UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended AUGUST 3, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ____________ to ____________ Commission File Number: 000-20132 THE BUCKLE, INC. (Exact name of Registrant as specified in its charter) NEBRASKA 47-0366193 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2407 WEST 24TH STREET, KEARNEY, NEBRASKA 68845-4915 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (308) 236-8491 - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares issued of the Registrant's Common Stock, outstanding as of August 23, 2002 was 21,159,328 shares of Common Stock.
THE BUCKLE, INC. FORM 10-Q INDEX <TABLE> <CAPTION> Pages ----- <S> <C> Part I. Financial Information (unaudited) Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 Part II. Other Information Item 1. Legal Proceedings 15 Item 2. Changes in Securities and Use of Proceeds 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 </TABLE> 2
THE BUCKLE, INC. BALANCE SHEETS (Columnar amounts in thousands) (Unaudited) ASSETS August 3, February 2, CURRENT ASSETS 2002 2002 --------- ----------- Cash and cash equivalents $ 79,804 $ 101,915 Investments: Held-to-maturity 55,255 40,368 Available-for-sale 625 951 Accounts receivable, net of allowance of $175,000 and $250,000, respectively 1,531 2,021 Inventory 83,106 54,297 Prepaid expenses and other assets 8,316 7,357 --------- --------- Total current assets 228,637 206,909 PROPERTY AND EQUIPMENT 114,318 111,443 Less accumulated depreciation and amortization 61,382 57,151 --------- --------- 52,936 54,292 OTHER ASSETS 3,503 3,456 --------- --------- $ 285,076 264,657 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 28,888 $ 11,133 Accrued employee compensation 5,651 10,755 Accrued store operating expenses 4,722 4,231 Gift certificates redeemable 1,747 2,482 Income taxes payable 471 1,397 --------- --------- Total current liabilities 41,479 29,998 DEFERRED COMPENSATION 951 957 --------- --------- Total liabilities 42,430 30,955 STOCKHOLDERS' EQUITY Common stock, authorized 100,000,000 shares of $.01 par value; issued 21,157,571 and 21,115,538 shares, respectively 212 211 Additional paid-in capital 19,821 19,320 Retained earnings 222,676 214,309 Unearned compensation - restricted stock (63) (126) Accumulated other comprehensive loss -- (12) --------- --------- Total stockholders' equity 242,646 233,702 --------- --------- $ 285,076 $ 264,657 ========= ========= See notes to financial statements. 3
THE BUCKLE, INC. STATEMENTS OF INCOME (Amounts in thousands, except per share data) (Unaudited) <TABLE> <CAPTION> Thirteen Weeks Ended Twenty-six Weeks Ended -------------------- ---------------------- August 3, August 4, August 3, August 4, 2002 2001 2002 2001 -------- -------- -------- -------- <S> <C> <C> <C> <C> SALES, net of returns and allowances $ 83,516 $ 78,596 $163,371 $155,035 COST OF SALES (including buying, distribution and occupancy costs) 59,706 56,411 116,445 109,997 -------- -------- -------- -------- Gross profit 23,810 22,185 46,926 45,038 -------- -------- -------- -------- OPERATING EXPENSES: Selling 15,912 14,732 30,948 29,422 General and administrative 2,527 2,458 5,072 5,015 -------- -------- -------- -------- 18,439 17,190 36,020 34,437 -------- -------- -------- -------- Income from operations 5,371 4,995 10,906 10,601 OTHER INCOME 1,108 1,342 2,417 2,477 -------- -------- -------- -------- Income before income taxes 6,479 6,337 13,323 13,078 Income tax expense 2,410 2,428 4,956 4,930 -------- -------- -------- -------- NET INCOME $ 4,069 $ 3,909 $ 8,367 $ 8,148 ======== ======== ======== ======== Per share amounts: Basic income per share $ 0.19 $ 0.19 $ 0.40 $ 0.40 ======== ======== ======== ======== Diluted income per share $ 0.19 $ 0.18 $ 0.38 $ 0.38 ======== ======== ======== ======== Basic weighted average shares 21,158 20,595 21,152 20,577 Diluted weighted average shares 21,938 21,509 21,943 21,512 </TABLE> See notes to financial statements. 4
THE BUCKLE, INC. STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited) <TABLE> <CAPTION> Twenty-six Weeks Ended ------------------------------------- August 3, 2002 August 4, 2001 -------------- --------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 8,367 $ 8,148 Adjustments to reconcile net income to net cash flows from operating activities Depreciation 5,674 5,636 Loss on disposal of assets 145 244 Amortization of unearned compensation-restricted stock 63 62 Forfeiture of restricted stock -- (483) Changes in operating assets and liabilities Accounts receivable 490 (485) Inventory (28,809) (26,753) Prepaid expenses and other assets (959) 2,544 Accounts payable 17,755 14,036 Accrued employee compensation (5,104) (5,952) Accrued store operating expenses 491 94 Gift certificates redeemable (735) (587) Income taxes payable (926) (3,705) Deferred compensation (6) 120 --------- --------- Net cash flows from operating activities (3,554) (7,081) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (18,420) (10,229) Proceeds from maturities of investments 3,859 9,751 Purchase of property and equipment (4,463) (6,545) Change in other assets (35) (58) --------- --------- Net cash flows from investing activities (19,059) (7,081) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the exercise of stock options 502 2,024 --------- --------- Net cash flows from financing activities 502 2,204 --------- --------- Net decrease in cash and cash equivalents (22,111) (12,138) Cash and cash equivalents, Beginning of period 101,915 69,155 --------- --------- Cash and cash equivalents, End of period $ 79,804 $ 57,017 ========= ========= </TABLE> See notes to financial statements. 5
THE BUCKLE, INC. NOTES TO FINANCIAL STATEMENTS THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 3, 2002 AND AUGUST 4, 2001 (Unaudited) 1. Management Representation - The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the interim periods have been included. All such adjustments are of a normal recurring nature. Because of the seasonal nature of the business, results for interim periods are not necessarily indicative of a full year's operations. The accounting policies followed by the Company and additional footnotes are reflected in the financial statements for the fiscal year ended February 2, 2002, included in The Buckle, Inc.'s 2001 Annual Report. 2. Description of the Business - The Company is a retailer of medium to better priced casual apparel and footwear for fashion conscious young men and women. The Company operates their business as one reportable industry segment. The Company had 300 stores located in 37 states throughout the central, northwestern and southern areas of the United States as of August 3, 2002, and 288 stores in 37 states as of August 4, 2001. During the second quarter of fiscal 2002, the Company opened two new stores and substantially renovated four stores. During the second quarter of fiscal 2001, the Company opened nine new stores and substantially renovated four stores. The following is information regarding the Company's major product lines, stated as a percentage of the Company's net sales: <TABLE> <CAPTION> Percentage of Net Sales Percentage of Net Sales Thirteen Weeks Ended Twenty-six Weeks Ended Merchandise Group Aug. 3, 2002 Aug. 4, 2001 Aug. 3, 2002 Aug. 4, 2001 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Denims 29.7% 25.5% 30.0% 25.8% Slacks/Casual bottoms 2.6% 4.8% 3.1% 5.2% Tops (incl. sweaters) 32.4% 34.5% 31.8% 32.9% Sportswear/Fashions 10.5% 11.2% 10.5% 11.7% Outerwear 1.3% 0.5% 0.9% 0.6% Accessories 11.4% 11.0% 10.7% 10.6% Footwear 11.9% 11.3% 12.6% 12.0% Little Guys/Gals 0.2% 1.2% 0.3% 1.1% Other -- -- .1% .1% ----- ----- ----- ----- 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== </TABLE> 3. Net Income Per Share - Basic earnings per share data are based on the weighted average outstanding common shares during the period. Diluted earnings per share data are based on the weighted average outstanding common shares and the effect of all dilutive potential common shares, including stock options. 6
THE BUCKLE, INC. NOTES TO FINANCIAL STATEMENTS THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 3, 2002 AND AUGUST 4, 2001 (Unaudited) <TABLE> <CAPTION> Thirteen Weeks Ended Thirteen Weeks Ended August 3, 2002 August 4, 2001 Per Share Per Share Income Shares Amount Income Shares Amount ------- ------ --------- -------- -------- --------- <S> <C> <C> <C> <C> <C> <C> Basic EPS Net Income $ 4,069 21,158 $ 0.19 $ 3,909 20,595 $ 0.19 Effect of Dilutive Securities Stock Options -- 780 -- -- 914 (0.01) ------------------------------ ----------------------------- Diluted EPS $ 4,069 21,938 $ 0.19 $ 3,909 21,509 $ 0.18 ============================= ============================ <CAPTION> Twenty-six Weeks Ended Twenty-six Weeks Ended August 3, 2002 August 4, 2001 Per Share Per Share Income Shares Amount Income Shares Amount ------- ------ --------- ------ ------ --------- <S> <C> <C> <C> <C> <C> <C> Basic EPS Net Income $ 8,367 21,152 $ 0.40 8,148 20,577 $0.40 Effect of Dilutive Securities Stock Options -- 791 (0.02) -- 935 (0.02) ------------------------------ ----------------------------- Diluted EPS $ 8,367 21,943 $ 0.38 $ 8,148 21,512 $0.38 ============================= ============================ </TABLE> 4. Accounting Pronouncements - In June 2001, the FASB approved the issuance of SFAS No. 143, Accounting for Asset Retirement Obligations. This Statement addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for the Company beginning February 2, 2003. The Company does not believe the adoption of SFAS No. 143 will have a significant impact on the financial position, results of operations, or cash flows of the Company. Effective at the beginning of fiscal 2002, the Company adopted SFAS No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets. This Statement replaces SFAS No. 121, Accounting for Impairment or Disposal of Long-Lived Assets, and replaces the provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business for the disposal of segments of a business. 7
BUCKLE, INC. NOTES TO FINANCIAL STATEMENTS THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 3, 2002 AND AUGUST 4, 2001 (Unaudited) The Statement develops one accounting model for long-lived assets to be disposed of by sale and broadens the reporting of discontinued operations. The adoption of SFAS No. 144 did not have a significant impact on the financial position, results of operations, or cash flows of the Company. In April 2002, the FASB approved the issuance of SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections which will be effective for the Company February 2, 2003. This Statement rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Management anticipates that the adoption of SFAS No. 145 will not have a significant effect on the Company's results of operations or its financial position. In June 2002, the FASB approved the issuance of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. Management does not believe the adoption of SFAS No. 146 will have a significant effect on the Company's results of operations or its financial position. 5. Comprehensive Income - Unrealized gains and losses on the Company's available-for-sale securities are included in other comprehensive income, net of related taxes. <TABLE> <CAPTION> Thirteen Weeks Ended Twenty-six Weeks Ended ---------------------- --------------------------- August 3, August 4, August 3, August 4, 2002 2001 2002 2001 --------- --------- --------- --------- <S> <C> <C> <C> <C> Net Income $ 4,069 $ 3,909 $ 8,367 $ 8,148 Unrealized gain (loss) on available for sale securities, net of taxes -- -- 12 (24) -------- -------- ------- -------- Total Comprehensive Income $ 4,069 $ 3,909 $ 8,379 $ 8,124 ======== ======== ======= ======== </TABLE> 8
THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Company's financial condition and results of operations during the periods included in the accompanying financial statements. RESULTS OF OPERATIONS The table below sets forth the percentage relationships of sales and various expense categories in the Statements of Income for each of the thirteen and twenty-six week periods ended August 3, 2002, and August 4, 2001: THE BUCKLE, INC. RESULTS OF OPERATIONS <TABLE> <CAPTION> Percentage of Net Sales Percentage of Net Sales ----------------------- ----------------------- Thirteen weeks ended Percentage Twenty-six weeks ended Percentage August 3, August 4, increase August 3, August 4, increase 2002 2001 (decrease) 2002 2001 (decrease) -------------------------------------- ------------------------------------- <S> <C> <C> <C> <C> <C> <C> Net sales 100.0% 100.0% 6.3% 100.0% 100.0% 5.4% Cost of sales (including buying, distribution and occupancy costs) 71.5% 71.8% 5.8% 71.3% 70.9% 5.9% -------------------------------- -------------------------------- Gross profit 28.5% 28.2% 7.3% 28.7% 29.1% 4.2% Selling expenses 19.1% 18.7% 8.0% 18.9% 19.0% 5.2% General and administrative expenses 3.0% 3.1% 2.8% 3.1% 3.2% 1.1% -------------------------------- -------------------------------- Income from operations 6.4% 6.4% 7.5% 6.7% 6.9% 2.9% Other income 1.4% 1.7% (17.4)% 1.5% 1.6% (2.4)% -------------------------------- -------------------------------- Income before income taxes 7.8% 8.1% 2.2% 8.2% 8.5% 1.9% Income tax expense 2.9% 3.1% (0.7)% 3.1% 3.2% 0.5% -------------------------------- -------------------------------- Net income 4.9% 5.0% 4.1% 5.1% 5.3% 2.7% ================================ ================================ </TABLE> Net sales increased from $78.6 million in the second quarter of fiscal 2001 to $83.5 million in the second quarter of fiscal 2002, a 6.3% increase. Comparable store sales increased from the second quarter of fiscal 2001 to the second quarter of fiscal 2002 by $1.0 million or 1.3%. The comparable store sales increase resulted partially from a 1.6% increase in the average price per piece of merchandise sold compared with the fiscal 2001 second quarter. Net sales increased from $155.0 million in the first six months of fiscal 2001 to $163.4 million for the first six months of fiscal 2002, a 5.4% increase. Comparable store sales for the twenty-six weeks ended August 3, 2002 compared to the twenty-six weeks ended August 4, 2001 remained unchanged. Sales growth for this twenty-six week period was attributable to the inclusion of a full six months of operating results for the 24 stores opened in 2001 and the opening of 5 new stores in the first twenty-six weeks of fiscal 2002. Average sales per square foot decreased 0.7% from $114.06 to $113.25 for the six months ended August 3, 2002. 9
THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Gross profit after buying, occupancy, and distribution expenses increased $1.6 million in the second quarter of fiscal 2002 to $23.8 million, a 7.3% increase. As a percentage of net sales, gross profit increased from 28.2% in the second quarter of fiscal 2001 to 28.5% in the second quarter of fiscal 2002. Gross profit increased $1.9 million for the first twenty-six weeks of fiscal 2002 to $46.9 million, a 4.2% increase. As a percentage of net sales, gross profit in the first six months decreased from 29.1% for fiscal 2001, to 28.7% for fiscal 2002. The primary reason for improvement in gross profit as a percentage of net sales for the second quarter of fiscal 2002 compared to the second quarter of fiscal 2001 is improvement in actual merchandise margins partially offset by higher occupancy costs. The decrease in gross profit as a percentage of net sales for the six month period of fiscal 2002 compared to the same period of fiscal 2001 was primarily attributable to higher occupancy costs outweighing improvement in the actual merchandise margins. Selling expense increased from $14.7 million in the second quarter of fiscal 2001 to $15.9 million for the second quarter of fiscal 2002, an 8.0% increase. Selling expenses as a percentage of net sales increased from 18.7% for the second quarter of fiscal 2001 to 19.1% for the second quarter of fiscal 2002. Year-to-date selling expense rose 5.2% from $29.4 million through the first half of fiscal 2001 to $30.9 million for the first half of fiscal 2002. As a percentage of net sales, selling expense in the first six months decreased from 19.0% for fiscal 2001, to 18.9% for fiscal 2002. For the second quarter of fiscal 2002 compared to the same period a year ago, selling expense increased as a percentage of net sales primarily due to higher payroll expenses. The primary reason for the improvement in year-to-date selling expense as a percentage of net sales is improvement in various expense categories for the first six months, plus a slight decrease in payroll expense for the first three months of the fiscal year, partially offset by higher payroll expense in the second three-month period of fiscal 2002 compared to the same time period a year ago. General and administrative expenses remained at $2.5 million in the second quarter of fiscal 2002 compared to the second quarter of fiscal 2001 due to rounding, with actual dollars being up 2.8%. As a percentage of net sales, general and administrative expenses decreased from 3.1% for the second quarter of fiscal 2001 to 3.0% for the second quarter of fiscal 2002. For the first half of fiscal 2002, general and administrative expense rose 1.1% from $5.0 million for the six months ended August 4, 2001, to $5.1 million for the six months ended August 3, 2002. As a percentage of net sales, general and administrative expense decreased to 3.1% for the first half of fiscal 2002 compared to 3.2% for the first half of fiscal 2001. Decreases in general and administrative expenses, as a percentage of net sales, for both the three and six month periods of fiscal 2002 compared to the same periods of fiscal 2001 resulted primarily from consistent results in many expense categories with slight improvements in some expense categories. As a result of the above changes, the Company's income from operations increased $0.4 million to $5.4 million for the second quarter of fiscal 2002 compared to $5.0 million for the second quarter of fiscal 2001, a 7.5% increase. Income from operations was 6.4% of net sales in both the second quarter of fiscal 2002 and 2001. Income from operations, year-to-date through August 3, 2002, was $10.9 million, a $0.3 million increase from the first half of the prior year. Income from operations was 6.7% of net sales for the first six months of fiscal 2002 compared to 6.9% for the first six months of fiscal 2001. 10
THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the quarter ended August 3, 2002, other income decreased $0.2 million. For the six months ended August 3, 2002, other income decreased $0.1 million. Other income decreased in the both the three and six-month periods of fiscal 2002 compared to the same periods of fiscal 2001 due to income in the prior year received from state tax incentive programs. Income tax expense as a percentage of pre-tax income was 37.2% in both the second quarter and first half of fiscal 2002 compared to 38.3% and 37.7% in the second quarter and first half of fiscal 2001. Liquidity and Capital Resources The Company's primary ongoing cash requirements are for inventory, payroll, new store expansion, and remodeling. Historically, the Company's primary source of working capital has been cash flow from operations. However, the first half of each fiscal year is typically a period of decreasing cash flows created by various operating, investing, and financing activities. During the first half of fiscal 2002 and 2001, the Company's cash flow used by operating activities was $3.6 and $7.1 million, respectively. The uses of cash for both twenty-six week periods include payment of annual bonuses accrued at fiscal year end, changes in inventory and accounts payable for build up of inventory levels, and construction costs for new and remodeled stores. The differences in cash flow for the first half of fiscal 2002 compared to the first half of fiscal 2001 were primarily due to changes in inventory, prepaid expenses and other assets, accounts payable, investments, property and equipment, and income taxes payable. The Company has available an unsecured operating line of credit of $7.5 million and a $10.0 million unsecured line of credit for foreign and domestic letters of credit, with Wells Fargo Bank Nebraska, N.A. Borrowings under the lending arrangements provide for interest to be paid at a rate equal to the prime rate published in the Wall Street Journal on the date of the borrowings. As of August 3, 2002, the Company had working capital of $187.2 million, including $79.8 million of cash and cash equivalents and investments of $55.9 million. The Company has, from time to time, borrowed against these lines during periods of peak inventory build-up. There were no bank borrowings during the first half of fiscal 2002 or fiscal 2001. During the first half of fiscal 2002 and 2001 the Company invested $4.1 million and $6.2 million, respectively, in new store construction, store renovation and upgrading store technology, net of any construction allowances received from landlords. The Company also spent approximately $0.4 million and $0.3 million in the first half of fiscal 2002 and 2001, respectively, in capital expenditures for the corporate headquarters and distribution center. During the remainder of fiscal 2002, the Company anticipates completing approximately nine additional store construction projects, including approximately six new stores and approximately three stores to be remodeled and/or relocated. As of August 3, 2002, nine additional lease contracts have been signed, and additional leases are in various stages of negotiation. 11
THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management now estimates that total capital expenditures during fiscal 2002 will be approximately $23.0 million before any landlord allowances, estimated to be at approximately $2.9 million. Projected capital expenditures include the Company's plan to replace one of its corporate airplanes during the second half of fiscal 2002. 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 year. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management's Discussion and Analysis of Financial Condition and Results of Operations are based upon The Buckle, Inc.'s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the financial statement date, and the reported amounts of sales and expenses during the reporting period. The Company regularly evaluates its estimates, including those related to merchandise returns, inventory, bad debts, health care costs and income taxes. Management bases its estimates on past experience and on various other factors that are thought to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company's certain critical accounting policies are listed below. 1. Merchandise Returns. The Company establishes a liability for estimated merchandise returns at the end of the period. Customer returns could potentially exceed those reserved for, reducing future net sales results. 2. Inventory. Inventory is valued at the lower of cost or market. Cost is determined using the average cost method and management makes estimates to reserve for obsolescence and markdowns that could effect market value, based on assumptions regarding future demand and market conditions. Such judgments may have a material impact on current and future operating results and financial position. 3. Bad Debts. The Company books an allowance for doubtful accounts based upon historical data and current trends. Management believes the reserve is adequate; however, customers' ability to pay could deteriorate causing actual losses to exceed those anticipated in the allowance. 4. Health Care Costs. The Company is self-funded for health and dental claims up to $60,000 per individual per plan year. This plan covers eligible employees and management makes estimates at period end to record a reserve for future claims. The number and amount of claims submitted could vary from the amounts reserved, effecting current and future net earnings results. 5. Income Taxes. The Company records a deferred tax asset for future tax benefits for difference between book and tax revenue and expense recognition. If the Company is unable to realize all or part of its deferred tax asset in the future, an adjustment would be charged to income in the period such determination was made. 12
THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS As referenced in the tables below, the Company has contractual obligations and commercial commitments that may affect the financial condition of the Company. Based on management's review of the terms and conditions of its contractual obligations and commercial commitments, there is no known trend, demand, commitment, event or uncertainty that is reasonably likely to occur which would have a material effect on the Company's financial condition or results of operations. In addition, the commercial obligations and commitments made by the Company are customary transactions, which are similar to those of other comparable retail companies. The following tables identify the material obligations and commitments as of August 3, 2002: <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------- Payments Due by Period - -------------------------------------------------------------------------------------------------- Contractual obligations Total Less than 1-3 years 4-5 years After 5 years (dollar amounts in 1 year thousands) - -------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Long term debt $ -- $ -- $ -- $ -- $ -- - -------------------------------------------------------------------------------------------------- Operating leases $190,196 $ 27,322 $ 50,964 $ 42,942 $ 68,968 - -------------------------------------------------------------------------------------------------- Total contractual obligations $190,196 $ 27,322 $ 50,964 $ 42,942 $ 68,968 - -------------------------------------------------------------------------------------------------- </TABLE> <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------- Amount of Commitment Expiration Per Period - ----------------------------------------------------------------------------------------------------- Other Commercial Total Amounts Less than 1-3 years 4-5 years After 5 years Commitments (dollar amounts Committed 1 year in thousands) - ---------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Lines of Credit $ 7,500 $ 7,500 $ -- $ -- $ -- Letters of Credit $ 10,000 $ 10,000 $ -- $ -- $ -- Total Commercial Commitments $ 17,500 $ 17,500 $ -- $ -- $ -- - ---------------------------------------------------------------------------------------------------- </TABLE> 13
THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SEASONALITY AND INFLATION The Company's business is seasonal, with the Christmas season (from approximately November 15 to December 30) and the back-to-school season (from approximately July 15 to September 1) historically contributing the greatest volume of net sales. For fiscal years 1999, 2000, 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 twenty-six week periods ended August 3, 2002, and August 4, 2001. FORWARD LOOKING STATEMENTS Information in this report, other than historical information, may be considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "1995 Act"). Such statements are made in good faith by the Company pursuant to the safe-harbor provisions of the 1995 Act. In connection with these safe-harbor provisions, this management's discussion and analysis contains certain forward-looking statements, which reflect management's current views and estimates of future economic conditions, company performance and financial results. The statements are based on many assumptions and factors that could cause future results to differ materially. Such factors include, but are not limited to, changes in product mix, changes in fashion trends, competitive factors and general economic conditions, economic conditions in the retail apparel industry, as well as other risks and uncertainties inherent in the Company's business and the retail industry in general. Any changes in these factors could result in significantly different results for the Company. The Company further cautions that the forward-looking information contained herein is not exhaustive or exclusive. The Company does not undertake to update any forward-looking statements, which may be made from time to time by or on behalf of the Company. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has evaluated the disclosure requirements of Item 305 of S-K "Quantitative and Qualitative Disclosures about Market Risk," and has concluded that the Company has no market risk sensitive instruments for which these additional disclosures are required. 14
THE BUCKLE, INC. PART II -- OTHER INFORMATION Item 1. Legal Proceedings: None Item 2. Changes in Securities and Use of Proceeds: None Item 3. Defaults Upon Senior Securities: None Item 4. Submission of Matters to a Vote of Security Holders: (a) May 30, 2002, Annual Meeting (b) Board of Directors: Daniel J. Hirschfeld Robert E. Campbell Dennis H. Nelson William D. Orr Karen B. Rhoads Ralph M. Tysdal Bill L. Fairfield Bruce L. Hoberman James E. Shada David A. Roehr <TABLE> <CAPTION> NUMBER OF SHARES* ---------------- For Against Abstain Del N-Vote --- ------- ------- ---------- <S> <C> <C> <C> (c) 1. Election of Board of Directors: Daniel J. Hirschfeld 20,507,109 0 32,283 Dennis H. Nelson 20,032,861 0 506,531 Karen B. Rhoads 20,005,651 0 533,741 James E. Shada 20,005,651 0 533,741 Bill L. Fairfield 20,441,949 0 97,443 Robert E. Campbell 20,442,173 0 97,219 William D. Orr 20,438,649 0 100,743 Ralph M. Tysdal 20,442,113 0 97,279 Bruce L. Hoberman 20,504,213 0 35,179 David A. Roehr 20,504,373 0 35,019 2. Appoint Deloitte & Touche LLP as independent auditors. 20,376,982 162,410 9,100 3. Approve Company's 2002 Management Incentive Program 17,103,621 555,470 709,104 2,171,197 4. Approve Amendment to Company's 1993 Director Stock Option Plan 18,660,803 1,173,212 705,377 *includes only shares represented in person or by proxy at the annual meeting </TABLE> (d) None Item 5. Other Information: None Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits 99.1 and 99.2 Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) No reports on Form 8-K were filed by the Company during the quarter ended August 3, 2002. 15
THE BUCKLE, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE BUCKLE, INC. Dated: August 28, 2002 /s/ DENNIS H. NELSON -------------------- -------------------------------------- DENNIS H. NELSON, President and CEO Dated: August 28, 2002 /s/ KAREN B. RHOADS -------------------- -------------------------------------- KAREN B. RHOADS, Vice President of Finance and CFO 16