The note
provides that outstanding letters of credit cannot exceed $10 million.
Borrowings under the line of credit note provides for interest to be paid at a
rate equal to the prime rate established by the Bank. As of November 1, 2003,
the Company had working capital of $159.9 million, including $87.3 million of
cash and cash equivalents and investments of $16.7 million. The Company has,
from time to time, borrowed against this line during periods of peak inventory
build-up. There were minor bank borrowings during the first nine months of
fiscal 2003 and none during the first nine months of fiscal 2002.
During the first nine months of fiscal 2003 and 2002 the Company invested $10.8
million and $8.1 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 $0.7 million and
$0.5 million in the first nine months of fiscal 2003 and 2002, 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 2003, the Company anticipates completing one
additional new store construction project. As of November 1, 2003, four
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.
13
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 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.
14
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
November 1, 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 $206,631 $ 28,861 $ 54,751 $ 48,418 $ 74,601
- ------------------------------------------------------------------------------------------------------
Total contractual $206,631 $ 28,861 $ 54,751 $ 48,418 $ 74,601
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 2000, 2001, and 2002, the Christmas and
back-to-school seasons accounted for 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 1, 2003, and November 2, 2002.
15
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 (as defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934) 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 1, 2003, concluding that the Company's
disclosure controls and procedures were effective.
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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
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits 32.1 and 32.2 Certifications Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) On August 14, 2003, we issued a press release announcing our
second quarter 2003 earnings, filed on Form 8-K with the SEC on
August 15, 2003. On September 16, 2003, we issued a press release
announcing the Board of Director's approval of a $0.10 per share
quarterly dividend, filed on Form 8-K with the SEC on September
18, 2003. On September 22, 2003, we issued a press release
announcing the Buckle's participation in an investor's
conference, filed on form 8-K with the SEC on September 22, 2003.
17
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 15, 2003 /s/ DENNIS H. NELSON
------------------ -----------------------------------
DENNIS H. NELSON
President and CEO
Dated: December 15, 2003 /s/ KAREN B. RHOADS
------------------ -----------------------------------
KAREN B. RHOADS
Vice President of Finance and CEO
18