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 2, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ____________ to ____________ Commission File Number: 000-20132 THE BUCKLE, INC. (Exact name of Registrant as specified in its charter) NEBRASKA 47-0366193 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2407 WEST 24TH STREET, KEARNEY, NEBRASKA 68845-4915 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (308) 236-8491 - ----------------------------------------------- (Former name, former address and former fiscal year if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares issued of the Registrant's Common Stock, outstanding as of September 5, 2003 was 21,161,771 shares of Common Stock.
THE BUCKLE, INC. FORM 10-Q INDEX <Table> <Caption> Pages ----- <S> <C> <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 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 Item 4. Controls and Procedures 16 Part II. Other Information Item 1. Legal Proceedings 17 Item 2. Changes in Securities and Use of Proceeds 17 Item 3. Defaults Upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18 </Table> 2
THE BUCKLE, INC. BALANCE SHEETS (Columnar amounts in thousands) (Unaudited) <Table> <Caption> August 2, February 1, 2003 2003 ------------ ------------ <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $ 72,627 $ 92,976 Investments 19,720 15,450 Accounts receivable, net of allowance of $151,000 and $217,000, respectively 1,995 1,390 Inventory 86,813 60,041 Prepaid expenses and other assets 8,770 8,277 ------------ ------------ Total current assets 189,925 178,134 PROPERTY AND EQUIPMENT 135,270 130,013 Less accumulated depreciation and amortization 68,299 65,407 ------------ ------------ 66,971 64,606 LONG-TERM INVESTMENTS 57,145 54,548 OTHER ASSETS 2,665 2,512 ------------ ------------ $ 316,706 $ 299,800 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 28,971 $ 13,318 Accrued employee compensation 5,194 10,556 Accrued store operating expenses 5,202 4,487 Gift certificates redeemable 1,903 2,855 Income taxes payable 3,893 2,966 ------------ ------------ Total current liabilities 45,163 34,182 DEFERRED COMPENSATION 1,230 946 ------------ ------------ Total liabilities 46,393 35,128 COMMITMENTS STOCKHOLDERS' EQUITY Common stock, authorized 100,000,000 shares of $.01 par value; issued 21,160,776 and 21,045,404 shares, respectively 212 210 Additional paid-in capital 20,359 18,089 Retained earnings 252,955 246,373 Unearned compensation (3,213) -- ------------ ------------ Total stockholders' equity 270,313 264,672 ------------ ------------ $ 316,706 $ 299,800 ============ ============ </Table> 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 2, August 3, August 2, August 3, 2003 2002 2003 2002 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> SALES, net of returns and allowances $ 85,683 $ 83,516 $ 167,396 $ 163,371 COST OF SALES (including buying, distribution and occupancy costs) 61,085 59,706 119,929 116,445 ------------ ------------ ------------ ------------ Gross profit 24,598 23,810 47,467 46,926 ------------ ------------ ------------ ------------ OPERATING EXPENSES: Selling 16,428 15,912 32,959 30,948 General and administrative 3,423 2,527 6,176 5,072 ------------ ------------ ------------ ------------ 19,851 18,439 39,135 36,020 ------------ ------------ ------------ ------------ Income from operations 4,747 5,371 8,332 10,906 OTHER INCOME, Net 932 1,108 2,072 2,417 ------------ ------------ ------------ ------------ Income before income taxes 5,679 6,479 10,404 13,323 PROVISION FOR INCOME TAXES 2,087 2,410 3,822 4,956 ------------ ------------ ------------ ------------ NET INCOME $ 3,592 $ 4,069 $ 6,582 $ 8,367 ============ ============ ============ ============ Per share amounts: Basic income per share $ 0.17 $ 0.19 $ 0.31 $ 0.40 ============ ============ ============ ============ Diluted income per share $ 0.17 $ 0.19 $ 0.31 $ 0.38 ============ ============ ============ ============ Basic weighted average shares 21,006 21,158 21,014 21,152 Diluted weighted average shares 21,521 21,938 21,545 21,943 </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 2, 2003 August 3, 2002 ---------------- ---------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,582 $ 8,367 Adjustments to reconcile net income to net cash flows from operating activities Depreciation 6,149 5,674 Loss on disposal of assets 476 145 Amortization of unearned compensation-restricted stock 206 63 Changes in operating assets and liabilities Accounts receivable (605) 490 Inventory (26,772) (28,809) Prepaid expenses and other assets (493) (959) Accounts payable 15,653 17,755 Accrued employee compensation (5,362) (5,104) Accrued store operating expenses 715 491 Gift certificates redeemable (952) (735) Income taxes payable 927 (926) Deferred compensation 284 (6) ---------------- ---------------- Net cash flows from operating activities (3,192) (3,554) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (17,328) (18,420) Proceeds from maturities of investments 10,464 3,859 Purchase of property and equipment (8,990) (4,463) Change in other assets (153) (35) ---------------- ---------------- Net cash flows from investing activities (16,007) (19,059) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the exercise of stock options 251 502 Purchases of common stock (1,401) -- ---------------- ---------------- Net cash flows from financing activities (1,150) 502 ---------------- ---------------- Net decrease in cash and cash equivalents (20,349) (22,111) Cash and cash equivalents, Beginning of period 92,976 101,915 ---------------- ---------------- Cash and cash equivalents, End of period $ 72,627 $ 79,804 ================ ================ </Table> See notes to financial statements. 5
THE BUCKLE, INC. NOTES TO FINANCIAL STATEMENTS THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 2, 2003 AND AUGUST 3, 2002 (Unaudited) 1. Management Representation - The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the interim periods have been included. All such adjustments are of a normal recurring nature. Because of the seasonal nature of the business, results for interim periods are not necessarily indicative of a full year's operations. The accounting policies followed by the Company and additional footnotes are reflected in the financial statements for the fiscal year ended February 1, 2003, included in The Buckle, Inc.'s 2002 Annual Report. 2. Description of the Business - The Company is a retailer of medium to better priced casual apparel, footwear and accessories for fashion conscious young men and women. The Company operates their business as one reportable industry segment. The Company had 313 stores located in 37 states throughout the central, northwestern and southern regions of the United States as of August 2, 2003, and 300 stores in 37 states as of August 3, 2002. During the second quarter of fiscal 2003, the Company opened three new stores and substantially renovated seven stores. During the second quarter of fiscal 2002, the Company opened two 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 ---------------------------- ---------------------------- Aug. 2, 2003 Aug. 3, 2002 Aug. 2, 2003 Aug. 3, 2002 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Merchandise Group Denims 31.8% 29.7% 32.2% 30.0% Slacks/Casual bottoms 3.2% 2.6% 3.1% 3.1% Tops (incl. sweaters) 33.8% 32.4% 33.0% 31.8% Sportswear/Fashions 10.3% 10.5% 10.5% 10.5% Outerwear 0.4% 1.3% 0.6% 0.9% Accessories 10.8% 11.4% 10.0% 10.7% Footwear 9.7% 11.9% 10.6% 12.6% Other 0.0% 0.2% 0.0% 0.4% ------------ ------------ ------------ ------------ 100.0% 100.0% 100.0% 100.0% ============ ============ ============ ============ </Table> 3. Stock-Based Compensation - The Company has several stock-based employee compensation plans, which are described more fully in the footnotes included in the Company's 2002 Annual Report. As of August 2, 2003, 240,135 shares were available for grant under the various plans, of which 108,200 were available to executive officers. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based compensation is reflected in net income, as all options granted under these plans had an exercise price equal to the market value of the common stock on the date of grant. 6
THE BUCKLE, INC. NOTES TO FINANCIAL STATEMENTS THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 2, 2003 AND AUGUST 3, 2002 (Unaudited) The Company also has a restricted stock plan. During the second quarter of 2003, the Compensation Committee of the Board of Directors of the Buckle, Inc., granted 169,840 shares of performance-based restricted stock to certain key members of management, subject to shareholder approval. The total estimated value of these restricted shares as of August 2, 2003 is approximately $3.4 million. These shares are restricted based upon the Company attaining certain financial performance goals set for the last three quarters of the current fiscal year, which ends on January 31, 2004. If the Company achieves the performance goals set, the shares granted will then vest on January 29, 2005, which is the last day of the Company's 2004 fiscal year. The Company anticipates recording the associated compensation expense ratably through the completion of the vesting period. The company recorded compensation expense of $.2 million in the second quarter of fiscal 2003 related to the restricted stock grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. <Table> <Caption> Thirteen Weeks Ended Twenty-six Weeks Ended --------------------------- ---------------------------- Aug. 2, 2003 Aug. 3, 2002 Aug. 2, 2003 Aug. 3, 2002 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net income, as reported $ 3,592 $ 4,069 $ 6,582 $ 8,367 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 132 20 132 40 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (431) (453) (1,483) (1,482) ------------ ------------ ------------ ------------ Pro forma net income $ 3,293 $ 3,636 $ 5,231 $ 6,925 ============ ============ ============ ============ Earnings per share: Basic - as reported $ .17 $ .19 $ .31 $ .40 ============ ============ ============ ============ Basic - pro forma $ .16 $ .17 $ .25 $ .33 ============ ============ ============ ============ Diluted - as reported $ .17 $ .19 $ 31 $ .38 ============ ============ ============ ============ Diluted - pro forma $ .15 $ .17 $ .24 $ .32 ============ ============ ============ ============ </Table> 7
THE BUCKLE, INC. NOTES TO FINANCIAL STATEMENTS THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 2, 2003 AND AUGUST 3, 2002 (Unaudited) 4. Net Income Per Share - Basic earnings per share data are based on the weighted average outstanding common shares during the period. Diluted earnings per share data are based on the weighted average outstanding common shares and the effect of all dilutive potential common shares, including stock options. <Table> <Caption> Thirteen Weeks Ended Thirteen Weeks Ended August 2, 2003 August 3, 2002 ------------------------------------------ ------------------------------------------ Per Per Income Shares Share Income Shares Share Amount Amount ------------ ------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> <C> Basic EPS Net Income $ 3,592 21,006 $ 0.17 $ 4,069 21,158 $ 0.19 Effect of Dilutive Securities Stock Options -- 515 -- -- 780 -- ------------ ------------ ------------ ------------ ------------ ------------ Diluted EPS $ 3,592 21,521 $ 0.17 $ 4,069 21,938 $ 0.19 ============ ============ ============ ============ ============ ============ </Table> <Table> <Caption> Twenty-six Weeks Ended Twenty-six Weeks Ended August 2, 2003 August 3, 2002 ------------------------------------------ ------------------------------------------ Per Per Income Shares Share Income Shares Share Amount Amount ------------ ------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> <C> Basic EPS Net Income $ 6,582 21,014 $ 0.31 $ 8,367 21,152 $ 0.40 Effect of Dilutive Securities Stock Options -- 531 -- -- 791 (0.02) ------------ ------------ ------------ ------------ ------------ ------------ Diluted EPS $ 6,582 21,545 $ 0.31 $ 8,367 21,943 $ 0.38 ============ ============ ============ ============ ============ ============ </Table> 5. Accounting Pronouncements - In June 2001, the FASB approved the issuance of SFAS No. 143, Accounting for Asset Retirement Obligations. This Statement addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for the Company beginning February 2, 2003. The adoption of SFAS No. 143 did not have a significant impact on the financial position, results of operations, or cash flows of the Company. SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123, was issued in December 2002. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure 8
THE BUCKLE, INC. NOTES TO FINANCIAL STATEMENTS THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 2, 2003 AND AUGUST 3, 2002 (Unaudited) requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As the Company follows Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, the disclosure-only provisions of the Statement apply to the Company. SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, was issued in April 2003. This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The provisions of this Statement that relate to Statement 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. The adoption of SFAS No. 149 is not expected to have a significant impact on the financial position, results of operations, or cash flows of the Company. SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, was issued in May 2003. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This Statement concludes the first phase of the Board's redeliberations of the Exposure Draft, Accounting for Financial Instruments with Characteristics of Liabilities, Equity, or Both. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 is not expected to have a significant impact on the financial position, results of operations, or cash flows of the Company. FASB Interpretation No. (FIN) 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, was issued in November 2002. The initial recognition and measurement provisions should be applied only on a prospective basis to guarantees issued or modified after December 31, 2002. FIN No. 45 clarifies the requirements for a guarantor to recognize a liability for a guarantee at inception of the guarantee. It specifies guarantor's financial statement disclosures for its obligations under guarantees. Management believes the adoption of the interpretation did not have a significant effect on the Company's financial position, results of operations or cash flows of the Company. 9
THE BUCKLE, INC NOTES TO FINANCIAL STATEMENTS THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 2, 2003 AND AUGUST 3, 2002 (Unaudited) FASB Interpretation No. 46, Consolidation of Variable Interest Entities - (an Interpretation of ARB No. 51), was issued in January 2003. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and is effective in the first fiscal year beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The FIN requires an enterprise to consolidate a variable interest entity if that enterprise has a variable interest (or combination of variable interests) that will absorb a majority of the entity's expected losses if they occur, receive a majority of the entity's expected residual returns if they occur or both. Management believes the adoption of the interpretation will not have a significant effect on the Company's financial position, results of operations or cash flows of the Company. 6. Comprehensive Income - Unrealized gains and losses on the Company's available-for-sale securities are included in other comprehensive income, net of related taxes. There were no available-for-sale securities held during the first half of fiscal 2003. <Table> <Caption> Thirteen Weeks Ended Twenty-six Weeks Ended --------------------------- --------------------------- August 2, August 3, August 2, August 3, 2003 2002 2003 2002 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net Income $ 3,592 $ 4,069 $ 6,582 $ 8,367 Unrealized gain (loss) on available for sale securities, net of taxes -- -- -- 12 ------------ ------------ ------------ ------------ Total Comprehensive Income $ 3,592 $ 4,069 $ 6,582 $ 8,379 ============ ============ ============ ============ </Table> 10
THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Company's financial condition and results of operations during the periods included in the accompanying financial statements. RESULTS OF OPERATIONS The table below sets forth the percentage relationships of sales and various expense categories in the Statements of Income for each of the thirteen and twenty-six week periods ended August 2, 2003, and August 3, 2002: 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 2, August 3, increase August 2, August 3, increase 2003 2002 (decrease) 2003 2002 (decrease) ------------ ------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> <C> Net sales 100.0% 100.0% 2.6% 100.0% 100.0% 2.5% Cost of sales (including buying, distribution and occupancy costs) 71.3% 71.5% 2.3% 71.6% 71.3% 3.0% ------------ ------------ ------------ ------------ ------------ ------------ Gross profit 28.7% 28.5% 3.3% 28.4% 28.7% 1.2% Selling expenses 19.2% 19.1% 3.2% 19.7% 18.9% 6.5% General and administrative expenses 4.0% 3.0% 35.5% 3.7% 3.1% 21.8% ------------ ------------ ------------ ------------ ------------ ------------ Income from operations 5.5% 6.4% (11.6)% 5.0% 6.7% (23.6)% Other income, net 1.1% 1.4% (15.9)% 1.2% 1.5% (14.3)% ------------ ------------ ------------ ------------ ------------ ------------ Income before income Taxes 6.6% 7.8% (12.3)% 6.2% 8.2% (21.9)% Provision for income tax 2.4% 2.9% (13.4)% 2.3% 3.1% (22.9)% ------------ ------------ ------------ ------------ ------------ ------------ Net income 4.2% 4.9% (11.7)% 3.9% 5.1% (21.3)% ============ ============ ============ ============ ============ ============ </Table> Net sales increased from $83.5 million in the second quarter of fiscal 2002 to $85.7 million in the second quarter of fiscal 2003, a 2.6% increase. Comparable store sales decreased from the second quarter of fiscal 2002 to the second quarter of fiscal 2003 by $1.1 million or 1.3%. The comparable store sales decrease resulted partially from a 3.4% decrease in the average price per piece of merchandise sold compared with the fiscal 2002 second quarter. Net sales increased from $163.4 million in the first six months of fiscal 2002 to $167.4 million for the first six months of fiscal 2003, a 2.5% increase. Comparable store sales for the twenty-six weeks ended August 2, 2003 compared to the twenty-six weeks ended August 3, 2002 decreased $1.7 million or 1.1%. Sales growth for this twenty-six week period was attributable to the inclusion of a full six months of operating results for the 11 stores opened in 2002 and the opening of 9 new stores in the first twenty-six weeks of fiscal 2003. Average sales per square foot decreased 2.5% from $113.25 to $110.41 for the six months ended August 2, 2003. 11
THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Gross profit after buying, occupancy, and distribution expenses increased $0.8 million in the second quarter of fiscal 2003 to $24.6 million, a 3.3% increase. As a percentage of net sales, gross profit increased from 28.5% in the second quarter of fiscal 2002 to 28.7% in the second quarter of fiscal 2003. Gross profit increased $0.5 million for the first twenty-six weeks of fiscal 2003 to $47.5 million, a 1.2% increase. As a percentage of net sales, gross profit in the first six months decreased from 28.7% for fiscal 2002, to 28.4% for fiscal 2003. The primary reason for improvement in gross profit as a percentage of net sales for the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002 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 2003 compared to the same period of fiscal 2002 was primarily attributable to higher occupancy costs outweighing improvement in the actual merchandise margins. Selling expense increased from $15.9 million in the second quarter of fiscal 2002 to $16.4 million for the second quarter of fiscal 2003, a 3.2% increase. Selling expenses as a percentage of net sales increased from 19.1% for the second quarter of fiscal 2002 to 19.2% for the second quarter of fiscal 2003. Year-to-date selling expense rose 6.5% from $30.9 million through the first half of fiscal 2002 to $33.0 million for the first half of fiscal 2003. As a percentage of net sales, selling expense in the first six months increased from 18.9% for fiscal 2002, to 19.7% for fiscal 2003. Increases in selling expenses, as a percentage of net sales, for both the three and six month periods of fiscal 2003 compared to the same periods of fiscal 2002 resulted primarily from higher payroll expenses with slight improvements in some expense categories. General and administrative expenses increased from $2.5 million in the second quarter of fiscal 2002 to $3.4 million for the second quarter of fiscal 2003, a 35.5% increase. As a percentage of net sales, general and administrative expenses increased from 3.0% for the second quarter of fiscal 2002 to 4.0% for the second quarter of fiscal 2003. For the first half of fiscal 2003, general and administrative expense rose 21.8% from $5.1 million for the six months ended August 3, 2002, to $6.2 million for the six months ended August 2, 2003. As a percentage of net sales, general and administrative expense increased to 3.7% for the first half of fiscal 2003 compared to 3.1% for the first half of fiscal 2002. Increases in general and administrative expenses, as a percentage of net sales, for both the three and six month periods of fiscal 2003 compared to the same periods of fiscal 2002 resulted primarily from higher payroll expenses and from a change in the method of allocating airplane expenses. As a result of the above changes, the Company's income from operations decreased $0.6 million to $4.7 million for the second quarter of fiscal 2003 compared to $5.4 million for the second quarter of fiscal 2002, an 11.6% decrease. Income from operations was 5.5% of net sales for the second quarter of fiscal 2003 compared to 6.4% of net sales for the second quarter of fiscal 2002. Income from operations, year-to-date through August 2, 2003, was $8.3 million, a $2.6 million decrease from the first half of the prior year. Income from operations was 5.0% of net sales for the first six months of fiscal 2003 compared to 6.7% for the first six months of fiscal 2002 For the quarter ended August 2, 2003, other income decreased $0.2 million. For the six months ended August 2, 2003, other income decreased $0.3 million. Other income decreased in both the three and six-month periods of fiscal 2003 compared to the same periods of fiscal 2002 due to a reduction in interest income. 12
THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Income tax expense as a percentage of pre-tax income was 36.7% in both the second quarter and first half of fiscal 2003 compared to 37.2% in both the second quarter and first half of fiscal 2002. Liquidity and Capital Resources The Company's primary ongoing cash requirements are for inventory, payroll, new store expansion, and remodeling. Historically, the Company's primary source of working capital has been cash flow from operations. 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 2003 and 2002, the Company's cash flow used by operating activities was $3.2 and $3.6 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 2003 compared to the first half of fiscal 2002 were primarily due to changes in investments and increased purchases of property and equipment. The Company has available an unsecured line of credit of $17.5 million with Wells Fargo Bank, N.A. for operating needs and letters of credit. The note provides that outstanding letters of credit cannot exceed $10 million. Borrowings under the line of credit note provides for interest to be paid at a rate equal to the prime rate established by the Bank. As of August 2, 2003, the Company had working capital of $144.8 million, including $72.6 million of cash and cash equivalents and investments of $19.7 million. The Company has, from time to time, borrowed against this line during periods of peak inventory build-up. There were minor bank borrowings during the first half of fiscal 2003 and none during the first half of fiscal 2002. During the first half of fiscal 2003 and 2002 the Company invested $8.5 million and $4.1 million, respectively, in new store construction, store renovation and upgrading store technology, net of any construction allowances received from landlords. The Company also spent approximately $0.5 million and $0.4 million in the first half of fiscal 2003 and 2002, respectively, in capital expenditures for the corporate headquarters and distribution center. During the remainder of fiscal 2003, the Company anticipates completing approximately twelve additional store construction projects, including approximately seven new stores and approximately five stores to be remodeled and/or relocated. As of August 2, 2003, three additional lease contracts have been signed, and additional leases are in various stages of negotiation. Management now estimates that total capital expenditures during fiscal 2003 will be approximately $19.6 million before any landlord allowances estimated to be $2.8 million. The Company believes that existing cash and cash flow from operations will be sufficient to fund current and long-term anticipated capital expenditures and working capital requirements for the next several years. 13
THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management's Discussion and Analysis of Financial Condition and Results of Operations are based upon The Buckle, Inc.'s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that management make estimates and judgments that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the financial statement date, and the reported amounts of sales and expenses during the reporting period. The Company regularly evaluates its estimates, including those related to merchandise returns, inventory, bad debts, health care costs and income taxes. Management bases its estimates on past experience and on various other factors that are thought to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company's certain critical accounting policies are listed below. 1. Merchandise Returns. The Company reserves a liability for estimated merchandise returns at the end of the period. Customer returns could potentially exceed those reserved for, reducing future net sales results. 2. Inventory. Inventory is valued at the lower of cost or market. Cost is determined using the average cost method and management makes estimates to reserve for obsolescence and markdowns that could effect market value, based on assumptions regarding future demand and market conditions. Such judgments may have a material impact on current and future operating results and financial position. 3. Bad Debts. The Company books an allowance for doubtful accounts based upon historical data and current trends. Management believes the reserve is adequate; however, customers' ability to pay could deteriorate causing actual losses to exceed those anticipated in the allowance. 4. Health Care Costs. The Company is self-funded for health and dental claims up to $80,000 per individual per plan year. This plan covers eligible employees and management makes estimates at period end to record a reserve for future claims. The number and amount of claims submitted could vary from the amounts reserved, effecting current and future net earnings results. 5. Income Taxes. The Company records a deferred tax asset for future tax benefits for difference between book and tax revenue and expense recognition. If the Company is unable to realize all or part of its deferred tax asset in the future, an adjustment would be charged to income in the period such determination was made. 14
THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS As referenced in the tables below, the Company has contractual obligations and commercial commitments that may affect the financial condition of the Company. Based on management's review of the terms and conditions of its contractual obligations and commercial commitments, there is no known trend, demand, commitment, event or uncertainty that is reasonably likely to occur which would have a material effect on the Company's financial condition or results of operations. In addition, the commercial obligations and commitments made by the Company are customary transactions which are similar to those of other comparable retail companies. The following tables identify the material obligations and commitments as of August 2, 2003: <Table> <Caption> Payments Due by Period Contractual obligations ------------------------------------------------------------------------ (dollar amounts in Less than After 5 thousands) Total 1 year 1-3 years 4-5 years years - ------------------------ ------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> Long term debt $ -- $ -- $ -- $ -- $ -- ------------ ------------ ------------ ------------ ------------ Operating leases $ 201,963 $ 28,808 $ 53,827 $ 47,635 $ 71,693 ------------ ------------ ------------ ------------ ------------ Total contractual obligations $ 201,963 $ 28,808 $ 53,827 $ 47,635 $ 71,693 ------------ ------------ ------------ ------------ ------------ </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> Seasonality and Inflation The Company's business is seasonal, with the Christmas season (from approximately November 15 to December 30) and the back-to-school season (from approximately July 15 to September 1) historically contributing the greatest volume of net sales. For fiscal years 2000, 2001, and 2002, the Christmas and back-to-school seasons accounted for approximately 40% of the Company's fiscal year net sales. Although the operations of the Company are influenced by general economic conditions, the Company does not believe that inflation has had a material effect on the results of operations during the twenty-six week periods ended August 2, 2003, and August 3, 2002. 15
THE BUCKLE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS Information in this report, other than historical information, may be considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "1995 Act"). Such statements are made in good faith by the Company pursuant to the safe-harbor provisions of the 1995 Act. In connection with these safe-harbor provisions, this management's discussion and analysis contains certain forward-looking statements, which reflect management's current views and estimates of future economic conditions, company performance and financial results. The statements are based on many assumptions and factors that could cause future results to differ materially. Such factors include, but are not limited to, changes in product mix, changes in fashion trends, competitive factors and general economic conditions, economic conditions in the retail apparel industry, as well as other risks and uncertainties inherent in the Company's business and the retail industry in general. Any changes in these factors could result in significantly different results for the Company. The Company further cautions that the forward-looking information contained herein is not exhaustive or exclusive. The Company does not undertake to update any forward-looking statements, which may be made from time to time by or on behalf of the Company. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has evaluated the disclosure requirements of Item 305 of S-K "Quantitative and Qualitative Disclosures about Market Risk," and has concluded that the Company has no market risk sensitive instruments for which these additional disclosures are required. ITEM 4. CONTROLS AND PROCEDURES Internal controls are procedures, effected by a company's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations. Disclosure controls and procedures are internal controls and other procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. As reported in the "Certifications" Section of this Quarterly Report on Form 10-Q, the Company's principal executive officer and principal financial officer evaluated the Company's disclosure controls and procedures as of August 2, 2003, concluding that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the August 2, 2003 evaluation. 16
THE BUCKLE, INC. PART II -- OTHER INFORMATION Item 1. Legal Proceedings: None Item 2. Changes in Securities: None Item 3. Defaults Upon Senior Securities: None Item 4. Submission of Matters to a Vote of Security Holders: (a) May 29, 2003, Annual Meeting (b) Board of Directors: Daniel J. Hirschfeld Robert E. Campbell Dennis H. Nelson William D. Orr Karen B. Rhoads Ralph M. Tysdal James E. Shada Bruce L. Hoberman Bill L. Fairfield David A. Roehr <Table> <Caption> NUMBER OF SHARES* ---------------- For Against Abstain Del N-Vote ---------- ------- ---------- ---------- <S> <C> <C> <C> <C> (c) 1. Election of Board of Directors: Daniel J. Hirschfeld 20,118,030 0 939,704 Dennis H. Nelson 19,947,454 0 1,110,280 Karen B. Rhoads 19,947,581 0 1,110,153 James E. Shada 19,947,581 0 1,110,153 Bill L. Fairfield 20,319,821 0 737,913 Robert E. Campbell 20,637,317 420,417 William D. Orr 20,635,068 0 422,666 Ralph M. Tysdal 20,637,878 0 419,856 Bruce L. Hoberman 20,635,189 0 422,545 David A. Roehr 20,320,791 0 736,943 2. Appoint Deloitte & Touche LLP as independent auditors. 20,352,233 27,615 4,610 673,276 3. Approve Company's 2003 Management Incentive Program 20,132,783 240,256 11,419 673,276 *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 32.1 and 32.2 Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) One report on Form 8-K was filed by the Company during the quarter ended August 3, 2002. On May 15, 2003, we issued a press release announcing our first quarter 2003 earnings, filed on Form 8-K with the SEC on May 16, 2003. 17
THE BUCKLE, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE BUCKLE, INC. Dated: September 12, 2003 /s/ DENNIS H. NELSON -------------------------- ----------------------------------- DENNIS H. NELSON, President and CEO Dated: September 12, 2003 /s/ KAREN B. RHOADS -------------------------- ----------------------------------- KAREN B. RHOADS, Vice President of Finance and CFO 18