UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended JANUARY 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: 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 $212,248,685.40 on March 26, 2004. 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 7,553,334 shares.
The number of shares outstanding of the Registrant's Common Stock, as of March
26, 2004, was 21,550,980.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement dated April 15, 2004 for Registrant's
2004 Annual Meeting of Shareholders to be held May 28, 2004 are incorporated by
reference in Part III.
1
EXPLANATORY NOTE
This Amendment No. 1 to The Buckle, Inc.'s (the "Company") Annual Report on Form
10-K/A ("Form 10-K/A") is being filed in order to correct the previously issued
historical financial statements as of January 31, 2004 and February 1, 2003 and
for the fiscal years ended January 31, 2004, February 1, 2003 and February 2,
2002, initially filed with the Securities and Exchange Commission (the "SEC") on
April 14, 2004 (the "Original Filing"). The corrections are to properly account
for landlord construction allowances in accordance with Statement of Financial
Accounting Standards No.13, "Accounting for Leases" and Financial Accounting
Standards Board Technical Bulletin No. 88-1, "Issues Relating to Accounting for
Leases"; and rent holidays in accordance with Financial Accounting Standards
Board Technical Bulletin No. 85-3, "Accounting for Operating Leases with
Scheduled Rent Increases." See Note B: "Restatement and Reclassification of
Financial Statements" under Notes to Financial Statements included in Item 8,
"Financial Statements and Supplementary Data" of this Form 10-K/A for additional
discussion and a summary of the effect of these changes on the Company's
financial statements as of January 31, 2004 and February 1, 2003 and for the
fiscal years ended January 31, 2004, February 1, 2003 and February 2, 2002.
This Form 10-K/A amends and restates only Items 6, 7, 8 and 9A of Part II and
Item 15 of Part IV of the Original Filing to reflect the effects of this
restatement of our financial statements for the period presented or as deemed
necessary in connection with the completion of restated financial statements.
The remaining Items contained within this Amendment No. 1 on Form 10-K/A consist
of all other Items originally contained on Form 10-K for the fiscal year ended
January 31, 2004. These remaining Items are not amended hereby, but are included
for the convenience of the reader. Except for the forgoing amended information,
this Form 10-K/A continues to describe conditions as of the date of the Original
Filing, and we have not updated the disclosures contained herein to reflect
events that occurred at a later date.
In connection with the preparation of this Form 10-K/A, the Company concluded
that it was appropriate to reclassify certain store operating liabilities
to/from gift certificates redeemable and employee compensation. Accordingly, we
have revised the classification to report these changes on the balance sheets as
of January 31, 2004 and February 1, 2003. The Company has also made
corresponding adjustments to the statements of cash flows for the periods ended
January 31, 2004, February 1, 2003 and February 2, 2002, to reflect these
reclassifications. See Note B: "Restatement and Reclassification of Financial
Statements" under Notes to Financial Statements included in Item 8, "Financial
Statements and Supplementary Data" of this Form 10-K/A for additional discussion
on the effects of the change in classification.
2
THE BUCKLE, INC.
FORM 10-K/A
JANUARY 31, 2004
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business 4
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and
Issuer Purchases of Equity Securities 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 23
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes In and Disagreements With Independent Registered Public Accounting Firm
on Accounting and Financial Disclosure 40
Item 9A. Controls and Procedures 40
Item 9B. Other Information 41
PART III
Item 10. Directors and Executive Officers of the Registrant 41
Item 11. Executive Compensation 41
Item 12. Security Ownership of Certain Beneficial Owners and Management 41
Item 13. Certain Relationships and Related Transactions 41
Item 14. Principal Accountant Fees and Services 42
PART IV
Item 15. Exhibits and Financial Statements Schedules 42
3
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 31, 2004, the Company operated 316 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 131 stores at the start
of 1994 to 316 stores by the close of fiscal 2003. The Company changed its
corporate name to The Buckle, Inc. on April 23, 1991. All references herein to
fiscal 2003 refer to the 52-week period ended January 31, 2004. Fiscal 2002
refers to the 52-week period ended February 1, 2003 and fiscal 2001 refers to
the 52-week period ended February 2, 2002.
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 website 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 (36.2% of fiscal 2003 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 (32.1% of fiscal 2003 net sales). The Company strives to
provide a continually changing selection of the latest casual fashions.
4
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 2003 Fiscal 2002 Fiscal 2001
----------- ----------- -----------
Denims 36.2 % 32.8 % 28.8 %
Tops (including sweaters) 32.1 32.0 33.5
Accessories 11.4 11.3 11.0
Footwear 8.9 11.4 11.8
Sportswear/Fashions 4.5 4.8 5.7
Casual bottoms 3.8 3.7 5.0
Outerwear 2.9 3.7 2.9
Other 0.2 0.3 1.3
----- ----- -----
Total 100.0 % 100.0 % 100.0 %
===== ===== =====
Brand name merchandise accounted for more than 80% of the Company's sales volume
during fiscal 2003. 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 five 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. 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 2003, a total of 47 stores had
the new look - 24 new stores and 23 remodeled locations.
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.
5
MARKETING AND ADVERTISING
In fiscal 2003, the Company spent $4.3 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 2003, 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,
18 district managers and 56 area managers. Eleven 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.
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.
6
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 74% of the stores. As a result, the Company achieved a
merchandise shrinkage rate of 0.6% of net sales for fiscal 2003, 0.6% of net
sales for fiscal 2002 and 0.7% for fiscal year 2001.
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, one women's
merchandiser, two men's merchandisers and six buyers. The top four members of
this buying team combined, have over 100 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 or supplier. The Company does have a long term relationship with an
agent in Hong Kong for the manufacture of The Buckle, Inc.'s private label
merchandise. An agreement with this company was entered into on November 28,
1994, for orders placed subsequent to that date.
In fiscal 2003, Lucky Brand Dungarees made up 24.3% of the Company's net sales.
No other vendor accounted for more than 10% of the Company's sales. Other
current significant vendors include Silver, Fossil, Ecko, Mavi, 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 looking into a building expansion that would allow
further growth in office space as well as additional space for our supplies
department and the online store. 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.
To reduce inter-store shipping costs and provide more 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.
7
STORE LOCATIONS AND EXPANSION STRATEGIES
As of April 1, 2004, the Company operated 318 stores in 38 states, including 2
stores opened in fiscal 2004. The existing stores are in 4 downtown locations,
11 strip centers, 7 lifestyle centers and 296 shopping malls. The Company
anticipates opening approximately 10 additional new stores in fiscal 2004. All
new stores for fiscal 2004 are expected to be located in higher traffic shopping
malls except for two which are expected to be located in lifestyle centers. The
following table lists the location of existing stores as of April 1, 2004.
Location of Stores
State Number of Stores State Number of Stores
----------- ---------------- -------------- ----------------
Alabama 5 Nebraska 16
Arizona 6 Nevada 1
Arkansas 5 New Mexico 4
California 10 North Carolina 7
Colorado 12 North Dakota 3
Florida 3 Ohio 12
Georgia 3 Oklahoma 13
Idaho 5 Oregon 2
Illinois 16 Pennsylvania 4
Indiana 12 South Carolina 1
Iowa 19 South Dakota 3
Kansas 16 Tennessee 8
Kentucky 6 Texas 33
Louisiana 7 Utah 9
Michigan 18 Virginia 2
Minnesota 11 Washington 7
Mississippi 5 West Virginia 2
Missouri 13 Wisconsin 13
Montana 5 Wyoming 1
---
Total 318
===
The Buckle has grown significantly over the past ten years, with the number of
stores increasing from 131 at the beginning of 1994 to 316 at the end of fiscal
2003. 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.
The following table sets forth information regarding store openings and closings
since the beginning of fiscal 1994 to the end of fiscal 2003:
Total Number of Stores Per Year
Fiscal Open at start Opened in Closed in
Year of year Current Year Current Year Total
------ ------------- ------------ ------------ -----
1994 131 16 - 147
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
8
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
$710,000, including construction costs of approximately $560,000 (prior to any
construction allowance received) and inventory costs of approximately $150,000,
net of accounts payable.
The Company anticipates opening approximately 12 new stores during fiscal 2004
and completing the remodeling of approximately 8 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 2004, it is estimated that each will receive full remodeling. The Company
has budgeted a total of $22.0 million (before estimated construction allowances
from landlords of $3.1 million) for new store construction, remodeling,
technology upgrades and improvements at the corporate headquarters during fiscal
2004.
The Company plans to expand in 2004 by opening stores in existing markets. New
store openings are generally scheduled to coincide with the increased customer
traffic of the Easter, back-to-school or Christmas holiday shopping seasons.
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 AS/400) using a virtual private network for collection of
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.
9
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 can also perform
product searches with pictures on the intranet and request employee numbers for
new teammates.
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 31, 2004, the Company had approximately 5,800 employees -
approximately 1,046 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 300 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 31, 2004, 867 employees participated in the medical
plan, 877 in the dental plan, 848 in the life insurance plan, 822 in the
long-term disability plan and 332 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.
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
10
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 62. 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 54. 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 45. 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 during college
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 Company since
November 1987.
JAMES E. SHADA, AGE 48. 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 44. 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 SMITH, AGE 40. 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 WHISLER, AGE 47. 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.
11
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.
PRIVATE LABEL MERCHANDISE. Sales from private label merchandise accounted for
approximately 18% and 11% of the net sales for fiscal 2003 and fiscal 2002,
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 2004, the Company plans to
open 12 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.
12
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.
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
-------------- ------------------
2005 49
2006 34
2007 27
2008 23
2009 24
2010 44
2011 38
2012 and later 79
---
Total 318
===
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 provides approximately 179,000 square feet of space with over 70%
of the area being allocated for the distribution and returns-to-vendor
departments. During fiscal 2000, the Company purchased a 40,000 square foot
building with warehouse and office space near the corporate headquarters, which
has given the Company flexibility in its growth. The Company also acquired a
50-year lease, with favorable lease terms, on the land the building is built
upon.
13
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 2003.
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 cent 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 the fourth quarter of fiscal 2003, the Company repurchased
70,000 shares of its common stock at an average price of $21.46 per share. The
shares were purchased pursuant to a stock buy-back plan authorized by the Board
of Directors on December 27, 2000.
The number of record holders of the Company's common stock as of March 26, 2004
was 375. Based upon information from the principal market makers, the Company
believes there are more than 3,000 beneficial owners. The closing price of the
Company's common stock on March 26, 2004 was $28.10.
Additional information required by this item is incorporated by reference to the
information on page 32 of the Company's 2003 Annual Report to Shareholders under
the caption "Stock Prices by Quarter" which is attached to this Form 10-K/A. The
remainder of the information required by this item appears in the Notes to
Financial Statements under Footnote J "Stock-Based Compensation" on pages 35 and
36.
14
ITEM 6. SELECTED FINANCIAL DATA
In thousands, except earnings per share and store operating data
The following selected financial data are derived from the financial statements
of The Buckle, Inc. (the "Company") and have been restated to reflect adjustment
to the original Form 10-K that are further discussed in Note B: "Restatement of
Financial Statements" under Notes to Financial Statements included in Item 8,
"Financial Statements and Supplementary Data" of the Form 10-K/A. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the section "Certain
Additional Risks and Uncertainties" in the Company's Annual Report on Form
10-K/A and the Company's financial statements and notes thereto.
SELECTED FINANCIAL DATA
(Dollar Amounts in Thousands Except Share and Per Share Amounts)
--------------------------------------------------------------------
Fiscal Years Ended
--------------------------------------------------------------------
January 31, February 1, February 2, February 3, January 29,
2004 (e) 2003 (e) 2002 (e) 2001 (a,e) 2000 (e)
------------ ----------- ----------- ----------- -----------
INCOME STATEMENT DATA
Net sales $422,820 $401,060 $387,638 $393,247 $375,526
Cost of sales (including
buying, distribution and
occupancy costs) 280,004 269,516 259,994 262,534 243,592
-------- -------- -------- -------- --------
Gross profit 142,816 131,544 127,644 130,713 131,934
Selling expenses 79,668 74,754 69,786 69,635 64,876
General and
administrative expenses 15,045 10,979 10,939 10,365 11,004
-------- -------- -------- -------- --------
Income from operations 48,103 45,811 46,919 50,713 56,054
Other income, net 4,688 4,698 4,820 3,860 3,367
-------- -------- -------- -------- --------
Income before income taxes
and cumulative effect of
change in accounting 52,791 50,509 51,739 54,573 59,421
Provision for income taxes 19,112 18,434 19,097 20,022 22,110
-------- -------- -------- -------- --------
Income before cumulative effect
of change in accounting 33,679 32,075 32,642 34,551 37,311
Cumulative effect of change in
accounting, net of taxes (b) - - - (270) -
-------- -------- -------- -------- --------
Net income $ 33,679 $ 32,075 $ 32,642 $ 34,281 $ 37,311
======== ======== ======== ======== ========
Basic income per share $ 1.60 $ 1.52 $ 1.57 $ 1.67 $ 1.71
======== ======== ======== ======== ========
Diluted income per share $ 1.56 $ 1.47 $ 1.51 $ 1.60 $ 1.63
======== ======== ======== ======== ========
Dividends per share (c) $ 0.20 $ 0.00 $ 0.00 $ 0.00 $ 0.00
======== ======== ======== ======== ========
SELECTED OPERATING DATA
Stores open at end of period 316 304 295 274 248
Average sales per square
foot, (gross sq. ft.) $ 274 $ 274 $ 279 $ 309 $ 334
Average sales per store (000's) $ 1,350 $ 1,334 $ 1,352 $ 1,482 $ 1,581
Comparable store sales change(d) 1.1% -0.5% -6.2% -6.0% 0.9%
BALANCE SHEET DATA
Working capital $180,678 $144,540 $145,629 $116,283 $ 86,118
Long-term investments $ 52,647 $ 54,548 $ 32,556 $ 20,688 $ 21,542
Total assets $356,222 $318,011 $282,871 $245,437 $210,714
Long-term debt - - - - -
Stockholders' equity $293,845 $261,027 $230,046 $190,630 $159,521
15
(a) consists of 53 weeks
(b) In fiscal 2000, the Company changed its method of revenue recognition for
layaway sales in accordance with the guidance and interpretations provided by
the SEC's SAB No. 101, Revenue Recognition.
(c) The Company declared and paid its first ever quarterly cash dividends of
$.10 per share in both the third and fourth quarters of fiscal 2003. Cash
dividends of $.10 per share were paid in all four quarters of fiscal 2004.
(d) Stores are deemed to be comparable stores if they were open in the prior
year on the first day of the fiscal period being presented and were open for the
full fiscal period in both the current and prior year. Stores which have been
remodeled, expanded and/or relocated, but would otherwise be included as
comparable stores, are not excluded from the comparable store sales calculation.
(e) Financial statements have been restated to reflect adjustments to properly
account for tenant improvement allowances, rent holidays and straight-line rent
in accordance with generally accepted accounting principles in the United States
of America as discussed in Note B to Financial Statements.
ITEM 7
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-K/A. 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.
RESTATEMENT AND RECLASSIFICATION OF FINANCIAL STATEMENTS
On February 7, 2005, the Office of the Chief Accountant of the Securities and
Exchange Commission (SEC) issued a letter to the American Institute of Certified
Public Accountants expressing its views regarding certain operating
lease-related accounting issues and their application under generally accepted
accounting principles in the United States of America (GAAP). 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. 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 in this report.
The Company had historically accounted for tenant improvement allowances as
reductions to the related leasehold improvement asset on the balance sheets and
as capital expenditures in investing activities on the statements of cash flows.
Management determined that Financial Accounting Standards Board (FASB) Technical
Bulletin No. 88-1, Issues Relating to Accounting for Leases, requires these
allowances to be recorded as deferred rent liabilities on the balance sheets and
as a component of operating activities on the statements of cash flows.
For leases initiated in fiscal 2000 and forward, the Company recognized rent
holiday periods on a straight-line basis over the lease term commencing with the
opening date of the retail stores. The store opening date coincided with the
commencement of business operations, which corresponds to the intended use of
the property. Management re-evaluated FASB Technical Bulletin No. 85-3,
Accounting for Operating Leases with Scheduled Rent Increases, and determined
that the lease term should commence on the date the Company takes possession of
the leased space for construction purposes, which is generally approximately
three months prior to a store opening date. Excluding tax impacts, the
correction of this accounting, and other adjustments to straight-line rent
expense, requires the Company to record additional deferred rent on the balance
sheets, as well as, to correct rent expense in "Cost of Sales" on the statements
of income for each of the three years in the period January 31, 2004. The
cumulative effect of these accounting changes is a reduction to retained
earnings of $3.4 million as of the beginning of fiscal 2001 and decreases to
earnings of $0.1 million, $0 million and $0.2 million for the fiscal years 2003,
2002 and 2001, respectively.
See Note B to the financial statements for a summary of the effects of these
changes on the Company's balance sheets as of January 31, 2004 and February 1,
2003, as well as, on the Company's statements of income and cash flows for
fiscal years 2003, 2002 and 2001. The accompanying Management's Discussion and
Analysis gives effect to these corrections.
16
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 reduce net sales and have a negative impact on operating leverage
and reduce net earnings.
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.
RESULTS OF OPERATIONS
The following table sets forth certain financial data expressed as a percentage
of net sales and the percentage change in the dollar amount of such items
compared to the prior period.
Percentage of Net Sales
For Fiscal Years Ended Percentage Increase (Decrease)
January 31, February 1, February 2, Fiscal Year
2004 2003 2002 2002 to 2003 2001 to 2002
----------- ----------- ----------- ------------ ------------
INCOME STATEMENT DATA
Net sales 100.0% 100.0% 100.0% 5.4% 3.5%
Cost of sales (including
buying, distribution and
occupancy costs) 66.2% 67.2% 67.1% 3.9% 3.7%
----- ----- ----- ---- ----
Gross profit 33.8% 32.8% 32.9% 8.6% 3.1%
Selling expenses 18.8% 18.7% 18.0% 6.6% 7.1%
General and
administrative expenses 3.6% 2.7% 2.8% 37.0% 0.4%
----- ----- ----- ---- ----
Income from operations 11.4% 11.4% 12.1% 5.0% -2.4%
Other income 1.1% 1.2% 1.2% -0.2% -2.5%
----- ----- ----- ---- ----
Income before
income taxes 12.5% 12.6% 13.3% 4.5% -2.4%
Provision for income taxes 4.5% 4.6% 4.9% 3.7% -3.5%
----- ----- ----- ---- ----
Net income 8.0% 8.0% 8.4% 5.0% -1.7%
===== ===== ===== ==== ====
FISCAL 2003 COMPARED TO FISCAL 2002
Net sales increased from $401.1 million in fiscal 2002 to $422.8 million in
fiscal 2003, a 5.4% increase. Comparable store sales increased by $4.4 million,
or 1.1% for the 52 weeks ended January 31, 2004 compared to the same 52-week
period in the prior year. The Company had 1.0% sales growth in fiscal 2003 that
was attributable to the inclusion of a full year of operating results in fiscal
2003 for stores opened in fiscal 2002 and 3.3% growth from the opening of 16 new
stores in fiscal 2003.
17
The Company's average retail price per piece of merchandise decreased $0.72 per
piece, approximately 2%, in fiscal 2003 compared to fiscal 2002. This $0.72
decrease in the average price per piece was primarily attributable to the
following changes (with their corresponding effect on the overall average price
per piece): a decrease in footwear price points of approximately 20% (-$0.80), a
7% decrease in knit shirt price points (-$0.58), a 7% decrease in sweater price
points (-$0.08), a 7% decrease in outerwear price points ($0.08) and a change in
the merchandise mix (-$0.05). These decreases were partially offset by increased
price points for denims ($.52), woven shirts ($.12), casual pants ($0.11),
accessories ($0.08) and active sportswear ($0.05). These changes are primarily a
reflection of merchandise shifts in terms of brands; product styles, fabrics,
details and finishes; and the mix of branded versus private label. Average sales
per square foot for fiscal 2003 were $274, which was even with the prior fiscal
year.
Gross profit after buying, distribution and occupancy costs increased $11.3
million in fiscal 2003 to $142.8 million, an 8.6% increase. As a percentage of
net sales, gross profit increased from 32.8% in fiscal 2002 to 33.8% in fiscal
2003. The increase was primarily attributable to an improvement in actual
merchandise margins of over 1%, as a percentage of the Company's net sales for
the fiscal year; achieved through fewer markdowns, timely sell-throughs on new
product and an increase in sales of private label merchandise, which achieves a
higher margin. This improvement was partially offset by slightly higher
occupancy costs, up 0.27% as a percentage of net sales, as the company has
continued to expand into more expensive markets. Merchandise shrinkage remained
the same at 0.6% of net sales for both fiscal 2003 and fiscal 2002.
Selling expenses increased from $74.8 million for fiscal 2002 to $79.7 million
for fiscal 2003, a 6.6% increase. Selling expenses as a percentage of net sales
increased from 18.7% for fiscal 2002 to 18.8% for fiscal 2003. The increase was
primarily attributable to higher incentive bonuses for store managers due to
increased net profits, an increase of 0.14% as a percentage of net sales, and
higher bankcard fees as a result of an increase in rates charged by
VISA/Mastercard and an increase in the percentage of net sales tendered via
charge cards compared to the prior year, an increase of 0.07% as a percentage of
net sales. These increases were partially offset by slight reductions in
spending for in-store point-of-sale advertising (-0.06%, as a percentage of net
sales), store visit and meeting travel (-0.11%, as a percentage of net sales)
and selling supplies (-0.02%, as a percentage of net sales), during fiscal 2003
compared to fiscal 2002.
General and administrative expenses increased from $11.0 million in fiscal 2002
to $15.0 million in fiscal 2003, a 37.0% increase. As a percentage of net sales,
general and administrative expense increased from 2.7% for fiscal 2002 to 3.6%
for fiscal 2003. The increase in general and administrative expense, as a
percentage of net sales, resulted primarily from recording compensation expense
related to restricted stock grants during fiscal 2003, from recognizing a larger
loss on the disposal of abandoned assets for remodeled stores in fiscal 2003
compared to fiscal 2002 and from recognizing a gain on the sale of a corporate
aircraft during fiscal 2002. The restricted stock compensation of $1.6 million
recorded in fiscal 2003 accounted for 0.4% of the increase, as a percentage of
net sales, the increase in the loss on abandoned assets accounted for 0.08% of
the increase and the prior year gain on the sale a corporate aircraft accounted
for 0.09% of the increase.
As a result of the above changes, the Company's income from operations increased
$2.3 million to $48.1 million for fiscal 2003, a 5.0% increase compared to
fiscal 2002. Income from operations was 11.4% as a percentage of net sales in
both fiscal 2002 and fiscal 2003.
Other income for fiscal 2003 decreased 0.2% from fiscal 2002 to $4.7 million.
The decrease is primarily due to a reduction in interest income, as interest
rates continued to be lower in fiscal 2003 compared with fiscal 2002; although
balances in cash and investments were higher during fiscal 2003 than they were
during the prior fiscal year.
Income tax expense as a percentage of pre-tax income was 36.2% in fiscal 2003
compared to 36.5% in fiscal 2002, bringing net income to $33.7 million for
fiscal 2003 versus $32.1 million for fiscal 2002, an increase of 5.0%. The
change in the Company's effective income tax rate resulted primarily from state
income tax planning.
FISCAL 2002 COMPARED TO FISCAL 2001
Net sales increased from $387.6 million in fiscal 2001 to $401.1 million in
fiscal 2002, a 3.5% increase. Comparable store sales decreased by $2.0 million,
or 0.5% for the 52 weeks ended February 1, 2003 compared to the same 52-week
period in the prior year. The Company had 1.9% sales growth in fiscal 2002 that
was attributable to the inclusion of a full year of operating results in fiscal
2002 for stores opened in fiscal 2001 and 2.1% from the opening of 11 new stores
in fiscal 2002.
18
The Company's average retail price per piece of merchandise decreased $0.30 per
piece in fiscal 2002 compared to fiscal 2001, primarily due to 22.4% lower price
points in footwear, as well as, from a decline in footwear sales as a percentage
of net sales. Other categories with price point decreases were sweaters and
accessories. These decreases were partially offset by increased price points for
denims, casual pants, knit shirts, outerwear and active sportswear. Average
sales per square foot decreased 1.8% from $279 to $274.
Gross profit after buying, distribution and occupancy costs increased $3.9
million in fiscal 2002 to $131.5 million, a 3.1% increase. As a percentage of
net sales, gross profit decreased from 32.9% in fiscal 2001 to 32.8% in fiscal
2002. The decrease was primarily attributable to higher occupancy costs, which
increased 0.68% as a percentage of net sales for the fiscal year and higher
distribution costs. These increased costs were partially offset by an
improvement in the actual merchandise margins of 0.57%, as a percentage of net
sales. Gross margin was also impacted by the decrease in merchandise shrinkage
which fell to 0.6% in fiscal 2002 compared to 0.7% in fiscal 2001.
Selling expenses increased from $69.8 million for fiscal 2001 to $74.8 million
for fiscal 2002, a 7.1% increase. Selling expenses as a percent of net sales
increased from 18.0% for fiscal 2001 to 18.7% for fiscal 2002. The increase was
primarily attributable to higher payroll expense, up 0.43% as a percentage of
net sales, higher advertising expenses, up 0.14% as a percentage of net sales,
and higher travel expenses, up 0.10% as a percentage of net sales. These higher
costs were partially due to a decline in leverage provided by comparable store
sales.
General and administrative expenses increased from $10.9 million in fiscal 2001
to $11.0 million in fiscal 2002, a 0.4% increase. As a percentage of net sales,
general and administrative expense decreased from 2.8% for fiscal 2001 to 2.7%
for fiscal 2002. Decreases in general and administrative expenses, as a
percentage of net sales, resulted primarily from a gain on sales of assets which
reduced the general and administrative expense by 0.14%, as a percentage of net
sales, plus slight decreases in bonus expense and general supplies expense.
These changes were partially offset by increased personal property tax expense
for the year.
As a result of the above changes, the Company's income from operations decreased
$1.1 million to $45.8 million for fiscal 2002, a 2.4% decrease compared to
fiscal 2001. Income from operations was 11.4% as a percentage of net sales in
fiscal 2002 compared to 12.1% in fiscal 2001.
Other income for fiscal 2002 decreased 2.5% from fiscal 2001 to $4.7 million.
The decrease is primarily due to a decrease in income received from state tax
incentive programs, partially offset by an increase in interest income compared
to fiscal 2001.
Income tax expense as a percentage of pre-tax income was 36.5% in fiscal 2002
compared to 36.9% in fiscal 2001, bringing net income to $32.1 million for
fiscal 2002 versus $32.6 million for fiscal 2001, a decrease of 1.7%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary ongoing cash requirements are for inventory, payroll,
dividend payments, new store expansion, and remodeling. Historically, the
Company's primary source of working capital has been cash flow from operations.
The Company declared and paid its first ever quarterly cash dividends of $.10
per share in both the third and fourth quarters of fiscal 2003. The Company
plans to continue its quarterly dividends during fiscal 2004. During fiscal
2003, 2002 and 2001 the Company's cash flow from operations was $57.9 million,
$45.5 million and $48.7 million, respectively. During fiscal 2003, 2002 and
2001, the Company also used cash for repurchasing shares of the Company's common
stock. In fiscal 2003, the Company purchased 152,300 shares at a cost of $2.9
million. The Company purchased 119,125 shares in fiscal 2002 at a cost of $2.0
million and 79,200 shares in fiscal 2001 at a cost of $1.3 million. The Company
has available an unsecured line of credit of $17.5 million with Wells Fargo
Bank, N.A. for operating needs and letters of credit. The note provides that
outstanding letters of credit cannot exceed $10 million. Borrowing 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 January 31, 2004, the Company's
working capital was $180.7 million, including $120.0 million of cash and cash
equivalents.
The Company has, from time to time, borrowed against these lines of credit
during periods of peak inventory build-up. There were immaterial borrowings
during fiscal 2003, 2002 and 2001. The Company had no bank borrowings as of
January 31, 2004.
19
During fiscal 2003, 2002 and 2001, the Company invested $19.4 million, $18.6
million and $15.5 million, respectively, in new store construction, store
renovation and upgrading store technology. The Company also spent $0.8 million,
$0.6 million and $0.4 million, in fiscal 2003, 2002 and 2001, respectively, in
capital expenditures for the corporate headquarters and distribution facility.
In the third quarter of fiscal 2002, the Company purchased a used Citation X
aircraft and sold its Citation III aircraft at a net additional cost of $9.1
million.
During fiscal 2004, the Company anticipates completing approximately 20 store
construction projects, including approximately 12 new stores and approximately 8
stores to be remodeled and/or relocated. As of March 2004, leases for eight new
stores have been signed, and leases for seven additional locations are under
negotiation; however, exact new store openings, remodels and relocations may
vary from those anticipated. The average cost of opening a new store during
fiscal 2003 was approximately $710,000, including construction costs of
approximately $560,000 and inventory costs of approximately $150,000, net of
payables. Management estimates that total capital expenditures during fiscal
2004 will be approximately $25.1 million before estimated landlord allowances of
$3.1 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. The
Company has had a consistent record of generating positive cash flows each year,
does not currently have plans for any merger or acquisition, and has fairly
consistent plans for new store expansion and remodels. Based upon past results
and current plans, management does not anticipate any large swings in the
Company's need for cash in the upcoming years. However, future conditions may
reduce the availability of funds based upon factors such as a decrease in demand
for the Company's product, change in product mix, competitive factors and
general economic conditions as well as other risks and uncertainties which would
reduce the Company's sales, net profitability, and cash flows. Also, the
Company's acceleration in store openings and/or remodels, or the Company
entering into a merger, acquisition, or other financial related transaction,
could reduce the amount of cash available for further capital expenditures and
working capital requirements.
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.
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. The Company accounts for layaway sales in accordance with
SAB No. 101, recognizing revenue from sales made under its layaway program
upon delivery of the merchandise to the customer. 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 current liability for estimated
merchandise returns based upon historical average sales return percentage,
applying the percentage using the assumption that merchandise returns will
occur within nine days following the sale. Customer returns could
potentially exceed historical average and returns may occur after the time
period reserved for, thus reducing future net sales results and
potentially reducing future net earnings. The accrued liability for
reserve for sales returns was $258,000 and $250,000 at January 31, 2004
and February 1, 2003, respectively.
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 using calculations applied to current inventory levels by
department within each of four different markdown levels. Management also
reviews the levels of inventory in each markdown group versus the
estimated future demand for such product and the current market
conditions. Such judgments could vary significantly from actual results,
either favorably or unfavorably, due to fluctuation in future economic
conditions, industry trends, consumer demand and the competitive retail
environment. Such changes in market conditions could negatively impact the
sale of markdown inventory causing further markdowns, or inventory
obsolescence,
20
resulting in increased cost of goods sold from write-offs, and reducing
the Company's net earnings. The liability recorded as a reserve for
markdowns and/or obsolescence was $2.5 million and $2.2 million as of
January 31, 2004 and February 1, 2003, respectively. 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. 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.
4. Operating Leases. The Company leases retail stores under operating leases.
Most lease agreements contain tenant improvement allowances, rent
holidays, rent escalation clauses and/or contingent rent provisions. For
purposes of recognizing lease incentives and minimum rental expenses on a
straight-line basis over the terms of the leases, the Company uses the
date of initial possession to begin amortization, which is generally when
the Company enters the space and begins to make improvements in
preparation of intended use. For tenant improvement allowances and rent
holidays, the Company records a deferred rent liability in "Deferred rent
liability" on the balance sheets and amortizes the deferred rent over the
terms of the leases as reductions to rent expense on the statements of
earnings.
For scheduled rent escalation clauses during the lease terms or for rental
payments commencing at a date other than the date of initial occupancy,
the Company records minimum rental expenses on a straight-line basis over
the terms of the leases on the statements of income. Certain leases
provide for contingent rents, which are determined as a percentage of
gross sales in excess of specified levels. The Company records a
contingent rent liability on the balance sheets and the corresponding rent
expense when specified levels have been achieved. If the Company
subsequently determined the lease term to vary from that used in
calculations of straight-line rent expense, there could be additional
expense to be recorded, thus reducing the Company's earnings for the
period of correction.
OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS AND COMMERCIAL
COMMITMENTS
As referenced in the tables below, the Company has contractual obligations and
commercial commitments that may affect the financial condition of the Company.
Based on management's review of the terms and conditions of its contractual
obligations and commercial commitments, there is no known trend, demand,
commitment, event or uncertainty that is reasonably likely to occur which would
have a material effect on the Company's financial condition or results of
operations or cash flows. In addition, the commercial obligations and
commitments made by the Company are customary transactions, which are similar to
those of other comparable retail companies.
The following tables identify the material obligations and commitments as of
January 31, 2004:
Payments Due by Period
--------------------------------------------------------
Contractual obligations Less than After 5
(dollar amounts in thousands) Total 1 year 1-3 years 4-5 years years
----------------------------- ---------- --------- --------- --------- -------
Long term debt $ - $ - $ - $ - $ -
Purchase Obligations $ 1,137 $ 1,137 $ - $ - $ -
Deferred Compensation $ 1,467 $ - $ - $ - $ 1,467
Operating leases $ 213,984 $ 29,783 $ 58,269 $ 49,825 $76,107
Total contractual obligations $ 216,588 $ 30,920 $ 58,269 $ 49,825 $77,574
21
Amount of Commitment Expiration Per Period
-----------------------------------------------------------------
Other Commercial
Commitments (dollar Total Amounts Less than
amounts 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 $ - $ - $ -
The Company did not have any contingent liability for landlord allowances as of
January 31, 2004. The Company has available an unsecured line of credit of $17.5
million of which $10 million is available for letters of credit. Certain
merchandise purchase orders require that the Company open letters of credit.
When the Company takes possession of the merchandise, it releases payment on the
letters of credit. Amounts of outstanding letters of credit, reported in the
notes included in the Company's 2003 Annual Report, reflect the open letters of
credit on merchandise ordered, but not yet received or funded. The Company
believes it has sufficient credit available to open letters of credit for
merchandise purchases.
SEASONALITY AND INFLATION
The Company's business is seasonal, with the holiday 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 2003, 2002 and 2001, the Christmas and back-to-school
seasons accounted for an average of approximately 40% of the Company's fiscal
year net sales. Although the operations of the Company are influenced by general
economic conditions, the Company does not believe that inflation has had a
material effect on the results of operations during the past three fiscal years.
Quarterly results may vary significantly depending on a variety of factors
including the timing and amount of sales and costs associated with the opening
of new stores, the timing and level of markdowns, the timing of store closings,
the remodeling of existing stores, competitive factors and general economic
conditions.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity, was issued in May 2003. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This Statement concludes the first phase
of the Board's redeliberations of the Exposure Draft, Accounting for Financial
Instruments with Characteristics of Liabilities, Equity, or Both. This Statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a
significant impact on the financial position, results of operations or cash
flows of the Company.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The adoption of FIN 46 did not
have a significant impact on the Company's financial position, results of
operations or cash flows.
22
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, and 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 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 31,
2004, 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. 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, the Company's net income would decrease approximately
$0.01 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.
We have certain investments that generate interest income. 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. 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 $260,000. 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.
23
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE BUCKLE, INC.
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
JANUARY 31, FEBRUARY 1,
2004 2003
(As Restated, (As Restated,
see Note B) see Note B)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 119,976 $ 92,976
Investments (Note C) 23,346 15,450
Accounts receivable, net of allowance of $181 and $217, respectively 3,585 1,390
Inventory 61,156 60,041
Prepaid expenses and other assets (Note F) 9,083 7,934
--------- --------
Total current assets 217,146 177,791
--------- --------
PROPERTY AND EQUIPMENT (Note D): 169,453 155,612
Less accumulated depreciation and amortization (85,550) (75,195)
--------- --------
83,903 80,417
--------- --------
LONG-TERM INVESTMENTS (Note C) 52,647 54,548
OTHER ASSETS (Notes F and G) 2,526 5,255
--------- --------
$ 356,222 $318,011
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,207 $ 13,318
Accrued employee compensation 11,890 10,326
Accrued store operating expenses 3,833 3,162
Gift certificates redeemable 3,778 3,478
Income taxes payable 2,760 2,966
--------- --------
Total current liabilities 36,468 33,250
DEFERRED COMPENSATION (Note I) 1,467 946
DEFERRED RENT LIABILITY 24,442 22,788
--------- --------
Total liabilities 62,377 56,984
--------- --------
COMMITMENTS (Notes E and H)
STOCKHOLDERS' EQUITY (Note J):
Common stock, authorized 100,000,000 shares of $.01 par value; issued and
outstanding; 21,484,316 and 21,045,404 shares, respectively 215 210
Additional paid-in capital 24,245 18,089
Retained earnings 272,125 242,728
Unearned compensation - restricted stock (2,740) -
--------- --------
Total stockholders' equity 293,845 261,027
--------- --------
$ 356,222 $318,011
========= ========
See notes to financial statements.
24
THE BUCKLE, INC.
STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FISCAL YEARS ENDED
---------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2,
2004 2003 2002
(As Restated, (As Restated, (As Restated,
see Note B) see Note B) see Note B)
SALES, Net of returns and allowances of
$32,364, $31,826 and $28,278, respectively $ 422,820 $ 401,060 $ 387,638
COST OF SALES (Including buying, distribution
and occupancy costs) 280,004 269,516 259,994
--------- --------- ---------
Gross profit 142,816 131,544 127,644
--------- --------- ---------
OPERATING EXPENSES:
Selling 79,668 74,754 69,786
General and administrative 15,045 10,979 10,939
--------- --------- ---------
94,713 85,733 80,725
--------- --------- ---------
INCOME FROM OPERATIONS 48,103 45,811 46,919
OTHER INCOME, Net 4,688 4,698 4,820
--------- --------- ---------
INCOME BEFORE INCOME TAXES 52,791 50,509 51,739
PROVISION FOR INCOME TAXES (Note F) 19,112 18,434 19,097
--------- --------- ---------
NET INCOME $ 33,679 $ 32,075 $ 32,642
========= ========= =========
EARNINGS PER SHARE (Note K):
Basic $ 1.60 $ 1.52 $ 1.57
========= ========= =========
Diluted $ 1.56 $ 1.47 $ 1.51
========= ========= =========
See notes to financial statements.
25
THE BUCKLE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE
COMMON PAID-IN RETAINED UNEARNED INCOME COMPREHENSIVE
STOCK CAPITAL EARNINGS COMPENSATION (LOSS) TOTAL INCOME
BALANCE, Feb. 4, 2001 (previously reported) $ 204 $ 13,006 $ 181,447 $ (620) $ 29 $194,066
Prior year adjustment (see Note B) - - (3,436) - - (3,436)
----- -------- ---------- --------- ---- --------
BALANCE, Feb. 4, 2001(As Restated, 204 13,006 178,011 (620) 29 190,630
see Note B)
Comprehensive income:
Net income (As Restated, see Note B) - - 32,642 - - 32,642 $ 32,642
Unrealized loss on available-for-sale
securities, net of taxes of $24 - - - - (41) (41) (41)
---------
Total comprehensive income (As $ 32,601
=========
Restated, see Note B)
Common stock (869,272 shares)
issued on exercise of stock options 9 3,900 - - - 3,909
Amortization of restricted stock
issuance - - - 126 - 126
Forfeited restricted stock (53,191 shares) (1) (1,113) - 368 - (746)
Common stock (79,200 shares)
purchased and retired (1) (1,280) - - - (1,281)
Tax benefit related to exercise of
employee stock options - 4,807 - - - 4,807
----- -------- ---------- --------- ---- --------
BALANCE, February 2, 2002 (As Restated, 211 19,320 210,653 (126) (12) 230,046
see Note B)
Comprehensive income:
Net income (As Restated, see Note B) - - 32,075 - - 32,075 $ 32,075
Reclassification adjustment for losses
included in net income, net of taxes of-$7 - - - - 12 12 12
---------
Total comprehensive income (As $ 32,087
=========
Restated, see Note B)
Common stock (48,991 shares)
issued on exercise of stock options - 574 - - - 574
Amortization of restricted stock
issuance - - - 126 - 126
Common stock (119,125 shares)
purchased and retired (1) (1,987) - - - (1,988)
Tax benefit related to exercise of
employee stock options - 182 - - - 182
----- -------- ---------- --------- ---- --------
BALANCE, February 1, 2003 (As Restated, 210 18,089 242,728 - - 261,027
see Note B)
Comprehensive income:
Net income (As Restated, see Note B) - - 33,679 - - 33,679 $ 33,679
=========
Dividends paid on common stock,
$.10 per share - - (4,282) - - (4,282)
Common stock (421,485 shares)
issued on exercise of stock options 4 2,505 - - - 2,509
Restricted stock grants (169,840 shares) 2 4,373 - (4,375) - -
Amortization of restricted stock grant - - - 1,635 - 1,635
Common stock (152,300 shares)
purchased and retired (1) (2,907) - - - (2,908)
Tax benefit related to exercise of
employee stock options - 2,185 - - - 2,185
----- -------- ---------- --------- ---- --------
BALANCE, January 31, 2004 (As Restated, $ 215 $ 24,245 $ 272,125 $ (2,740) $ - $293,845
see Note B) ===== ======== ========== ========= ==== ========
26
THE BUCKLE, INC.
STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
FISCAL YEARS ENDED
---------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2,
2004 2003 2002
(As Restated, (As Restated, (As Restated,
see Note B) see Note B) see Note B)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 33,679 $ 32,075 $ 32,642
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation 15,956 14,869 14,176
Amortization of unearned compensation - restricted stock 1,635 126 126
Forfeiture of restricted stock - - (746)
Deferred taxes 1,813 (174) (622)
Tax benefit from employee stock option exercises 2,185 182 4,807
Loss (gain) on disposal of assets 773 (53) 545
Changes in operating assets and liabilities:
Accounts receivable (2,195) 631 47
Inventory (1,115) (5,744) 95
Prepaid expenses (256) (552) (459)
Accounts payable 889 2,185 (2,570)
Accrued employee compensation 1,564 (199) (998)
Accrued store operating expenses 671 (383) (103)
Gift certificates redeemable 300 432 431
Long-term liabilities and deferred compensation 2,175 554 3,750
Income taxes payable (206) 1,569 (2,493)
-------- -------- --------
Net cash flows from operating activities 57,868 45,518 48,628
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (20,237) (28,328) (15,955)
Proceeds from sale of property and equipment 22 3,049 4
(Increase) decrease in other assets 23 (54) (324)
Purchase of investments (40,117) (50,135) (22,055)
Proceeds from sales and maturities of investments 34,122 22,425 19,834
-------- -------- --------
Net cash flows from investing activities (26,187) (53,043) (18,496)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options 2,509 574 3,909
Purchases of common stock (2,908) (1,988) (1,281)
Payment of dividends (4,282) - -
-------- -------- --------
Net cash flows from financing activities (4,681) (1,414) 2,628
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 27,000 (8,939) 32,760
CASH AND CASH EQUIVALENTS, Beginning of year 92,976 101,915 69,155
-------- -------- --------
CASH AND CASH EQUIVALENTS, End of year $119,976 $ 92,976 $101,915
======== ======== ========
See notes to financial statements.
27
THE BUCKLE, INC.
NOTES TO FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 31, 2004, FEBRUARY 1, 2003 AND FEBRUARY 2, 2002
(DOLLAR AMOUNTS ARE IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR - The Buckle, Inc. (the Company) has its fiscal year end on
the Saturday nearest January 31. All references in these financial
statements to fiscal years are to the calendar year in which the fiscal
year begins. Fiscal 2003, 2002 and 2001 represent the 52-week periods
ended January 31, 2004, February 1, 2003 and February 2, 2002,
respectively.
NATURE OF OPERATIONS - The Company is a retailer of medium to better
priced casual apparel, footwear and accessories for fashion conscious
young men and women operating 316 stores located in 38 states throughout
the central, northwestern and southern regions of the United States, as of
January 31, 2004.
During fiscal 2003, the Company opened sixteen new stores, substantially
renovated sixteen stores and closed four stores. During fiscal 2002, the
Company opened eleven new stores, substantially renovated eight stores,
and closed two stores. During fiscal 2001, the Company opened twenty-four
new stores, substantially renovated eight stores and closed three stores.
REVENUE RECOGNITION - The Company operates on a cash and carry basis, so
revenue is recognized at the time of sale. Merchandise returns are
estimated and accrued at the end of the period. The reserve for
merchandise returns was $258 and $250 as of January 31, 2004 and February
1, 2003, respectively. The Company accounts for layaway sales in
accordance with SAB No. 101, recognizing revenue from sales made under its
layaway program upon delivery of the merchandise to the customer. The
Company has several sales incentives that it offers customers including a
frequent shopper punch card, B-Rewards gift certificates, and occasional
sweepstakes and gifts with purchase offers. The frequent shopper punch
card is recognized as cost of goods sold at the time of the redemption,
using the actual amount tendered. The B-Rewards incentives are recorded as
a liability and as a selling expense at the time the gift certificates are
issued to the customers. Sweepstake prizes are recorded as cost of goods
sold (if it is a merchandise giveaway) or as a selling expense at the time
the prize is redeemed by the customer, using actual costs incurred, and
gifts with purchase are recorded as a cost of goods sold at the time of
the purchase and gift redemption, using the actual cost of the gifted
item.
The Company records the sale of gift cards and gift certificates as a
current liability and recognizes a sale when a customer redeems the gift
card or gift certificate. The amount of the gift card and gift certificate
liability is determined using the outstanding balances from the prior
three years of issuance. The Company recognizes a current liability for
the downpayment made when merchandise is placed on layaway, and recognizes
layaways as a sale at the time the customer makes final payment and picks
up the merchandise.
INVESTMENTS - The Company accounts for investments in accordance with
Statement of Financial Accounting Standards Board (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Held-to-maturity securities are carried at amortized cost.
Available-for-sale securities are reported at fair value, with unrealized
gains and losses excluded from earnings and reported as a separate
component of stockholders' equity (net of the effect of income taxes),
using the specific identification method, until they are sold. Trading
securities are reported at fair value, with unrealized gains and losses
included in earnings using the specific identification method.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost
is determined on the average cost method. Management records a reserve for
merchandise obsolescence and markdowns for inventory on-hand as of
year-end, based on assumptions using calculations applied to current
inventory levels by department within each of four different markdown
levels. Management also reviews the levels of inventory in each markdown
group versus the estimated future demand for such product and the current
market conditions. The liability recorded as a reserve for markdowns
and/or obsolescence was $2,500 and $2,200 as of January 31, 2004 and
February 1, 2003, respectively. The amount of net write-off charged
(credited) to cost of goods sold, resulting
28
from changes in the Markdown Reserve balance, was $323, $163 and $(410),
for fiscal years 2003, 2002, and 2001, respectively.
DEPRECIATION AND AMORTIZATION - Property and equipment are stated on the
basis of historical cost. Depreciation is provided using a combination of
accelerated and straight-line methods based upon the estimated useful
lives of the assets. The majority of the property and equipment have
useful lives of five to ten years with the exception of buildings, which
have estimated useful lives of 31.5 to 39 years.
CASH EQUIVALENTS - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments with an original
maturity of three months or less when purchased to be cash equivalents.
PRE-OPENING EXPENSES - Costs related to opening new stores are expensed as
incurred.
ADVERTISING COSTS - Advertising costs are expensed as incurred and
amounted to $4,304, $4,404 and $3,706 for fiscal years 2003, 2002 and
2001, respectively.
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 based upon the prior year's average claims for
a 60-day period. The accrued liability for reserve for healthcare was $275
and $230 at January 31, 2004 and February 1, 2003, respectively.
OPERATING LEASES - The Company leases retail stores under operating
leases. Most lease agreements contain tenant improvement allowances, rent
holidays, rent escalation clauses and/or contingent rent provisions. For
purposes of recognizing lease incentives and minimum rental expenses on a
straight-line basis over the terms of the leases, the Company uses the
date of initial possession to begin accruing rent expense, which is
generally when the Company enters the space and begins to make
improvements in preparation of intended use.
For tenant improvement allowances and rent holidays, the Company records a
deferred rent liability in "Deferred rent liability" on the balance sheets
and amortizes the deferred rent over the terms of the leases as reductions
to rent expense on the statements of earnings.
For scheduled rent escalation clauses during the lease terms or for rental
payments commencing at a date other than the date of initial occupancy,
the Company records minimum rental payments on a straight-line basis over
the terms of the leases.
Certain leases provide for contingent rents, which are determined as a
percentage of gross sales in excess of specified levels. The Company
records a contingent rent liability on the balance sheets and the
corresponding rent expense when specified levels have been achieved or are
reasonably probable to be achieved.
OTHER INCOME - The Company's other income is derived from primarily from
interest and dividends on cash and investments but also includes
miscellaneous other sources of income including commissions on corporate
travel, unredeemed gift cards and gift certificates, gift card service
fees, recycling cardboard and other immaterial reimbursements. The amount
of other income generated from interest and dividends on cash and
investments was $4,046 and $4,167 for fiscal 2003 and fiscal 2002,
respectively.
STOCK-BASED COMPENSATION - The Company has several stock-based employee
compensation plans, which are described more fully in Note I. 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. Compensation cost related to stock-based
compensation was $1,635, $126 and $126 for the fiscal years ended 2003,
2002 and 2001, respectively.
29
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of
FASB Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.
FISCAL YEAR
---------------------------------
2003 2002 2001
Net income, as reported $ 33,679 $ 32,075 $ 32,642
Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects 1,037 80 80
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (3,740) (4,117) (3,706)
-------- -------- --------
Pro forma net income $ 30,976 $ 28,038 $ 29,016
======== ======== ========
Earnings per share:
Basic - as reported $ 1.60 $ 1.52 $ 1.57
======== ======== ========
Basic - pro forma $ 1.47 $ 1.33 $ 1.40
======== ======== ========
Diluted - as reported $ 1.56 $ 1.47 $ 1.51
======== ======== ========
Diluted - pro forma $ 1.43 $ 1.29 $ 1.34
======== ======== ========
FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS - Financial
instruments, which potentially subject the Company to concentrations of
credit risk, are primarily cash, investments and accounts receivable. The
Company places its investments primarily in tax-free municipal bonds or
U.S. Treasury securities with short-term maturities, and limits the amount
of credit exposure to any one entity. Concentrations of credit risk with
respect to accounts receivable are limited due to the nature of the
Company's receivables; which include employee receivables, which can be
offset against future compensation. The Company's financial instruments
have a fair value approximating the carrying value.
EARNINGS 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.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
COMPREHENSIVE INCOME - Comprehensive income consists of net income and
unrealized gains and losses on available-for-sale securities. Unrealized
gains and losses on the Company's available-for-sale securities are
included in accumulated other comprehensive income (loss) and are
separately included as a component of stockholders' equity, net of related
income taxes.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS- SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity, was issued in May 2003. This Statement establishes standards for
how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability
(or an asset in some circumstances). Many of those instruments were
previously classified as equity. This Statement concludes the first phase
of the Board's redeliberations of the Exposure Draft, Accounting for
Financial Instruments with Characteristics of Liabilities, Equity, or
Both. This Statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning
30
after June 15, 2003. The adoption of SFAS No. 150 did not have a
significant impact on the financial position, results of operations, or
cash flows of the Company.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51. FIN 46 requires certain variable interest entities to be consolidated
by the primary beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. FIN 46 is effective for all new variable interest entities
created or acquired after January 31, 2003. For variable interest entities
created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period beginning after
June 15, 2003. The adoption of FIN 46 did not have a significant impact on
the Company's financial position, results of operations or cash flows.
RECLASSIFICATIONS - Certain reclassifications have been made to the
balance sheets to consistently report current classifications of assets
and liabilities.
B. RESTATEMENT AND RECLASSIFICATION OF FINANCIAL STATEMENTS
On February 7, 2005, the Office of the Chief Accountant of the Securities
and Exchange Commission (SEC) issued a letter to the American Institute of
Certified Public Accountants expressing its views regarding certain
operating lease-related accounting issues and their application under
generally accepted accounting principles in the United States of America
(GAAP). 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 which 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.
The Company had historically accounted for tenant improvement allowances
as reductions to the related leasehold improvement asset on the balance
sheets and capital expenditures in investing activities on the statements
of cash flows. Management determined that Financial Accounting Standards
Board (FASB) Technical Bulletin No. 88-1, Issues Relating to Accounting
for Leases, requires these allowances to be recorded as deferred rent
liabilities on the balance sheets and as a component of operating
activities on the statements of cash flows.
For leases initiated in fiscal 2000 and forward, the Company recognized
rent holiday periods on a straight-line basis over the lease term
commencing with the opening date of the retail stores. The store opening
date coincided with the commencement of business operations, which
corresponds to the intended use of the property. Management re-evaluated
FASB Technical Bulletin No. 85-3, Accounting for Operating Leases with
Scheduled Rent Increases, and determined that the lease term should
commence on the date the Company takes possession of the leased space for
construction purposes, which is generally 3 months prior to a store
opening date. Excluding tax impacts, the correction of this accounting,
and other adjustments to straight-line rent expense, required the Company
to record additional deferred rent on the balance sheets, as well as, to
correct rent expense in "Cost of Sales" on the statements of income for
each of the three years in the period January 31, 2004. The cumulative
effect of these accounting changes is a reduction to retained earnings of
$3.4 million as of the beginning of fiscal 2001 and decreases to earnings
of $0.1 million, $0 million and $0.2 million for the fiscal years 2003,
2002 and 2001, respectively.
Following is a summary of the effects of these changes on the Company's
balance sheets as of January 31, 2004 and February 1, 2003, as well as,
the effects of these changes on the Company's statements of income for
fiscal years 2003, 2002 and 2001.
31
Balance Sheets
---------------------------------------------------
As
previously Reclass-
reported ifications Adjustments As restated
---------- ---------- ----------- -----------
January 31, 2004
Prepaid expenses and other assets $ 9,563 $ - $ (480) $ 9,083
Property and equipment, net 66,300 - 17,603 83,903
Other assets 1,307 - 1,219 2,526
Accrued employee compensation 12,171 (281) - 11,890
Accrued store operating expenses 5,127 (395) (899) 3,833
Gift certificates redeemable 3,102 676 - 3,778
Deferred rent liability - - 24,442 24,442
Deferred tax liability 1,490 - (1,490) -
Retained earnings 275,836 - (3,711) 272,125
February 1, 2003
Prepaid expenses and other assets $ 8,277 $ - $ (343) $ 7,934
Property and equipment, net 64,606 - 15,811 80,417
Other assets 2,512 - 2,743 5,255
Accrued employee compensation 10,556 (230) - 10,326
Accrued store operating expenses 4,487 (393) (932) 3,162
Gift certificates redeemable 2,855 623 - 3,478
Deferred rent liability - - 22,788 22,788
Retained earnings 246,373 - (3,645) 242,728
Certain reclassifications have been made to accrued employee compensation,
accrued store operating expenses and gift certificates redeemable to
provide a more accurate reporting of gift certificates redeemable from
layaway returns and the reserve account for health insurance claims, as
shown above, to more consistently report such liabilities on the balance
sheets of the Company.
Statements of Income
--------------------------------------
As
previously
reported Adjustments As restated
---------- ----------- -----------
Fiscal year ended January 31, 2004
Cost of sales $ 279,901 $ 103 $ 280,004
Income from operations 48,206 (103) 48,103
Income before income taxes 52,894 (103) 52,791
Provision for income taxes 19,149 (37) 19,112
Net income 33,745 (66) 33,679
Earnings per share - basic $ 1.60 $ - $ 1.60
Earnings per share - diluted $ 1.56 $ - $ 1.56
32
Statements of Income
--------------------------------------
As
previously
reported Adjustments As restated
---------- ----------- -----------
Fiscal year ended February 1, 2003
Cost of sales $269,533 $ (17) $269,516
Income from operations 45,794 17 45,811
Income before income taxes 50,492 17 50,509
Provision for income taxes 18,428 6 18,434
Net income 32,064 11 32,075
Earnings per share - basic $ 1.52 $ - $ 1.52
Earnings per share - diluted $ 1.47 $ - $ 1.47
Fiscal year ended February 2, 2002
Cost of sales $259,645 $ 349 $259,994
Income from operations 47,268 (349) 46,919
Income before income taxes 52,088 (349) 51,739
Provision for income taxes 19,226 (129) 19,097
Net income 32,862 (220) 32,642
Earnings per share - basic $ 1.59 $ (0.02) $ 1.57
Earnings per share - diluted $ 1.52 $ (0.01) $ 1.51
As
previously
reported Adjustments As restated
---------- ----------- -----------
Fiscal year ended January 31, 2004
Net cash flows from operating activities $ 52,987 $ 4,881 $ 57,868
Net cash flows from investing activities (21,306) (4,881) (26,187)
Fiscal year ended February 1, 2003
Net cash flows from operating activities $ 42,831 $ 2,687 $ 45,518
Net cash flows from investing activities (50,356) (2,687) (53,043)
Fiscal year ended February 2, 2002
Net cash flows from operating activities $ 43,432 $ 5,196 $ 48,628
Net cash flows from investing activities (13,300) (5,196) (18,496)
C. INVESTMENTS
The following is a summary of investments as of January 31, 2004:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
Held-to-Maturity Securities:
State and municipal bonds $64,974 $1,029 $ (69) $65,934
U.S. corporate bonds 2,552 19 (7) 2,564
U.S. treasuries 7,000 6 (24) 6,982
------- ------ ------ -------
$74,526 $1,054 $ (100) $75,480
======= ====== ====== =======
Trading Securities:
Mutual funds $ 1,207 $ 260 $ - $ 1,467
======= ====== ====== ========
33
The following is a summary of investments as of February 1, 2003:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
Held-to-Maturity Securities:
State and municipal bonds $ 64,499 $ 1,145 $ (291) $ 65,353
U.S. corporate bonds 2,353 - (19) 2,334
U.S. treasuries 2,200 5 - 2,205
-------- ------- ------ ---------
$ 69,052 $ 1,150 $ (310) $ 69,892
======== ======= ====== =========
Trading Securities:
Mutual funds $ 1,397 $ - $ (451) $ 946
======== ======= ====== =========
Trading securities have been classified in long-term investments. These
trading securities are held in a Rabbi Trust and are intended to fund the
Company's deferred compensation plan (See Note I).
The amortized cost and fair value of debt securities by contractual
maturity at January 31, 2004 is as follows:
AMORTIZED FAIR
COST VALUE
2004 $ 23,346 $ 23,417
2005 16,773 17,006
2006 14,034 14,232
2007 8,858 8,987
2008 5,097 5,224
Thereafter 6,418 6,614
-------- --------
$ 74,526 $ 75,480
======== ========
At January 31, 2004 and February 1, 2003, held to maturity investments of
$51,180 and $53,602 are classified in long-term investments.
D. PROPERTY AND EQUIPMENT
A summary of the cost of property and equipment follows:
JANUARY 31, FEBRUARY 1,
2004 2003
Land $ 917 $ 917
Building and improvements 8,908 8,449
Office equipment 3,120 3,373
Transportation equipment 15,778 15,629
Leasehold improvements 76,062 66,924
Furniture and fixtures 58,254 52,596
Shipping/receiving equipment 4,231 4,218
Screenprinting equipment 102 102
Construction-in-progress 2,081 3,404
-------- --------
$169,453 $155,612
======== ========
34
E. FINANCING ARRANGEMENTS
The Company has available an unsecured line of credit of $17.5 million of
which $10 million is available for letter of credits. Borrowings under the
line of credit and letter of credit provide for interest to be paid at a
rate equal to the prime rate as set by the Wells Fargo Bank, N.A. index on
the date of the borrowings. There were no bank borrowings at January 31,
2004 and February 1, 2003. There were immaterial bank borrowings during
fiscal 2003, 2002 and 2001. The Company had outstanding letters of credit
totaling $799 and $1,650 at January 31, 2004 and February 1, 2003,
respectively.
F. INCOME TAXES
The provision for income taxes consists of:
FISCAL YEAR
----------------------------
2003 2002 2001
Current:
Federal $14,414 $15,718 $16,400
State 2,885 2,890 3,319
Deferred 1,813 (174) (622)
------- ------- -------
Total $19,112 $18,434 $19,097
======= ======= =======
Total tax expense for the year varies from the amount which would be
provided by applying the statutory income tax rate to earnings before
income taxes. The primary reasons for this difference (expressed as a
percent of pre-tax income) are as follows:
FISCAL YEAR
---------------------
2003 2002 2001
Statutory rate 35.0% 35.0% 35.0%
State income tax effect 3.9 3.9 4.3
Tax exempt interest income (2.8) (2.6) (2.5)
Other 0.1 0.2 0.1
---- ---- ----
Effective tax rate 36.2% 36.5% 36.9%
==== ==== ====
Deferred tax assets and liabilities are comprised of the following:
JANUARY 31, FEBRUARY 1,
2004 2003
Deferred tax assets (liabilities):
Inventory $ 1,620 $ 1,336
Stock-based compensation 1,108 666
Accrued compensation 806 574
Accrued store operating costs 82 80
Unrealized (gain) loss on trading securities (98) 169
Capital loss carryforward on trading securities 145 -
Gift certificates redeemable 90 99
Allowance for doubtful accounts 68 81
Straight-line rent 2,561 2,620
Deferred rent liability 6,775 6,099
Property and equipment (8,876) (5,630)
------- -------
$ 4,281 $ 6,094
======= =======
At January 31, 2004 and February 1, 2003, respectively, the net current
deferred tax assets of $3,061 and $2,168 are classified in prepaid
expenses and other assets and the net non-current deferred tax assets of
$1,220 and $3,926 are classified in other assets at January 31, 2004 and
February 1, 2003, respectively.
Cash paid for income taxes was $15,527, $17,662 and $17,449 in fiscal
years 2003, 2002 and 2001, respectively.
35
G. RELATED PARTY TRANSACTIONS
Included in other assets is a note receivable of $855 and $825 at January
31, 2004 and February 1, 2003, respectively, from a life insurance trust
fund controlled by the Company's Chairman. The note was created over three
years when the Company paid life insurance premiums of $200,000 each year
for the Chairman on a personal policy. The note accrues interest at 5% of
the principal balance per year and is to be paid from the life insurance
proceeds. The note is secured by a life insurance policy on the Chairman.
H. LEASE COMMITMENTS
The Company conducts its operations in leased facilities under numerous
noncancellable operating leases expiring at various dates through 2015.
Most of the Company's stores have lease terms of approximately ten years
and generally do not contain renewal options. Most lease agreements
contain tenant improvement allowances, rent holidays, lease premiums, rent
escalation clauses and/or rent provisions. For purposes of recognizing
incentives, premiums and minimum rental expenses on a straight-line basis
over the terms of the leases, the Company uses the date of initial
possession to begin expensing rent, which is generally when the Company
enters the space and begins to make improvements in preparation of
intended use. Operating lease base rental expense for fiscal 2003, 2002
and 2001 was $29,897, $27,611 and $25,650, respectively. Most of the
rental payments are based on a minimum annual rental plus a percentage of
sales in excess of a specified amount. Percentage rents for fiscal 2003,
2002 and 2001 were $403, $656 and $821, respectively. Total future minimum
rental commitments under these operating leases are as follows:
FISCAL YEAR
2004 $ 29,783
2005 30,246
2006 28,023
2007 25,562
2008 24,263
Thereafter 76,107
---------
Total minimum Payments required $ 213,984
=========
I. EMPLOYEE BENEFITS
The Company has a 401(k) profit sharing plan covering all eligible
employees who desire to participate. Contributions to the plan are based
upon the amount of the employees' deferrals and the employer's matching
formula. The Company may contribute to the plan at its discretion. The
total expense under the profit sharing plan was $567, $600 and $561 for
fiscal years 2003, 2002 and 2001, respectively.
The Buckle, Inc. Deferred Compensation Plan covers the Company's executive
officers. The plan is funded by participant contributions and a specified
annual Company matching contribution not to exceed 6% of the participant's
compensation. The Company's contributions were $56, $66 and $65 for fiscal
years 2003, 2002 and 2001, respectively.
J. STOCK-BASED COMPENSATION
The Company has several stock option plans that provide for granting of
options to purchase common stock to designated employees, officers and
directors. The options may be in the form of incentive stock options or
nonqualified stock options, and are granted at fair market value on the
date of grant. The options generally expire ten years from the date of
grant. The Company currently has three stock option plans which allow for
granting of stock options to employees and directors. A total of 3,000,000
shares of common stock are authorized for grants under such plans as of
January 31, 2004. At January 31, 2004, 375,636 shares of common stock were
available for grant under the various option plans of which 182,150 shares
were available to executive officers of the Company.
36
The Company granted 75,000 shares of restricted common stock in December
1997 with an aggregate market value of $1,550 at fiscal 1997 year end.
Unearned compensation equivalent to the market value of the shares at the
date of grant was charged to stockholders' equity. Such unearned
compensation was amortized into compensation expense over a five year
period. The shares fully vested in December 2002. Due to officers
terminating their employment with the Company in 2001 prior to the vesting
of the restricted common stock awarded pursuant to this plan, unearned
compensation was reduced $368 and compensation expense was reduced $325 in
fiscal 2001 for previously amortized compensation expense. During fiscal
year 2003, the Company granted 169,840 shares of restricted common stock
upon approval of the Board of Directors. These grants resulted in $1,635
of compensation expense during fiscal 2003. These shares will vest January
29, 2005 and the remaining unearned compensation expense will be amortized
into compensation expense during fiscal 2004.
The weighted average fair value of options granted during the year under
the SFAS No. 123 methodology was $15.74, $15.68 and $13.76 per option for
fiscal 2003, 2002 and 2001, respectively. The fair value of options
granted under the Plans was estimated at the date of grant using a
Black-Sholes option pricing model with the following assumptions:
2003 2002 2001
Risk-free interest rate 4.25 % 4.50 % 5.00 %
Dividend yield 0.00 % 0.00 % 0.00 %
Expected volatility 64.0 % 62.0 % 54.0 %
Expected life (years) 7.0 years 7.0 years 7.0 years
A summary of the Company's stock-based compensation activity related to
stock options for the last three fiscal years is as follows:
2003 2002 2001
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
Outstanding - beginning
of year 3,867,377 $ 16.10 3,407,135 $ 15.29 4,421,641 $ 13.54
Granted 508,250 16.88 546,870 20.62 447,040 19.73
Expired/terminated (452,090) 11.07 (37,637) 22.41 (592,274) 21.36
Exercised (421,485) 5.96 (48,991) 11.72 (869,272) 4.50
--------- --------- --------- --------- --------- ---------
Outstanding - end of year 3,502,052 $ 17.92 3,867,377 $ 16.10 3,407,135 $ 15.29
========= ========= ========= ========= ========= =========
There were 1,682,784, 2,371,042 and 2,011,127 options exercisable at
January 31, 2004, February 1, 2003 and February 2, 2002, respectively.
37
The following table summarizes information about stock options outstanding
as of January 31, 2004:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
$ 4.583 $ 5.413 107,325 1.02 years $ 4.59 107,325 $ 4.59
6.167 6.333 257,550 1.96 6.33 257,550 6.33
8.500 9.292 369,313 3.01 9.23 369,313 9.23
11.645 17.010 762,010 7.68 16.51 63,359 16.37
17.188 23.950 1,633,314 6.18 20.87 798,447 21.29
26.750 34.083 372,540 4.81 28.36 86,790 33.67
--------- ----- ------ --------- -------
3,502,052 5.56 $17.92 1,682,784 $ 15.74
========= ===== ====== ========= =======
K. EARNINGS PER SHARE
The following table provides a reconciliation between basic and diluted
earnings per share (amounts in thousands except per share amounts):
2003 2002 2001
----------------------------- ----------------------------- ------------------------------
WEIGHTED PER WEIGHTED PER WEIGHTED PER
AVERAGE SHARE AVERAGE SHARE AVERAGE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
BASIC EPS
Net income $33,679 21,094 $ 1.60 $32,075 21,119 $ 1.52 $32,642 20,733 $ 1.57
EFFECT OF DILUTIVE
SECURITIES
Stock options - 530 (0.04) - 693 (0.05) - 853 (0.06)
------- ------- ------- ------- ------ ------- ------- ------ --------
DILUTED EPS $33,679 21,624 $ 1.56 $32,075 21,812 $ 1.47 $32,642 21,586 $ 1.51
======= ======= ======= ======= ====== ======= ======= ====== ========
Options to purchase 787,965, 1,122,094 and 1,403,250 shares of common
stock in fiscal 2003, 2002 and 2001, respectively, are not included in the
computation of diluted earnings per share because the options would be
considered anti-dilutive.
L. SEGMENT INFORMATION
The Company is a retailer of medium to better priced casual apparel,
footwear and accessories. The Company operates 316 stores located in 38
states throughout the central, northwestern and southern regions of the
United States at January 31, 2004. The Company operates their business as
one reportable industry segment. The following is information regarding
the Company's major product lines and is stated as a percentage of the
Company's net sales:
M. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial information for fiscal 2003 and 2002 are as
follows:
38
QUARTER
-----------------------------------------
FIRST SECOND THIRD FOURTH
FISCAL 2003
Net sales $ 81,713 $ 85,683 $121,325 $134,099
Gross profit, as previously reported $ 22,869 $ 24,598 $ 43,645 $ 51,807
Gross profit (as restated, see Note B) $ 22,844 $ 24,572 $ 43,619 $ 51,781
Net income, as previously reported $ 2,991 $ 3,592 $ 12,183 $ 14,980
Net income (as restated, see Note B) $ 2,974 $ 3,575 $ 12,167 $ 14,963
Basic income per share, as previously reported $ 0.14 $ 0.17 $ 0.57 $ 0.71
Basic income per share (as restated, see Note B) $ 0.14 $ 0.17 $ 0.57 $ 0.71
Diluted income per share, as previously reported $ 0.14 $ 0.17 $ 0.56 $ 0.69
Diluted income per share (as restated, see Note B) $ 0.14 $ 0.17 $ 0.56 $ 0.69
QUARTER
-----------------------------------------
FIRST SECOND THIRD FOURTH
FISCAL 2002
Net sales $ 79,855 $ 83,516 $114,436 $123,253
Gross profit, as previously reported $ 23,116 $ 23,810 $ 40,238 $ 44,363
Gross profit (as restated, see Note B) $ 23,121 $ 23,814 $ 40,242 $ 44,367
Net income, as previously reported $ 4,298 $ 4,069 $ 11,264 $ 12,433
Net income (as restated, see Note B) $ 4,301 $ 4,072 $ 11,267 $ 12,435
Basic income per share, as previously reported $ 0.20 $ 0.19 $ 0.53 $ 0.59
Basic income per share (as restated, see Note B) $ 0.20 $ 0.19 $ 0.53 $ 0.59
Diluted income per share, as previously reported $ 0.20 $ 0.19 $ 0.52 $ 0.57
Diluted income per share (as restated, see Note B) $ 0.20 $ 0.19 $ 0.52 $ 0.57
Basic and diluted shares outstanding are computed independently for each
of the quarters presented and, therefore, may not sum to the totals for
the year.
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
The Buckle, Inc.
Kearney, Nebraska
We have audited the accompanying balance sheets of The Buckle, Inc. (the
Company), as of January 31, 2004 and February 1, 2003, and the related
statements of income, stockholders' equity and cash flows for each of the three
fiscal years in the period ended January 31, 2004. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Buckle, Inc. as of January 31, 2004 and
February 1, 2003, and the results of its operations and its cash flows for each
of the three fiscal years in the period ended January 31, 2004, in conformity
with accounting principles generally accepted in the United States of America.
As discussed in Note B, the accompanying financial statements have been
restated.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 4, 2004 (April 18, 2005, as to the effects of the restatement described in
Note B.)
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
During the fourth quarter of fiscal 2003, there were no changes in the Company's
internal control over financial reporting that materially affected or are
reasonable likely to materially affect internal control over financial
reporting.
However, on March 3, 2005, Company management announced that, in light of the
views expressed by the staff of the Securities and Exchange Commission ("SEC")
on February 7, 2005, the Company's management reviewed its lease-related
accounting policies and determined its then-current method of accounting for
leasehold improvements funded by landlord allowances under operating leases
(tenant improvement allowances), accounting for rent holidays and straight-line
rent appeared to be incorrect.
Based upon the definition of "material weakness" in the Public 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, and disclosed this to the Audit Committee and
to the independent registered public accountants.
40
The Company also carried out an evaluation, under the supervision and with the
participation of the Company's management, including the chief executive officer
and the chief financial officer, of the effectiveness of the design and
operation of the disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15 (e) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Based upon that evaluation, which included the matters
discussed above, the Company's chief executive officer and chief financial
officer concluded that the Company's disclosure controls and procedures were not
effective, as of the end of the period covered by this report, in ensuring that
material information relating to The Buckle, Inc. required to be disclosed by
the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms.
The Company has remediated the material weakness in internal control over
financial reporting and the ineffectiveness of its disclosure controls and
procedures by conducting a review of its accounting related to leases,
establishing new lease-related accounting policies and correcting its method of
accounting for tenant allowances, rent holidays and straight-line rent.
ITEM 9B - OTHER INFORMATION
None.
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 of this report, and "Election of
Directors" in the Company's Proxy Statement for its 2004 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 2004 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 2004 Annual Shareholders'
Meeting and in the Notes to Financial Statements under Footnote J on pages 36
and 37 of this report.
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 Statement
for its 2004 Annual Shareholders' Meeting and is incorporated by reference.
41
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
This report 10-K/A contains the following on pages 24 through 39:
Balance Sheets as of January 31, 2004, and February 1, 2003
Statements of Income for each of the three years in the period ended
January 31, 2004
Statements of Stockholders' Equity for each of the three years in the
period ended January 31, 2004
Statements of Cash Flows for each of the three years in the period ended
January 31, 2004
Notes to Financial Statements for each of the three years in the period
ended January 31, 2004
Report of Independent Registered Public Accounting Firm
(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 44.
(b) EXHIBITS
See index to exhibits on pages 45 and 46.
42
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
43
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 31, 2004 and February 1, 2003, and for each of the three years in the
period ended January 31, 2004, and have issued our report thereon dated March 4,
2004 (April 18, 2005 as to the effects of the restatement described in Note B);
such financial statements and report are included in your 2003 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 3, 2001 $ 250,000
Amounts charged to costs and expenses 816,276
Write-off of uncollectible accounts (816,276)
------------
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
============
44
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 5, 2004
(10.5) Acknowledgment for James E. Shada
dated April 5, 2004
(10.6) Acknowledgment for Brett P. Milkie
dated April 5, 2004
(10.7) Acknowledgment for Patricia K. Whisler
dated April 5, 2004
(10.8) Acknowledgment for Kari G. Smith
dated April 5, 2004
(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 August
1, 2003 between The Buckle, Inc. and Wells
Fargo Bank, N.A. for a $17.5 million line of
credit
45
(10.12) Credit Agreement dated August 1, 2003
between The Buckle, Inc. and Wells
Fargo Bank, N.A, regarding $17.5 million
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
May 26, 1993
(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) 2003 Management Incentive Plan Exhibit A to Proxy Statement
for Annual Meeting to be held
May 29, 2003
(12) Not applicable
(13) 2003 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.
46