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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended JANUARY 29, 2005
[ ] 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: 001-12951
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No
The aggregate market value (based on the closing price of the New York Stock
Exchange) of the Common Stock of the Registrant held by non-affiliates of the
Registrant was $251,423,878.75 on March 30, 2005. For purposes of this response,
executive officers and directors are deemed to be the affiliates of the
Registrant and the holdings by non-affiliates was computed as 7,677,065 shares.
The number of shares outstanding of the Registrant's Common Stock, as of March
30, 2005, was 18,712,956.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement dated April 13, 2005 for Registrant's
2005 Annual Meeting of Shareholders to be held June 2, 2005 are incorporated by
reference in Part III.
THE BUCKLE, INC.
FORM 10-K
JANUARY 29, 2005
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters 13
and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes In and Disagreements With Independent Registered Public 14
Accounting Firm on Accounting and Financial Disclosure
Item 9A. Controls and Procedures 14
Item 9B. Other Information 17
PART III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners and Management 18
Item 13. Certain Relationships and Related Transactions 18
Item 14. Principal Accountant Fees and Services 18
PART IV
Item 15. Exhibits and Financial Statements Schedules 18
2
PART I
ITEM 1 - BUSINESS
The Buckle, Inc. (the "Company") is a retailer of medium to better-priced casual
apparel, footwear and accessories for fashion conscious young men and women. As
of January 29, 2005, the Company operated 327 retail stores in 38 states
throughout the central United States, as well as in the northwest, southeast and
southwestern states under the names "Buckle" and "The Buckle." The Company
markets a wide selection of mostly brand name casual apparel including denims,
other casual bottoms, tops, sportswear, outerwear, accessories and footwear. The
Company emphasizes personalized attention to its customers and provides customer
services such as free alterations, free gift-wrapping, easy layaways, The Buckle
private label credit card and a frequent shopper program. Most stores are
located in regional, high-traffic shopping malls, and this is the Company's
strategy for future expansion. All of the Company's central office functions,
including purchasing, pricing, advertising and distribution, are controlled from
its headquarters and distribution center in Kearney, Nebraska.
Incorporated in Nebraska in 1948, the Company commenced business under the name
Mills Clothing, Inc., a conventional men's clothing store with only one
location. In 1967, a second store, under the trade name Brass Buckle, was
purchased. In the early 1970s, the store image changed to that of a jeans store
with a wide selection of denims and shirts. The first branch store was opened in
Columbus, Nebraska, in 1976. In 1977, the Company began selling young women's
apparel as well, and opened its first mall store. The Company has experienced
significant growth over the past ten years, growing from 147 stores at the start
of 1995 to 327 stores by the close of fiscal 2004. The Company changed its
corporate name to The Buckle, Inc. on April 23, 1991. All references herein to
fiscal 2004 refer to the 52-week period ended January 29, 2005. Fiscal 2003
refers to the 52-week period ended January 31, 2004 and fiscal 2002 refers to
the 52-week period ended February 1, 2003.
The Company's principal executive offices and distribution center are located at
2407 West 24th Street, Kearney, Nebraska 68845. The Company's telephone number
is (308) 236-8491. The Company publishes its corporate web site at
www.buckle.com.
AVAILABLE INFORMATION
The Company's annual reports on Form 10-K, along with all other reports and
amendments filed with or furnished to the Securities and Exchange Commission,
are publicly available free of charge on the Investor Information section of the
Company's website at www.buckle.com as soon as reasonable practicable after the
Company files such materials with, or furnishes them to, the Securities and
Exchange Commission. The Company's corporate governance policies, ethics code
and Board of Directors' committee charters are also posted within this section
of the website. The information on the Company's website is not part of this or
any other report The Buckle, Inc. files with, or furnishes to, the Securities
and Exchange Commission.
MARKETING AND MERCHANDISING
The Company's marketing and merchandising strategy is designed to create
customer loyalty by offering a wide selection of key brand name merchandise and
providing a broad range of value-added services. The Company believes it
provides a unique specialty apparel store with merchandise designed to appeal to
the fashion conscious 12- to 24-year old. The merchandise mix includes denims,
slacks/casual bottoms, tops, sportswear, outerwear, accessories and footwear.
Denim is a significant contributor to total sales (40.3% of fiscal 2004 net
sales) and is a key to the Company's merchandising concept. The Company believes
it attracts customers with a selection of key brands and a wide variety of fits,
finishes and styles in denim. Shirts and tops are also significant contributors
to the total sales (31.8% of fiscal 2004 net sales). The Company strives to
provide a continually changing selection of the latest casual fashions.
3
The percentage of net sales over the past three fiscal years of the Company's
major product lines are set forth in the following table.
Percentage of Net Sales
---------------------------------------
Fiscal 2004 Fiscal 2003 Fiscal 2002
----------- ----------- -----------
Denims 40.3% 36.2% 32.8%
Tops (including sweaters) 31.8 32.1 32.0
Accessories 11.4 11.4 11.3
Footwear 7.6 8.9 11.4
Sportswear/Fashions 4.2 4.5 4.8
Casual bottoms 2.1 3.8 3.7
Outerwear 2.5 2.9 3.7
Other 0.1 0.2 0.3
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
Brand name merchandise accounted for more than 70% of the Company's sales volume
during fiscal 2004. The remaining balance is comprised of private label
merchandise that is manufactured to the Company's specifications. The Company's
merchandisers continually work with manufacturers and vendors to produce brand
name merchandise that they believe is unique in color and style. While the
brands offered by the Company change to meet current customer preferences, the
Company currently offers brands such as Lucky Brand Dungarees, Silver, Fossil,
Billabong, Ecko, Quiksilver/Roxy and Hurley. The Company believes brand name
merchandise will continue to constitute the majority of sales.
Management believes the Company provides a unique store setting by maintaining a
high level of customer service and by offering a wide selection of fashionable,
quality merchandise at good values. The Company believes that it is essential to
create an enjoyable shopping atmosphere and, in order to fulfill this mission,
we must provide highly motivated employees who give personal attention to
customers. Each salesperson is educated to help create a complete look for the
customer by helping them find the best fits and showing merchandise as
coordinating outfits. The Company also incorporates specialized services such as
free alterations, free gift wrapping, layaways, a frequent shopper card, the
Buckle private label credit card and a special order system which allows stores
to obtain specifically requested merchandise from other Company stores.
Customers are encouraged to use the Company's layaway plan, which allows
customers to make a partial payment on merchandise that is then held by the
store until the balance is paid. For the past three fiscal years, an average of
approximately four percent of net sales have been made on a layaway basis.
Merchandising and pricing decisions are made centrally; however, the Company's
distribution system allows for variation in the mix of merchandise distributed
to each store. This allows individual store inventories to be tailored to
reflect differences in customer buying patterns at various locations. In
addition, to assure a continually fresh, new look in its stores, the Company
ships new merchandise daily to most stores, including varying styles and colors
that differ from prior merchandise. The Company also has a transfer program that
shifts specific merchandise to locations where it is selling best. This
distribution and transfer system helps to maintain customer satisfaction by
providing in-stock popular items and reducing the need to mark down slow-moving
merchandise at a particular location. The Company believes the reduced markdowns
justify the incremental costs of distribution associated with the transfer
system. The Company does not hold storewide off-price sales at anytime.
During fiscal 2002, the Company unveiled a totally new store design and
corporate logo. The company worked with a national design firm to review
architectural elements, including all wall systems, lighting, finishes and
fixtures. The new design has been very positively received by guests, landlords
and management. The last prior update to the store look was in fiscal 1997. New
materials include: wood flooring, enhanced graphic elements, corrugated metals
and Icon brand elements. Accessory and shoe fixtures were developed and rolled
out to all stores in fiscal 2002. Additional new fixtures have been developed
during the past year including two new table units and new wall displays
fixtures which feature denim fits and t-shirt styles. Additionally, new sign
holders featuring the corporate logo were added to the fixture package. The
Company opened the first new prototype stores in the summer of 2002 with all
subsequent remodels and new stores featuring the new design. At the end of
fiscal 2004, a total of 68 stores had the new look - 37 new stores and 31
remodeled locations.
4
Management believes the basic overall store architectural design presents a
unique atmosphere in which the store's architectural elements, including feature
display walls, provide a backdrop, creating a strong visual presentation for the
customer. Special care is taken to provide a comfortable environment to which
customers can relate.
MARKETING AND ADVERTISING
In fiscal 2004, the Company spent $5.0 million or 1.0% of net sales on
advertising, promotions and in-store point of sale materials. In-store seasonal
sign kits, promotional signage, image brochures and catalogs are used to enhance
merchandising presentations and the stores' image. Promotions such as
sweepstakes, gift with purchase offers and special events are designed to create
an enjoyable shopping experience for Buckle guests. Magazine advertising in
leading teen publications is used during key seasons to introduce new
merchandise, build awareness and brand the Buckle's image. The Buckle partners
with key vendors on magazine opportunities and special promotions to extend its
marketing reach. Radio advertising continues as a media source used to support
special events and promotions such as sweepstakes, grand openings and
end-of-season sales in approximately 75% of the Company's markets.
In 2002, along with the new store concept, the Company rolled out a new logo to
create a stronger brand identity for the Buckle. The new logo includes a B-Icon
element and signature red color. All marketing materials and supplies were
redesigned to translate the new brand identity throughout the Company including
the retail stores, online and corporate communication.
The Company offers programs to strengthen relationships with loyal guests. The
Company continues to support a frequent shopper program (the Buckle Primo Card),
a rewards program designed to build customer loyalty. Private label credit card
marketing is another avenue for marketing to loyal guests. The Company extends
exclusive benefits to active Buckle Cardholders such as coupons and other
special targeted mailings. In 2004, the Buckle continued its B-Rewards, an
exclusive rewards program for Buckle Cardholders. Qualifying Cardholders are
mailed B-Rewards merchandise certificates at the end of each Rewards program
inviting them back into the store at the start of the next season. The Buckle
Card marketing program is partially funded by WFNNB, a third-party bank that
owns the Buckle Card accounts.
The Company publishes a corporate web site at www.buckle.com. The Company's web
site serves as a second retail touch-point for cross-channel marketing, reaching
a growing online audience. Buckle.com is an eCommerce enabled channel with an
interactive, entertaining, informative and brand building environment where
visitors can get the latest Buckle fashion information with special features
including an online denim guide, "look" suggestions and style boutiques. The
Company has an opt-in online database and sends periodic and targeted e-mail
campaigns to notify members of the latest store promotions and product
offerings. Online guests can shop, enter sweepstakes, fill out a wish list, find
out about career opportunities, and read the latest Buckle financial news. The
Buckle Online Store was launched April 26, 1999 as a marketing tool, to extend
the Company's brand beyond the physical locations. Offering a growing selection
of the merchandise inventory online, the Company presents the online store as a
"taste test" in new markets as well as a cross-channel tool in existing markets,
which means guests can shop both in the brick and mortar stores and via the
online store.
STORE OPERATIONS
The Company has an Executive Vice President of Sales, a Vice President of Sales,
17 district managers and 63 area managers. Six of the district managers and all
of the area managers also serve as manager of their home base store. Each store
has one manager, one or two assistant managers, one to three additional
full-time salespeople and up to 20 part-time salespeople. Most stores have peak
levels of staff during the back-to-school and Christmas seasons. Almost every
location also employs a seamstress.
The Company places great importance on educating quality personnel. Along with
sharing career opportunities with Buckle employees, the Company recruits interns
and management trainees from college campuses. A majority of the Company's store
managers, all of its Area and District managers and most of its upper level
management are former salespeople, including the President and CEO, Dennis H.
Nelson and Chairman, Daniel J. Hirschfeld. Recognizing talent and promoting
managers from within allows the Company to build a strong foundation for
management.
5
Store managers receive compensation in the form of a base salary and incentive
bonuses. District and area managers also receive added incentives based upon the
performance of stores in their district/area. Store managers perform sales
training of new employees at the store level. Salespeople displaying particular
talent are generally assigned to stores operated by district managers for
training as a store manager.
The Company has established a comprehensive program stressing the prevention and
control of shrinkage losses. Steps taken to reduce shrinkage include monitoring
cash refunds, voids, inappropriate discounts, employee sales and
returns-to-vendor. The Company also has electronic article surveillance systems
in approximately 99% of the Company's stores as well as surveillance camera
systems in approximately 77% of the stores. As a result, the Company achieved a
merchandise shrinkage rate of 0.7% of net sales for fiscal 2004, 0.6% of net
sales for fiscal 2003 and 0.6% for fiscal year 2002.
The average store is approximately 4,900 square feet (of which the Company
estimates an average of approximately 80% is selling space), and stores range in
size from 2,600 square feet to 8,475 square feet.
PURCHASING AND DISTRIBUTION
The Company has an experienced buying team. The buying team includes the
President, the Vice President of Women's Merchandising, four women's buyers, two
men's merchandisers and four buyers. The top four members of this buying team
combined, have over 90 years of experience with the Company. The experience and
leadership within the buying team contributes significantly to the Company's
success by enabling the buying team to react quickly to changes in fashion and
by providing extensive knowledge of sources for branded and private label goods.
The Company purchases products from manufacturers within the United States and
from some foreign manufacturers. The Company's merchandising team monitors U.S.
fashion centers (in New York and on the West Coast) and shops high fashion
stores to adapt new ideas to the Buckle. The Company continually monitors fabric
selection, quality and delivery schedules. The Company has not experienced any
material difficulties with merchandise manufactured in foreign countries. The
Company does not have long-term or exclusive contracts with any brand name
manufacturer, private label manufacturer or supplier. The Company plans its
private label production with several private label vendors six to twelve months
in advance of product delivery.
In fiscal 2004, Lucky Brand Dungarees and Koos Manufacturing (one of the
Company's private label producers) made up 22.9% and 15.8% of the Company's net
sales, respectively. No other vendor accounted for more than 10% of the
Company's sales. Other current significant vendors include Silver, Fossil, Ecko,
LeTigre, Billabong, Quiksilver/Roxy and Hurley. The Company continually strives
to offer brands that are currently popular with its customers and, therefore,
the Company's suppliers and purchases from specific vendors may vary
significantly from year to year.
The Buckle stores generally carry the same merchandise, with quantity and
seasonal variations based upon historical sales data, climate and perceived
local customer interest. The Company uses a centralized receiving and
distribution center located within the corporate headquarters building in
Kearney, Nebraska. Merchandise is received daily in Kearney where it is sorted,
tagged with bar-coded tickets (unless the vendor UPC code can be used or the
merchandise is pre-ticketed), and packaged for distribution to individual stores
primarily via United Parcel Service. The Company's goal is to ship the majority
of its merchandise out to the stores within one to two business days of receipt.
This system allows stores to receive new merchandise almost every day, creating
excitement within each store and providing customers with a good reason to shop
often. When available, the Company uses merchandise "pre-packs" to expedite the
movement of product through the distribution center.
The Company is currently undergoing construction on an 82,200 square foot
expansion to its corporate headquarters facility. This expansion will allow
additional space for our supplies and return departments, and growth for our
online store as well as increased office space. Our distribution center should
allow for handling of up to 450 stores. The Company has developed an effective
computerized system for tracking merchandise from the time it is checked in at
the Company's distribution center until it arrives at the stores and is sold to
a customer. The system's function is to insure that store shipments are
delivered accurately and promptly, to account for inventory and to assist in
allocating merchandise among stores. Management can track, on a daily basis,
which merchandise is selling at specific locations and directs transfers of
merchandise from one store to another as necessary. This allows stores to carry
a reduced inventory while at the same time satisfying customer demands.
6
To reduce inter-store shipping costs and provide timely restocking of in-season
merchandise, the Company warehouses a portion of initial shipments for later
distribution. Sales reports are then used to replenish, on a basis of one to
three times each week, those stores that are experiencing the greatest success
selling specific styles, colors and sizes of merchandise. This system is also
designed to prevent an over-crowded look in the stores at the beginning of a
season.
STORE LOCATIONS AND EXPANSION STRATEGIES
As of April 1, 2005, the Company operated 328 stores in 38 states, including 1
store opened in fiscal 2005. The existing stores are in 4 downtown locations, 11
strip centers, 8 lifestyle centers and 305 shopping malls. The Company
anticipates opening approximately 14 additional new stores in fiscal 2005. All
new stores for fiscal 2005 are expected to be located in higher traffic shopping
malls except for four which are expected to be located in lifestyle centers. The
following table lists the location of existing stores as of April 1, 2005.
Location of Stores
State Number of Stores State Number of Stores
- ----------- ---------------- -------------- ----------------
Alabama 5 Nebraska 15
Arizona 8 Nevada 1
Arkansas 5 New Mexico 4
California 11 North Carolina 7
Colorado 12 North Dakota 3
Florida 4 Ohio 12
Georgia 3 Oklahoma 13
Idaho 5 Oregon 2
Illinois 16 Pennsylvania 5
Indiana 12 South Carolina 1
Iowa 19 South Dakota 3
Kansas 16 Tennessee 9
Kentucky 6 Texas 35
Louisiana 7 Utah 10
Michigan 18 Virginia 2
Minnesota 11 Washington 8
Mississippi 5 West Virginia 2
Missouri 14 Wisconsin 13
Montana 5 Wyoming 1
---
Total 328
===
The Buckle has grown significantly over the past ten years, with the number of
stores increasing from 147 at the beginning of 1995 to 327 at the end of fiscal
2004. The Company's plan is to continue expansion by developing the geographic
region it currently serves and by expanding into contiguous markets. The Company
intends to open new stores only when management believes there is a reasonable
expectation of satisfactory results.
7
The following table sets forth information regarding store openings and closings
since the beginning of fiscal 1995 to the end of fiscal 2004:
Total Number of Stores Per Year
Fiscal Open at start Opened in Closed in
Year of year Current Year Current Year Total
- ------ ------------- ------------ ------------ -----
1995 147 17 - 164
1996 164 17 - 181
1997 181 19 1 199
1998 199 24 1 222
1999 222 27 1 248
2000 248 28 2 274
2001 274 24 3 295
2002 295 11 2 304
2003 304 16 4 316
2004 316 13 2 327
The Company's criteria used when considering a particular location for
expansion include:
1. Market area, including proximity to existing markets to capitalize
on name recognition;
2. Trade area population (number, average age, and college population);
3. Economic vitality of market area;
4. Mall location, anchor tenants, tenant mix, average sales per square
foot;
5. Available location within a mall, square footage, storefront width,
and facility of using the current store design;
6. Availability of suitable management personnel for the market;
7. Cost of rent, including minimum rent, common area and extra charges;
8. Estimated construction costs, including landlord charge backs and
tenant allowances.
The Company generally seeks sites of 4,000 to 5,000 square feet for its stores.
The projected cost of opening a store with the new design is approximately
$735,000, including construction costs of approximately $565,000 (prior to any
construction allowance received) and inventory costs of approximately $170,000,
net of accounts payable.
The Company anticipates opening approximately 15 new stores during fiscal 2005
and completing the remodeling of approximately 9 existing stores. Remodels range
from partial to full, with construction costs for a full remodel being nearly
the same as for a new store. Of the stores scheduled for remodeling during
fiscal 2005, it is estimated that each will receive full remodeling. The Company
has budgeted a total of $23.4 million for new store construction, remodeling,
technology upgrades and improvements at the corporate headquarters during fiscal
2005.
The Company plans to expand in 2005 by opening stores in existing markets. The
Company believes that, given the time required for training personnel, staffing
a store and developing adequate district and regional managers, its current
management infrastructure is sufficient to support its currently planned rate of
growth.
The Company's ability to expand in the future will depend, in part, on general
business conditions, the ability to find suitable malls with acceptable sites on
satisfactory terms, the availability of financing and the readiness of trained
store managers. There can be no assurance that the Company's expansion plans
will be fulfilled in whole or in part, or that leases under negotiation for
planned new sites will be obtained on terms favorable to the Company.
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems (MIS) and electronic data
processing systems (EDP) consist of a full range of retail, financial and
merchandising systems, including purchasing, inventory distribution and control,
sales reporting, accounts payable and merchandise management.
The system includes PC based point-of-sale (POS) registers equipped with bar
code readers in each store. These registers are polled nightly by the central
computer (IBM iSeries) using a virtual private network for collection of
8
comprehensive data, including complete item-level sales information, employee
time clocking, merchandise transfers and receipts, special orders, supply orders
and returns-to-vendor. In conjunction with the nightly polling, the central
computer sends the PC server messages from various departments at the Company
headquarters and price changes for the price lookup (PLU) file maintained within
the POS registers.
Each weekday morning, the Company initiates an electronic "sweep" of the
individual store bank accounts to the Company's primary concentration account.
This allows the Company to meet its obligations with a minimum of borrowing and
to invest excess cash on a timely basis.
Management monitors the performance of each of its stores on a continual basis.
Daily information is used to evaluate inventory, determine markdowns, analyze
profitability and assist management in the scheduling and compensation of
employees. Additionally, reports are generated verifying daily bank deposit
information against recorded sales, identifying transactions rung at prices that
differ from the PLU file, and listing selected "exception" transactions (e.g.
refunds, cash paid-outs, discounts). These reports are used to help assure
consistency among the stores and to help prevent losses due to error or
dishonesty.
The PLU system allows management to control merchandise pricing centrally,
permitting faster and more accurate processing of sales at the store and the
monitoring of specific inventory items to confirm that centralized pricing
decisions are carried out in each of the stores. Management is able to direct
all price changes, including promotional, clearance and markdowns on a central
basis and estimate the financial impact of such changes.
The virtual private network for communication with the stores also supports the
Company's intranet site. The intranet allows stores to view various types of
information from the corporate office, including timely information from the
advertising, merchandising and benefits departments. Stores also have access to
a variety of tools such as a product search feature with pictures, printable
forms and links to transmit various requests and information to the corporate
office.
The Company is committed to ongoing review of the MIS and EDP systems to provide
productive, timely information and effective controls. This review includes
testing of new products and systems to assure that the Company is aware of
technological developments. Most important, continual feedback is sought from
every level of the Company to assure that information provided is pertinent to
all aspects of the Company's operations.
EMPLOYEES
As of January 29, 2005, the Company had approximately 6,100 employees -
approximately 1,172 of whom were full-time. The Company has an experienced
management team and substantially all of the management team, from store
managers through senior management, commenced work for the Company on the sales
floor. The Company experiences high turnover of store and distribution center
employees, primarily due to having a significant number of part-time employees.
However, the Company has not experienced significant difficulty in hiring
qualified personnel. Of the total employees, approximately 320 are employed at
the corporate headquarters and in the distribution center. None of the Company's
employees are represented by a union. Management believes that employee
relations are good.
The Company provides medical, dental, life insurance and long-term disability
plans, as well as a 401(k) and a section 125 cafeteria plan for eligible
employees. An employee must be at least 20 years of age and work a minimum of
1,000 hours during the plan year to be eligible for the 401(k) plan. To be
eligible for the plans, other than the 401(k) Plan, an employee must have worked
for the Company for 90 days or more, and his or her normal workweek must be 35
hours or more. As of January 29, 2005, 912 employees participated in the medical
plan, 921 in the dental plan, 859 in the life insurance plan, 246 in the
supplemental life insurance plan, 860 in the long-term disability plan and 462
in the cafeteria plan. With respect to the medical, dental and life insurance
plans, the Company pays 80% to 100% of the employee's expected premium cost plus
20% to 100% of the expected cost of dependent coverage under the health plan.
The exact percentage is based upon the employee's term of employment and job
classification within the Company. In addition, all employees receive discounts
on company merchandise.
9
COMPETITION
The men's and women's apparel industries are highly competitive with fashion,
selection, quality, price, location, store environment and service being the
principal competitive factors. While the Company believes that it is able to
compete favorably with other merchandisers, including department stores and
specialty retailers, with respect to each of these factors, the Company believes
it competes mainly on the basis of customer service and merchandise selection.
In the men's merchandise areas, the Company competes with specialty retailers
such as Abercrombie & Fitch, American Eagle Outfitters, Hollister, Hot Topic,
Gap and Pacific Sunwear. The men's market also competes with certain department
stores, such as Dillards, Federated stores, May Company stores, Saks and other
local or regional department stores and specialty retailers, as well as with
mail order and internet merchandisers.
In the women's merchandise area, the Company competes with specialty retailers
such as Abercrombie & Fitch, American Eagle Outfitters, Express, Aeropostale,
Hollister, Gap, Maurices, Pacific Sunwear, Wet Seal and Vanity. The women's
sales also compete with department stores, such as Dillards, Federated stores,
May Company stores, Saks and certain local or regional department stores and
specialty retailers, as well as with mail order and internet merchandisers.
Many of the Company's competitors are considerably larger and have substantially
greater financial, marketing and other resources than the Company, and there is
no assurance that the Company will be able to compete successfully with them in
the future. Furthermore, while the Company believes it competes effectively for
favorable site locations and lease terms, competition for prime locations within
a mall is intense.
TRADEMARKS
"BUCKLE", "BKLE", "RECLAIM", "BKE", "THE BUCKLE" and "GIMMICK" are federally
registered trademarks of the Company. The Company believes the strength of its
trademarks is of considerable value to its business, and its trademarks are
important to its marketing efforts. The Company intends to protect and promote
its trademarks as management deems appropriate.
EXECUTIVE OFFICERS OF THE COMPANY
The Executive Officers of the Company are listed below, together with brief
accounts of their experience and certain other information.
DANIEL J. HIRSCHFELD, AGE 63. Mr. Hirschfeld is Chairman of the Board of the
Company. He has served as Chairman of the Board since April 19, 1991. Prior to
that time, Mr. Hirschfeld served as President and Chief Executive Officer. Mr.
Hirschfeld has been involved in all aspects of the Company's business, including
the development of the Company's management information systems.
DENNIS H. NELSON, AGE 55. Mr. Nelson is President and Chief Executive Officer
and a Director of the Company. He has held the titles of President and Director
since April 19, 1991. Mr. Nelson was elected Chief Executive Officer on March
17, 1997. Mr. Nelson began his career with the Company in 1970 as a part-time
salesman while he was attending Kearney State College (now the University of
Nebraska - Kearney). While attending college, he became involved in
merchandising and sales supervision for the Company. Upon graduation from
college in 1973, Mr. Nelson became a full-time employee of the Company and he
has worked in all phases of the Company's operations since that date. Prior to
his election as President and Chief Operating Officer on April 19, 1991, Mr.
Nelson performed all of the functions normally associated with those positions.
KAREN B. RHOADS, AGE 46. Ms. Rhoads is the Vice-President - Finance, Treasurer,
Chief Financial Officer and a Director of the Company. Ms. Rhoads was elected a
Director on April 19, 1991. She worked in the corporate offices while attending
Kearney State College (now the University of Nebraska - Kearney) and later
worked part-time on the sales floor. Ms. Rhoads practiced as a CPA for 6 1/2
years, during which time she began working on tax and accounting matters for the
Company as a client. She has been employed with the Buckle since November 1987.
10
JAMES E. SHADA, AGE 49. Mr. Shada is Executive Vice President - Sales and a
Director of the Company. He was elected Executive Vice President on May 31, 2001
and served as Vice President of Sales from April 19, 1991 until such date. Mr.
Shada was elected Director of the Company on May 30, 2002. He began employment
with the Company in November of 1978 as a salesperson. Between 1979 and 1985, he
managed and opened new stores for the Company, and in 1985 Mr. Shada became the
Company's sales manager. He is also involved in site selection and development
and education of personnel as store managers and as area and district managers.
BRETT P. MILKIE, AGE 45. Mr. Milkie is Vice President-Leasing. He was elected
Vice President-Leasing on May 30, 1996. Mr. Milkie was a leasing agent for a
national retail mall developer for 6 years prior to joining the company in
January 1992 as director of leasing.
KARI G. SMITH, AGE 41. Ms. Smith is Vice President - Sales. She has held this
position since May 31, 2001. Ms. Smith joined the Company May 16, 1978 as a
part-time salesperson. Later she became store manager in Great Bend, KS and then
began working with other stores as an area manager. Ms. Smith has continued to
develop her involvement with the sales management executive team, helping with
manager meetings and new store manager development, as well as providing support
for store managers, area managers and district managers.
PATRICIA K. WHISLER, AGE 48. Ms. Whisler is Vice President of Women's
Merchandising. She has held this position since May 31, 2001. Ms. Whisler joined
the Company in February 1976 as a part-time salesperson and later became manager
of a Buckle store before returning to the corporate office in 1983 to work as
part of the growing merchandising team.
KYLE L. HANSON, AGE 40. Ms. Hanson is the Corporate Secretary and General
Counsel. She has held this position since February of 2001. Ms. Hanson joined
the Company in May of 1998 as General Counsel. She also worked for the Company
as a part-time salesperson while attending Kearney State College (now the
University of Nebraska - Kearney). Ms. Hanson was previously First Vice
President and Trial Attorney for Mutual of Omaha Companies for 2 years and an
attorney with Kutak Rock law firm in Omaha from 1990 to 1996.
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 AND RISK FACTORS
Certain statements herein, including anticipated store openings, trends in or
expectations regarding The Buckle, Inc.'s revenue and net earnings growth,
comparable store sales growth, cash flow requirements and capital expenditures,
all constitute "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are based on currently
available operating, financial and competitive information and are subject to
various risks and uncertainties. Actual future results and trends may differ
materially depending on a variety of factors, including, but not limited to,
changes in product mix, changes in fashion trends and/or pricing, competitive
factors, general economic conditions, economic conditions in the retail apparel
industry, successful execution of internal performance and expansion plans and
other risks detailed herein and in The Buckle, Inc.'s other filings with the
Securities and Exchange Commission.
A forward-looking statement is neither a prediction nor a guarantee of future
events or circumstances, and those future events or circumstances may not occur.
Users should not place undue reliance on the forward-looking statements, which
speak only as of the date of this report. The Company is under no obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The following are material risk
factors.
MERCHANDISING/FASHION SENSITIVITY. The Company's success is largely dependent
upon its ability to gauge the fashion tastes of its customers and to provide
merchandise that satisfies customer demand in a timely manner. The Company's
failure to anticipate, identify or react appropriately and timely to the changes
in fashion trends would reduce the Company's net sales and profitability.
Misjudgments or unanticipated fashion changes could have a negative impact on
the Company's image with its customers, which would also reduce the Company's
net sales and profitability.
11
PRIVATE LABEL MERCHANDISE. Sales from private label merchandise accounted for
approximately 28% and 18% of the net sales for fiscal 2004 and fiscal 2003,
respectively. The Company may increase or decrease the percentage of net sales
in private label merchandise in the future. The Company's private label products
generally earn a higher margin than branded product, thus reductions in the
private label mix would decrease the Company's merchandise margin and as a
result, reduce net earnings.
FLUCTUATIONS IN COMPARABLE STORE NET SALES RESULTS. The Company's comparable
store net sales results have fluctuated in the past and are expected to continue
to fluctuate in the future. A variety of factors affect comparable sales
results, including changes in fashion trends, changes in the Company's
merchandise mix, calendar shifts of holiday periods, actions by competitors,
weather conditions and general economic conditions. The Company's comparable
store net sales results for a particular period in the future may decrease. As a
result of these or other factors, the Company's future comparable sales could
decrease, reducing overall net sales and profitability. These reductions could
also cause the market price of the Company's common stock to decline.
EXPANSION AND MANAGEMENT OF GROWTH. The Buckle, Inc.'s continued growth depends
on its ability to open and operate stores on a profitable basis and management's
ability to manage planned expansion. During fiscal 2005, the Company plans to
open 15 new stores. This expansion is dependent upon factors such as the ability
to locate and obtain favorable store sites, negotiate acceptable lease terms,
obtain necessary merchandise and hire and train qualified management and other
employees. There may be factors outside of the Company's control that affect the
ability to expand, including general economic conditions. There is no assurance
that the Company will be able to achieve its planned expansion or that such
expansion will be profitable. If the Company fails to manage its store growth
there would be less growth in the Company's net sales from new stores and less
growth in profitability. If the Company opened unprofitable store locations,
there could be a reduction in net earnings, even with the resulting growth in
the Company's sales revenues.
RELIANCE ON KEY PERSONNEL. The continued success of the Buckle, Inc. is
dependent to a significant degree on the continued service of key personnel,
including senior management. The loss of a member of senior management could
create additional expense in covering their position as well as cause a
reduction in net sales, thus causing a reduction in net earnings. The Company's
success in the future will also be dependent upon the Company's ability to
attract and retain qualified personnel. The Company's failure to attract and
retain qualified personnel could reduce the number of new stores the Company
could open in a year which would cause net sales to decline, could create
additional operating expenses, and reduce overall profitability for the Company.
DEPENDENCE ON A SINGLE DISTRIBUTION FACILITY. The distribution function for all
of the Company's stores is handled from a single facility in Kearney, Nebraska.
Any significant interruption in the operation of the distribution facility due
to natural disasters, system failures or other unforeseen causes would impede
the distribution of merchandise to the stores, causing a decline in store
inventory, reduce store sales and reduce company profitability. There can be no
assurance that the current facilities will be adequate to support the Company's
future growth.
RELIANCE ON FOREIGN SOURCES OF PRODUCTION. The Company purchases a portion of
its private label merchandise directly in foreign markets. In addition, some of
the Company's domestic vendors manufacture goods overseas. The Company does not
have any long-term merchandise supply contracts and its imports are subject to
existing or potential duties, tariffs and quotas. The Company faces a variety of
risks associated with doing business overseas including competition for
facilities and quotas, political instability, possible new legislation relating
to imports that could limit the quantity of merchandise that may be imported,
imposition of duties, taxes and other charges on imports and local business
practice and political issues which may result in adverse publicity. The
Company's inability to rely on foreign sources of production due to these or
other causes could reduce the amount of inventory the Company is able to
purchase, hold up the timing on the receipt of new merchandise, and reduce
merchandise margins if comparable inventory is purchased from branded sources.
Any or all of these changes would cause a decrease in the Company's net sales
and also in net earnings.
The Company cautions that the risk factors described above could cause actual
results to vary materially from those anticipated from any forward-looking
statements made by or on behalf of the Company. Management cannot assess the
impact of each factor on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to vary from those
contained in forward-looking statements.
12
ITEM 2 - PROPERTIES
All of the store locations operated by the Company are leased facilities. Most
of the Company's stores have lease terms of approximately ten years and
generally do not contain renewal options. In the past, the Company has not
experienced problems renewing its leases, although no assurance can be given
that the Company can renew existing leases on favorable terms. The Company seeks
to negotiate extensions on leases for stores undergoing remodeling to provide
terms of approximately ten years after completion of remodeling. Consent of the
landlord generally is required to remodel or change the name under which the
Company does business. The Company has not experienced problems in obtaining
such consent in the past. Most leases provide for a fixed minimum rental plus an
additional rental cost based upon a set percentage of sales beyond a specified
breakpoint, plus common area and other charges. The current terms of the
Company's leases, including automatic renewal options, expire on or before
January 31st of each of the following years:
Number of expiring
Year leases
- -------------- ------------------
2006 62
2007 34
2008 25
2009 23
2010 50
2011 38
2012 28
2013 and later 67
---
Total 327
===
The corporate headquarters and distribution center for the Company operate
within a facility purchased by the Company in 1988, and located in Kearney, NE.
The building currently provides approximately 179,000 square feet of space with
over 70% of the area being allocated for the distribution and returns-to-vendor
departments. The Company is currently adding approximately 82,200 square feet to
this existing facility, which will add flexibility for future growth. The
Company also owns a 40,000 square foot building with warehouse and office space
near the corporate headquarters, as well as housing the Company's screenprinting
operations. The Company also acquired a 50-year lease, with favorable lease
terms, on the land the building is built upon.
ITEM 3 - LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this form, the Company was not engaged in any legal proceedings that are
expected, individually or in the aggregate, to have a material adverse effect on
the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of fiscal 2004.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUERS PURCHASE OF EQUITY SECURITIES
The Company's common stock trades on the New York Stock Exchange under the
symbol BKE. Prior to the Company's initial public offering on May 6, 1992, there
was no public market for the Company's common stock. During the third quarter of
fiscal 2003, the Board of Directors authorized the Company's first ever cash
dividend of $.10 per share to be paid quarterly, with the initial dividend
payment on October 27, 2003 and the second quarterly dividend payment on January
27, 2004. During fiscal 2004, the Company continued quarterly dividend payments
with $.10 per share paid during each of the first two quarters and $.12 per
share for the third and fourth quarters.
The number of record holders of the Company's common stock as of March 30, 2005
was 346. Based upon information from the principal market makers, the Company
believes there are approximately 3,000 beneficial owners. The closing price of
the Company's common stock on March 30, 2005 was $32.75.
13
Additional information required by this item is incorporated by reference to the
information on page 32 of the Company's 2004 Annual Report to Shareholders under
the caption "Stock Prices by Quarter" which is attached to this Form 10-K. The
remainder of the information required by this item appears in the Notes to
Financial Statements under Footnote I "Stock-Based Compensation" on pages 28 and
29 in the Company's Annual Report to Shareholders which is attached to this Form
10-K and is incorporated by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to
information on page 6 in the Company's 2004 Annual Report to Shareholders under
the caption "Selected Financial Data" which is attached to this Form 10-K.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to the
information appearing on pages 7 through 13 in the Company's 2004 Annual Report
to Shareholders which is attached to this Form 10-K.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
To the extent that we borrow under our line of credit facility, we would be
exposed to market risk related to changes in interest rates. As of January 29,
2005, no borrowings were outstanding under our line of credit facility. We are
not a party to any derivative financial instruments. Additionally, we are
exposed to market risk related to interest rate risk on the short- and long-term
investments of excess cash in short- and long-term investment grade
interest-bearing securities. These investments have carrying values that are
subject to interest rate changes that could impact our earnings to the extent
that we did not hold the investments to maturity. If there are changes in
interest rates, those changes would also affect the investment income we earn on
our investments. If there are changes in interest rates, those changes would
affect the investment income we earn on those investments. For each one-quarter
of a percent decline in the interest/dividend rate earned on cash and
investments (approximately a 10% change in the rate earned), the Company's net
income would decrease approximately $230,000 or approximately $.01 per share.
This amount could vary based upon the number of shares of the Company's stock
outstanding and the level of cash and investments held by the Company.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements together with the report of independent registered
public accountants thereon of Deloitte & Touche LLP, dated April 18, 2005,
appearing on pages 17 through 31 of the Company's 2004 Annual Report to
Shareholders (which is attached to this Form 10-K) are incorporated by reference
in this Form 10-K.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls - The Company maintains disclosure controls
and procedures that are designed to ensure that information required to be
disclosed in the Company's reports under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), is recorded, processed summarized and reported
within the time periods specified in the SEC's rules and forms, and that such
information is accumulated and communicated to management, including the
Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"),
as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, as the Company's are designed to do, and management is required to
apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
14
In connection with the preparation of this Annual Report on Form 10-K, as of
January 29, 2005, an evaluation was performed by the Company's management,
including the CEO and CFO, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Exchange Act). In performing this evaluation, management reviewed the
Company's lease account policies in light of the February 7, 2005 letter from
the Office of the Chief Accountant of the Securities and Exchange Commission to
the American Institute of Certified Public Accountants expressing views
regarding lease-related accounting issues. As a result of this review, the
Company concluded that its then-current lease accounting policies were not in
accordance with generally accepted accounting principles in the United States of
America. While such amounts were not material to any prior period, management
determined to restate prior periods due to the size of the correction that would
have been required in fiscal 2004.
Based upon that evaluation, the CEO and CFO concluded that the Company's
disclosure controls and procedures as of the end of the period covered by this
report were not effective as January 29, 2005.
Management's Report on Internal Control over Financial Reporting-- Management of
the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. The Company's internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.
All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements.
Management has assessed the effectiveness of the Company's internal control over
financial reporting, as of January 29, 2005. In making its assessment of
internal control over financial reporting, management used the criteria set
forth by the Committee of Sponsoring Organizations ("COSO") of the Treadway
Commission in their Internal Control-Integrated Framework.
In performing this assessment, management reviewed the Company's lease
accounting policies in light of the February 7, 2005 letter from the Office of
the Chief Accountant of the Securities and Exchange Commission to the American
Institute of Certified Public Accountants expressing views regarding
lease-related accounting issues. In light of this letter, the Company's
management initiated a review of its lease accounting and determined that its
then current method of accounting for leasehold improvements funded by landlord
incentives or allowances under operating leases (tenant improvement allowances)
and its then current method of accounting for rent holidays were not in
accordance with GAAP. While such amounts are not material to any prior period,
management determined to restate prior periods due to the size of the correction
that would have been required in fiscal 2004. As a result, the Company restated
its financial statements for each of the fiscal years ended January 31, 2004,
February 1, 2003 and February 2, 2002.
Management evaluated the impact of this restatement on the Company's assessment
of its system of internal control. Based upon the definition of "material
weakness" in the Public Company Accounting Oversight Board's Auditing Standards
No. 2, an Audit of Internal Control Over Financial Reporting Performed in
Conjunction With an Audit of Financial Statements, restatement of financial
statements in prior filings with the SEC is a strong indicator of the existence
of a "material weakness" in design or operation of internal control over
financial reporting. Based on that, management concluded that a material
weakness existed in the Company's internal control over financial reporting as
of January 29, 2005, and disclosed this to the Audit Committee and to the
independent registered public accountants.
Management also identified deficiencies and significant deficiencies which, when
aggregated, represent a material weakness. These control deficiencies related to
information technology, including security and production change control, and
segregation of duties and documentation in the business cycles. A material
weakness in internal control over financial reporting is a control deficiency
(within the meaning of the Public Company Accounting Oversight Board Auditing
Standard No. 2), or combination of control deficiencies, that results in there
being more than a remote likelihood that a material misstatement of the annual
or interim financial statements will not be prevented or detected.
15
As a result of the aforementioned material weaknesses in the Company's internal
control over financial reporting, management has concluded that, as of January
29, 2005, the Company's internal control over financial reporting was not
effective to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles based on criteria set
forth by the COSO of the Treadway Commission in their Internal
Control-Integrated Framework.
Remediation Steps to Address Material Weakness - To remediate the material
weakness in the Company's internal control over financial reporting related to
lease accounting, subsequent to year end the Company is implementing additional
review procedures over the selection and monitoring of appropriate assumptions
and factors affecting lease accounting practices. With respect to the material
weakness related to information technology and segregation of duties and
documentation in the business cycles, the Company is in the process of
implementing additional monitoring activities as well as evaluating job
responsibilities in order to improve internal controls.
The Company's independent registered public accounting firm, Deloitte & Touche
LLP, has issued an attestation report on management's assessment of the
Company's internal control over financial reporting. This report follows.
Change in Internal Control Over Financial Reporting - There were no changes in
the Company's internal control over financial reporting that occurred during the
Company's last fiscal quarter that have materially affected, or are reasonable
likely to materially affect, the Company's internal control over financial
reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
The Buckle, Inc.
Kearney, Nebraska
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that The
Buckle, Inc. (the "Company") did not maintain effective internal control over
financial reporting as of January 29, 2005, because of the effect of the
material weaknesses identified in management's assessment based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.
We have conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides reasonable basis for our
opinions.
A company's internal control over financial reporting is a process by, or under
the supervision of, the company's principal executive and principal financial
officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles.
A company's internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorization of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
16
unauthorized acquisition, use or disposition of the company's assets that could
have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override on controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
A material weakness is a significant deficiency, or combination of significant
deficiencies that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weaknesses have been identified and included
in management's assessment:
As of January 29, 2005, management identified its lease-related accounting
policies and its then-current method of accounting for leasehold improvements
funded by landlord allowances under operating leases, accounting for rent
holidays and straight-line rent appeared to be incorrect in light of the views
expressed by the Office of the Chief Accountant of the Securities and Exchange
Commission on February 7, 2005 regarding lease-related accounting issues.
Control deficiencies included (1) accounting for leases not in accordance with
generally accepted accounting principles and (2) improper disclosure of
operating leases in the Company's financial statements. These deficiencies in
the design and implementation of the Company's internal control over financial
reporting caused the Company to amend its Form 10-K for the year ended January
31, 2004 and its Forms 10-Q for each of the quarters ended May 1, 2004, July 31,
2004 and October 30, 2004 in order to remediate this material weakness. While
such amounts are not material to any prior period, management determined to
restate prior periods due to the size of the correction that would have been
required in fiscal 2004.
As of January 29, 2005, management identified various segregation of duties
deficiencies in the pervasive control function of information technology
including: (1) security and (2) production change control. These information
technology deficiencies along with (3) various segregation of duties
deficiencies in business cycles; (4) segregation of duties deficiencies in
financial close and reporting process, (5) segregation of duties deficiencies of
non-routine transaction processing, as well as (6) lack of documentation of
policies and procedures contribute to this material weakness. These deficiencies
in the design and implementation of the Company's internal control over
financial reporting did not result in an actual misstatement to the financial
statements. However, due to (1) the significance of the potential material
misstatement that could have resulted due to the deficient controls and (2) the
absence of other mitigating control, there is more than a remote likelihood that
a material misstatement of the interim and annual financial statements would not
have been prevented or detected.
These material weaknesses were considered in determining the nature, timing and
extent of audit tests applied in our audit of the financial statements as of and
for the year ended January 29, 2005, of the Company and this report does not
affect our report on such financial statements.
In our opinion, management's assessment that the Company did not maintain
effective internal controls over financial reporting as of January 29, 2005, is
fairly stated, in all material respects, based on the criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also, in our opinion, because of the
effect of the material weakness described above on the achievement of the
objectives of the control criteria, the Company has not maintained effective
internal control over financial reporting as of January 29, 2005, based on the
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the financial statements as of and
for the year ended January 29, 2005 of the Company and our report dated April
18, 2005 expressed an unqualified opinion on those financial statements.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 18, 2005
17
ITEM 9B - OTHER INFORMATION
None.
18
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item appears under the captions "Executive
Officers of the Company" appearing on pages 10 and 11 of this report, and
"Election of Directors" in the Company's Proxy Statement for its 2005 Annual
Shareholders' Meeting and is incorporated by reference.
ITEM 11- EXECUTIVE COMPENSATION
The information required by this item appears under the following captions in
the Company's Proxy Statement for its 2005 Annual Shareholders' Meeting and is
incorporated by reference: "Executive Compensation and Other Information,"
"Directors Compensation" (included under the "Election of Directors" section),
and "Report of the Audit Committee," including sub-captions "Option Grants in
Last Fiscal Year," "Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year End Option Values," "Employment Agreements," and "Compensation Committee
Interlocks and Insider Participation."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears under the captions "Election of
Directors" in the Company's Proxy Statement for its 2005 Annual Shareholders'
Meeting and in the Notes to Financial Statements under Footnote I on pages 28
and 29 in the Annual Report to Shareholders for fiscal 2004, and is incorporated
by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears under the caption "Compensation
Committee Interlocks and Insider Participation" in the Company's Proxy for its
2005 Annual Shareholders' Meeting and is incorporated by reference.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding the fees billed by our independent auditor and the nature
of services comprising the fees for each of the two most recent fiscal years is
set forth under the caption "Ratification of Independent Accountants" in the
Company's Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) (1) FINANCIAL STATEMENTS
The Company's 2004 Annual Report to Shareholders, a copy of which appears as
Exhibit 13 to this Form 10-K Report, contains the following on pages 17 through
31 and they are hereby incorporated by reference to this report:
Report of Independent Registered Public Accounting Firm
Balance Sheets as of January 29, 2005, and January 31, 2004
Statements of Income for each of the three years in the period ended
January 29, 2005
Statements of Stockholders' Equity for each of the three years in the
period ended January 29, 2005
Statements of Cash Flows for each of the three years in the period ended
January 29, 2005
Notes to Financial Statements for each of the three years in the period
ended January 29, 2005
(a) (2) FINANCIAL STATEMENT SCHEDULE
Report of Independent Registered Public Accounting Firm
All other schedules are omitted because they are not applicable or the required
information is presented in the financial statements or notes thereto. This
schedule is on page 20.
(b) EXHIBITS
See index to exhibits on pages 21 and 22.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: April 18, 2005 By: /s/ DENNIS H. NELSON
-----------------------------------
Dennis H. Nelson,
President and Chief Executive Officer
Date: April 18, 2005 By: /s/ KAREN B. RHOADS
-----------------------------------
Karen B. Rhoads,
Vice President of Finance, Treasurer,
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities indicated on the 18th day of April, 2005.
/s/ DANIEL J. HIRSCHFELD
- ---------------------------------------- --------------------------
Daniel J. Hirschfeld Bill L. Fairfield
Chairman of the Board and Director Director
/s/ DENNIS H. NELSON
- ---------------------------------------- --------------------------
Dennis H. Nelson Ralph M. Tysdal
President and Chief Executive Officer Director
and Director
/s/ KAREN B. RHOADS
- ---------------------------------------- --------------------------
Karen B. Rhoads Bruce L. Hoberman
Vice President of Finance and Director
Chief Financial Officer and Director
/s/ JAMES E. SHADA
- ---------------------------------------- --------------------------
James E. Shada David A. Roehr
Executive Vice President of Sales and Director
Director
/s/ ROBERT E. CAMPBELL /s/ WILLIAM D. ORR
- ---------------------------------------- --------------------------
Robert E. Campbell William D. Orr
Director Director
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF DIRECTORS
THE BUCKLE, INC.
We have audited the financial statements of The Buckle, Inc., ("the Company") as
of January 29, 2005 and January 31, 2004, and for each of the three years in the
period ended January 29, 2005, management's assessment of the effectiveness of
the Company's internal control over financial reporting as of January 29, 2005,
and the effectiveness of the Company's internal control over financial reporting
as of January 29, 2005, and have issued our reports thereon dated April 18,
2005; such financial statements and reports are included in your 2004 Annual
Report to Stockholders and are incorporated herein by reference. Our audits also
included the financial statement schedule of The Buckle, Inc., listed in Item
15(a)(2). This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 18, 2005
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Allowance for
Doubtful Accounts
-----------------
Balance, February 2, 2002 $ 250,000
Amounts charged to costs and expenses 856,309
Write-off of uncollectible accounts (889,309)
-----------
Balance, February 1, 2003 217,000
Amounts charged to costs and expenses 769,383
Write-off of uncollectible accounts (805,383)
-----------
Balance, January 31, 2004 181,000
Amounts charged to costs and expenses 379,281
Write-off of uncollectible accounts (447,281)
-----------
Balance, January 29, 2005 $ 113,000
===========
21
INDEX TO EXHIBITS
EXHIBITS PAGE NUMBER OR INCORPORATION
BY REFERENCE TO
(3) Articles of Incorporation and By-Laws.
(3.1) Articles of Incorporation Exhibit 3.1 to Form S-1
of The Buckle, Inc. as amended No. 33-46294
(3.1.1) Amendment to the Articles of
Incorporation of The Buckle, Inc.
(3.2) By-Laws of The Buckle, Inc. Exhibit 3.2 to Form S-1
No. 33-46294
(4) Instruments defining the rights of security
holders, including indentures
(4.1) See Exhibits 3.1 and 3.2 for provisions
of the Articles of Incorporation and
By-laws of the Registrant defining rights
of holders of Common Stock of the registrant
(4.2) Form of stock certificate for Common Stock Exhibit 4.1 to Form S-1
No. 33-46294
(9) Not applicable
(10) Material Contracts
(10.1) 1991 Stock Incentive Plan Exhibit 10.1 to Form S-1
No. 33-46294
(10.2) 1991 Non-Qualified Stock Option Plan Exhibit 10.2 to Form S-1
No. 33-46294
(10.3) Non-Qualified Stock Option Plan and Exhibit 10.3 to Form S-1
Agreement With Dennis Nelson No. 33-46294
(10.4) Acknowledgment for Dennis H. Nelson
dated April 18, 2005
(10.5) Acknowledgment for James E. Shada
dated April 18, 2005
(10.6) Acknowledgment for Brett P. Milkie
dated April 18, 2005
(10.7) Acknowledgment for Patricia K. Whisler
dated April 18, 2005
(10.8) Acknowledgment for Kari G. Smith
dated April 18, 2005
(10.10) Cash or Deferred Profit Sharing Plan Exhibit 10.10 to Form S-1
No. 33-46294
(10.10.1) Non-Qualified Deferred Compensation Plan
(10.11) Revolving Line of Credit Note dated Exhibit 10.11 to Form 10-K
August 1, 2003 between The Buckle, Inc. and filed for the fiscal year
Wells Fargo Bank, N.A. for a $17.5 million ended January 31, 2004
line of credit
22
(10.12) Credit Agreement dated August 1, 2003 Exhibit 10.12 to Form 10-K
between The Buckle, Inc. and Wells filed for the fiscal year ended
Fargo Bank, N.A, regarding $17.5 million January 31,
2004 line of credit for working capital and letters
of credit.
(10.17) 1993 Director Stock Option Plan Exhibit A to Proxy Statement
for Annual Meeting to be held
(10.23) 1997 Executive Stock Option Plan Exhibit B to Proxy Statement
for Annual Meeting to be held
May 28, 1998
(10.24) 1998 Restricted Stock Plan Exhibit C to Proxy Statement
for Annual Meeting to be held
May 28, 1998
(10.27) 2004 Management Incentive Plan Exhibit A to Proxy Statement
for Annual Meeting to be held
May 28, 2004
(12) Not applicable
(13) 2004 Annual Report to Stockholders
(18) Not applicable
(19) Not applicable
(22) Not applicable
(23) Consent of Deloitte & Touche LLP
(25) Not applicable
(28) Not applicable
(31a) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31b) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32) Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
23