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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 JULY 31, 2004
[ ] 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
September 2, 2004 was 21,509,333 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 15
Item 4. Controls and Procedures 15
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 18
Signatures 19
2
THE BUCKLE, INC.
BALANCE SHEETS
(Columnar amounts in thousands)
(Unaudited)
July 31, January 31,
2004 2004
------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 110,165 $ 119,976
Investments 23,245 23,346
Accounts receivable, net of
allowance of $95,000 and $181,000, respectively 1,467 3,585
Inventory 100,997 61,156
Prepaid expenses and other assets 5,344 9,563
--------- ---------
Total current assets 241,218 217,626
PROPERTY AND EQUIPMENT 142,470 139,434
Less accumulated depreciation and amortization 75,066 73,134
--------- ---------
67,404 66,300
LONG-TERM INVESTMENTS 50,237 52,647
OTHER ASSETS 1,170 1,307
--------- ---------
$ 360,029 $ 337,880
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 31,921 $ 14,207
Accrued employee compensation 7,014 12,171
Accrued store operating expenses 6,421 5,127
Gift certificates redeemable 1,878 3,102
Income taxes payable 3,073 2,760
--------- ---------
Total current liabilities 50,307 37,367
DEFERRED COMPENSATION 1,594 1,467
DEFERRED TAX LIABILITY 1,490 1,490
--------- ---------
Total liabilities 53,391 40,324
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, authorized 100,000,000 shares
of $.01 par value; issued 21,561,849 and
21,484,316 shares, respectively 216 215
Additional paid-in capital 25,000 24,245
Retained earnings 282,792 275,836
Unearned compensation - restricted stock (1,370) (2,740)
--------- ---------
Total stockholders' equity 306,638 297,556
--------- ---------
$ 360,029 $ 337,880
========= =========
See notes to financial statements.
3
THE BUCKLE, INC.
STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
July 31, August 2, July 31, August 2,
2004 2003 2004 2003
-------- --------- -------- ---------
SALES, net of returns and allowances $ 96,848 $ 85,683 $191,622 $167,396
COST OF SALES (including buying,
distribution and occupancy costs) 67,003 61,085 131,065 119,929
-------- -------- -------- --------
Gross profit 29,845 24,598 60,557 47,467
-------- -------- -------- --------
OPERATING EXPENSES:
Selling 18,399 16,428 36,733 32,959
General and administrative 3,853 3,423 7,750 6,176
-------- -------- -------- --------
22,252 19,851 44,483 39,135
-------- -------- -------- --------
Income from operations 7,593 4,747 16,074 8,332
OTHER INCOME, Net 825 932 1,743 2,072
-------- -------- -------- --------
Income before income taxes 8,418 5,679 17,817 10,404
PROVISION FOR INCOME TAXES 3,069 2,087 6,547 3,822
-------- -------- -------- --------
NET INCOME $ 5,349 $ 3,592 $ 11,270 $ 6,582
======== ======== ======== ========
Per share amounts:
Basic income per share $ 0.25 $ 0.17 $ 0.53 $ 0.31
======== ======== ======== ========
Diluted income per share $ 0.24 $ 0.17 $ 0.51 $ 0.31
======== ======== ======== ========
Basic weighted average shares 21,406 21,006 21,388 21,014
Diluted weighted average shares 22,225 21,521 22,200 21,545
See notes to financial statements.
4
THE BUCKLE, INC.
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Twenty-six Weeks Ended
----------------------
July 31, 2004 August 2, 2003
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 11,270 $ 6,582
Adjustments to reconcile net income to net cash
flows from operating activities
Depreciation 6,251 6,149
Loss on disposal of assets 373 476
Amortization of unearned compensation-restricted stock 1,370 206
Changes in operating assets and liabilities
Accounts receivable 2,118 (605)
Inventory (39,841) (26,772)
Prepaid expenses and other assets 4,219 (493)
Accounts payable 17,714 15,653
Accrued employee compensation (5,157) (5,362)
Accrued store operating expenses 1,294 715
Gift certificates redeemable (1,224) (952)
Income taxes payable 313 927
Deferred compensation 127 284
--------- ---------
Net cash flows from operating activities (1,173) (3,192)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (8,206) (17,328)
Proceeds from sales and maturities of investments 10,717 10,464
Purchase of property and equipment (7,728) (8,990)
Change in other assets 137 (153)
--------- ---------
Net cash flows from investing activities (5,080) (16,007)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the exercise of stock options 1,951 251
Purchases of common stock (1,195) (1,401)
Dividends paid to shareholders (4,314) -
--------- ---------
Net cash flows from financing activities (3,558) (1,150)
--------- ---------
Net decrease in cash and cash equivalents (9,811) (20,349)
Cash and cash equivalents, Beginning of period 119,976 92,976
--------- ---------
Cash and cash equivalents, End of period $ 110,165 $ 72,627
========= =========
See notes to financial statements.
5
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED JULY 31, 2004 AND AUGUST 2, 2003
(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 January 31, 2004, included in The
Buckle, Inc.'s 2003 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 324 stores located in 38
states throughout the central, northwestern and southern regions of the
United States as of July 31, 2004, and 313 stores in 37 states as of
August 2, 2003. During the second quarter of fiscal 2004, the Company
opened three new stores and substantially renovated two stores. During the
second quarter of fiscal 2003, the Company opened three new stores and
substantially renovated seven 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 Twenty-six Weeks Ended
-------------------- ----------------------
July 31, Aug. 2, July 31, Aug. 2,
2004 2003 2004 2003
-------- ------- -------- -------
Merchandise Group
Denims 35.5% 31.8% 35.7% 32.2%
Slacks/Casual bottoms 1.6% 3.2% 2.3% 3.1%
Tops (incl. sweaters) 33.9% 33.8% 32.4% 33.0%
Sportswear/Fashions 9.2% 10.3% 9.4% 10.5%
Outerwear 0.3% 0.4% 0.4% 0.6%
Accessories 11.8% 10.8% 11.4% 10.0%
Footwear 7.6% 9.7% 8.4% 10.6%
Other 0.1% 0.0% 0.0% 0.0%
----- ----- ----- ------
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 2003 Annual Report. As of July 31, 2004, 178,719
shares were available for grant under the various plans, of which 66,050
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
6
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED JULY 31, 2004 AND AUGUST 2, 2003
(Unaudited)
of FASB Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.
Thirteen Weeks Ended Twenty-six Weeks Ended
July 31, 2004 Aug. 2, 2003 July 31, 2004 Aug. 2, 2003
---------------------------- --------------------------
Net income, as reported $ 5,349 $ 3,592 $ 11,270 $ 6,582
Add: Stock-based employee
compensation expense included in
reported net income, net of related tax
effects 171 132 856 132
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related tax effects (872) (431) (2,258) (1,483)
--------- --------- -------- ---------
Pro forma net income $ 4,648 $ 3,293 $ 9,868 $ 5,231
Earnings per share:
========= ========= ======== =========
Basic - as reported $ .25 $ .17 $ .53 $ .31
========= ========= ======== =========
Basic - pro forma $ .22 $ .16 $ .46 $ .25
========= ========= ======== =========
Diluted - as reported $ .24 $ .17 $ 51 $ .31
========= ========= ======== =========
Diluted - pro forma $ .21 $ .15 $ .44 $ .24
========= ========= ======== =========
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
July 31, 2004 August 2, 2003
--------------------------- ---------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ ------- ------ ------ ------
Basic EPS
Net Income $ 5,349 21,406 $ 0.25 $ 3,592 21,006 $ 0.17
Effect of Dilutive Securities
Stock Options - 819 - - 515 -
------- ------ ------ ------- ------ ------
Diluted EPS $ 5,349 22,225 $ 0.24 $ 3,592 21,521 $ 0.17
======= ====== ====== ======= ====== ======
7
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED JULY 31, 2004 AND AUGUST 2, 2003
(Unaudited)
Twenty-six Weeks Ended Twenty-six Weeks Ended
July 31, 2004 August 2, 2003
---------------------------------- -------------------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ -------- ------ ------ -------
Basic EPS
Net Income $ 11,270 21,388 $ 0.53 $ 6,582 21,014 $ 0.31
Effect of Dilutive Securities
Stock Options - 812 - - 531 -
---------- ------ -------- -------- ------ -------
Diluted EPS $ 11,270 22,200 $ 0.51 $ 6,582 21,545 $ 0.31
========== ====== ======== ======== ====== =======
8
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and notes thereto of the Company included in this Form 10-Q. 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.
EXECUTIVE OVERVIEW
Company management considers the following items to be key performance
indicators in evaluating Company performance.
Comparable Store Sales - Stores are deemed to be comparable stores if they were
open in the prior year on the first day of the fiscal period being measured.
Management considers comparable store sales to be an important indicator of
current company performance, helping provide positive operating leverage for
certain fixed costs when results are positive. Negative comparable store sales
results could have a negative impact on operating leverage.
Net Merchandise Margins - Management evaluates the components of merchandise
margin including initial markup and the amount of markdowns during a period. Any
inability to obtain acceptable levels of initial markups or any significant
increase in the Company's use of markdowns, could have an adverse effect on the
Company's gross margin and results of operations.
Operating Margin - Operating margin is a good indicator for Management of the
Company's success. Operating margin can be positively or negatively affected by
comparable store sales, merchandise margins, occupancy costs and the Company's
ability to control operating costs.
Cash Flow and Liquidity (working capital) - Management reviews current cash and
short-term investments along with cash flow from operating, investing and
financing activities to determine the Company's short-term cash needs for
operations and expansion. 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.
9
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
twenty-six week periods ended July 31, 2004, and August 2, 2003:
THE BUCKLE, INC.
RESULTS OF OPERATIONS
Percentage of Net Sales Percentage of Net Sales
----------------------- -----------------------
Thirteen weeks ended Percentage Twenty-six weeks ended Percentage
July 31, August 2, increase July 31, August 2, increase
2004 2003 (decrease) 2004 2003 (decrease)
---------------------- ---------- ------------------------ ----------
Net sales 100.0% 100.0% 13.0% 100.0% 100.0% 14.5%
Cost of sales (including
buying, distribution and
occupancy costs) 69.2% 71.3% 9.7% 68.4% 71.6% 9.3%
--------------------- ----- -------------------- -----
Gross profit 30.8% 28.7% 21.3% 31.6% 28.4% 27.6%
Selling expenses 19.0% 19.2% 12.0% 19.2% 19.7% 11.3%
General and
administrative expenses 4.0% 4.0% 12.5% 4.0% 3.7% 25.5%
--------------------- ----- -------------------- -----
Income from operations 7.8% 5.5% 60.0% 8.4% 5.0% 935%
Other income, net 0.9% 1.1% (11.5)% 0.9% 1.2% (15.9)%
--------------------- ----- -------------------- -----
Income before income
Taxes 8.7% 6.6% 48.2% 9.3% 6.2% 71.3%
Provision for income tax 3.2% 2.4% 47.0% 3.4% 2.3% 71.3%
--------------------- ----- -------------------- -----
Net income 5.5% 4.2% 48.9% 5.9% 3.9% 71.2%
===================== ===== ==================== =====
Net sales increased from $85.7 million in the second quarter of fiscal 2003 to
$96.8 million in the second quarter of fiscal 2004, a 13.0% increase. Comparable
store sales increased from the second quarter of fiscal 2003 to the second
quarter of fiscal 2004 by $5.7 million or 6.8%. The comparable store sales
increase resulted partially from a 2.4% increase in the average price per piece
of merchandise sold compared with the fiscal 2003 second quarter.
Net sales increased from $167.4 million in the first six months of fiscal 2003
to $191.6 million for the first six months of fiscal 2004, a 14.5% increase.
Comparable store sales for the twenty-six weeks ended July 31, 2004 compared to
the twenty-six weeks ended August 2, 2003 increased $15.1 million or 9.3%. Sales
growth for this twenty-six week period was also attributable to the inclusion of
a full six months of operating results for the 16 stores opened in 2003 and the
opening of 8 new stores in the first twenty-six weeks of fiscal 2004. Average
sales per square foot increased 8.6% from $110 to $120 for the six months ended
July 31, 2004.
Gross profit after buying, occupancy, and distribution expenses increased $5.2
million in the second quarter of fiscal 2004 to $29.8 million, a 21.3% increase.
As a percentage of net sales, gross profit was 30.8% in the second quarter of
fiscal 2004 versus 28.7% in the second quarter of fiscal 2003.
10
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Gross profit increased $13.1 million for the first twenty-six weeks of fiscal
2004 to $60.6 million, a 27.6% increase. As a percentage of net sales, gross
profit in the first six months increased from 28.4% for fiscal 2003, to 31.6%
for fiscal 2004. Increases in gross profit, as a percentage of net sales, for
both the three and six month periods of fiscal 2004 compared to the same periods
of fiscal 2003 resulted primarily from improvement in actual merchandise margins
as well as lower occupancy and distribution expense categories.
Selling expense increased from $16.4 million in the second quarter of fiscal
2003 to $18.4 million for the second quarter of fiscal 2004, a 12.0% increase.
Selling expenses as a percentage of net sales decreased from 19.2% for the
second quarter of fiscal 2003 to 19.0% for the second quarter of fiscal 2004.
Year-to-date selling expense rose 11.3% from $33.0 million through the first
half of fiscal 2003 to $36.7 million for the first half of fiscal 2004. As a
percentage of net sales, selling expense in the first six months decreased from
19.7% for fiscal 2003, to 19.2% for fiscal 2004. As a percentage of net sales,
the decreases in selling expense for both the three and six month periods were
primarily attributable to lower sales salaries and partially due to an
improvement in leverage provided by comparable store sales.
General and administrative expenses increased from $3.4 million in the second
quarter of fiscal 2003 to $3.9 million for the second quarter of fiscal 2004, a
12.5% increase. As a percentage of net sales, general and administrative
expenses remained the same at 4.0% for the second quarter of fiscal 2004
compared to the second quarter of fiscal 2003. For the first half of fiscal
2004, general and administrative expense rose 25.5% from $6.2 million for the
six months ended August 2, 2003, to $7.8 million for the six months ended July
31, 2004. As a percentage of net sales, general and administrative expense
increased to 4.0% for the first half of fiscal 2004 compared to 3.7% for the
first half of fiscal 2003. Increase in general and administrative expense, as a
percentage of net sales, for the six month period of fiscal 2004 compared to the
same period of fiscal 2003 resulted primarily from an accrual for restricted
stock compensation and higher bonus accruals for year-end incentives based upon
growth in comparable store sales, growth in gross margin and growth in net
income.
As a result of the above changes, the Company's income from operations increased
$2.9 million to $7.6 million for the second quarter of fiscal 2004 compared to
$4.7 million for the second quarter of fiscal 2003, a 60.0% increase. Income
from operations was 7.8% of net sales for the second quarter of fiscal 2004
compared to 5.5% of net sales for the second quarter of fiscal 2003. Income from
operations, year-to-date through July 31, 2004, was $16.1 million, a $7.7
million increase from the first half of the prior year. Income from operations
was 8.4% of net sales for the first six months of fiscal 2004 compared to 5.0%
for the first six months of fiscal 2003.
For the quarter ended July 31, 2004, other income decreased $0.1 million. For
the six months ended July 31, 2004, other income decreased $0.3 million. Other
income decreased in the both the three and six-month periods of fiscal 2004
compared to the same periods of the prior year due to reduced interest income as
rates continued to be lower than the prior year and due to a reduction in the
net unrealized gains in the non-qualified deferred compensation plan compared to
the prior year.
Income tax expense, as a percentage of pre-tax income, was 36.4% in the second
quarter of fiscal 2004 compared to 36.7% for the second quarter of fiscal 2003.
For both the first half of fiscal 2004 and fiscal 2003, income tax expense was
36.7% of pre-tax income.
11
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. However, the first half of
each fiscal year is typically a period of decreasing cash flows created by
various operating, investing, and financing activities. During the first half of
fiscal 2004 and 2003, the Company's cash flow used by operating activities was
$1.2 and $3.2 million, respectively.
The uses of cash for both twenty-six 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 half of fiscal 2004 compared
to the first half of fiscal 2003 were primarily due to growth in net income,
greater build-up of inventory, fewer purchases of investments, and quarterly
dividend payments to shareholders which began in the third quarter of fiscal
2003.
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 July 31, 2004, the
Company had working capital of $190.9 million, including $110.2 million of cash
and cash equivalents and investments of $23.2 million. The Company has, from
time to time, borrowed against this line during periods of peak inventory
build-up. There were no bank borrowings during the first half of fiscal 2004 and
only minor bank borrowings during the first half of fiscal 2003.
During the first half of fiscal 2004 and 2003 the Company invested $7.3 million
and $8.5 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 $0.4 million and $0.5 million in
the first half of fiscal 2004 and 2003, respectively, in capital expenditures
for the corporate headquarters and distribution center.
During the remainder of fiscal 2004, the Company anticipates completing
approximately seven additional store construction projects, including
approximately five new stores and approximately two stores to be remodeled
and/or relocated. As of July 31, 2004, 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 2004 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.
12
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, 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. Revenue Recognition. Sales are recorded upon the purchase of merchandise
by customers. Revenue is not recorded when gift cards and gift
certificates are sold, but rather when a card is redeemed for merchandise.
A current liability is recorded at the time of card purchases. The Company
establishes a liability for estimated merchandise returns based upon
historical sales return results. 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 that approximates the first-in,
first-out (FIFO) method. Management makes adjustments to inventory and
cost of goods sold based upon estimates to reserve for merchandise
obsolescence and markdowns that could affect market value, based on
assumptions regarding current inventory levels versus future demand and
market conditions. Such judgments could vary significantly from actual
results, either favorably or unfavorably, due to fluctuations in future
economic conditions, consumer demand and the competitive environment. We
are not aware of any events, conditions or changes in demand or price that
would indicate to us that our inventory valuation may be materially
inaccurate at this time.
3. 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.
4. Income Taxes. Current income tax expense is the amount of income taxes
expected to be payable for the current fiscal year. The Company records a
deferred tax asset and liability for expected future tax consequences
resulting from temporary differences between financial reporting and tax
bases of assets and liabilities. The Company considers future taxable
income and ongoing tax planning in assessing the value of its deferred tax
assets. If the Company determines that it is more than likely that these
assets will not be realized, the Company would reduce the value of these
assets to their expected realizable value, thereby decreasing net income.
Estimating the value of these assets is based upon the Company's judgment.
If the Company subsequently determined that the deferred tax assets, which
had been written down, would be realized in the future, such value would
be increased. Adjustment would be made to increase net 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
July 31, 2004:
Payments Due by Period
----------------------
Contractual obligations
(dollar amounts in Less than After 5
thousands) Total 1 year 1-3 years 4-5 years years
------------------------ ----- --------- --------- --------- --------
Long term debt and purchase
obligations $ - $ - $ - $ - $ -
Deferred Compensation $ 1,594 $ 1,594 $ - $ - $ -
Operating leases $199,854 $ 30,909 $ 56,043 $ 49,205 $ 63,697
Total contractual
obligations $201,448 $ 32,503 $ 56,043 $ 49,205 $ 63,697
Amount of Commitment Expiration Per Period
------------------------------------------
Other Commercial
Commitments (dollar amounts Total Amounts Less than
in thousands) Committed 1 year 1-3 years 4-5 years After 5 years
- --------------------------- ------------- --------- --------- --------- -------------
Lines of Credit $17,500 $17,500 $ - $ - $ -
Total Commercial Commitments $17,500 $17,500 $ - $ - $ -
14
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 2001, 2002, and 2003, 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 twenty-six week periods
ended July 31, 2004, and August 2, 2003.
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
15
THE BUCKLE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 July 31, 2004,
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
July 31, 2004 evaluation.
16
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:
(a) May 28, 2004, Annual Meeting
(b) Board of Directors:
Daniel J. Hirschfeld Robert E. Campbell
Dennis H. Nelson William D. Orr
Karen B. Rhoads Ralph M. Tysdal
James E. Shada Bruce L. Hoberman
Bill L. Fairfield David A. Roehr
NUMBER OF SHARES*
-----------------
For Against Abstain Del N-Vote
--- ------- ------- ----------
(c) 1. Election of Board of Directors:
Daniel J. Hirschfeld 19,654,406 0 1,596,552
Dennis H. Nelson 19,654,706 0 1,596,252
Karen B. Rhoads 19,649,139 0 1,601,819
James E. Shada 19,654,556 0 1,596,402
Bill L. Fairfield 20,955,877 0 295,081
Robert E. Campbell 20,965,576 0 285,382
William D. Orr 20,965,260 0 285,698
Ralph M. Tysdal 20,965,476 0 285,482
Bruce L. Hoberman 20,968,860 0 282,098
David A. Roehr 20,967,476 0 283,482
2. Appoint Deloitte & Touche LLP
as independent auditors. 21,169,969 79,833 1,156
3. Approve Company's 2004
Management Incentive Program 19,228,418 679,820 9,316 1,333,404
4. Approve Amendment to Company's
1997 Executive Stock Plan 18,425,974 1,481,639 9,941 1,333,404
5. Approve Awards Pursuant to
Company's 1998 Restricted
Stock Plan 20,456,893 786,601 7,464
6. Approve Amendment to Company's
1998 Employee Stock Option Plan 18,170,225 1,739,868 7,461 1,333,404
*includes only shares represented in person or by proxy at the
annual meeting
(d) None
Item 5. Other Information: None
17
THE BUCKLE, INC.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits 31.1 and 31.2 certifications, as well as 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 May 13, 2004, we issued a press release announcing our fiscal
2004 first quarter earnings, filed on Form 8-K with the SEC on May
21, 2004. On June 1, 2004, 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 June 1, 2004.
18
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: September 8, 2004 /s/ DENNIS H. NELSON
-----------------------------------------
DENNIS H. NELSON, President and CEO
Dated: September 8, 2004 /s/ KAREN B. RHOADS
-----------------------------------------
KAREN B. RHOADS, Vice President
of Finance and CFO
19