-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VV7BPdwN3H/iPVamP29rKfe8x+BiEnQP9jh7GASjC2wFzH/GE+dw9tyG8AdldiYv i0N8I6TvD5D2UFzCigbc7Q== 0000950137-05-004834.txt : 20050425 0000950137-05-004834.hdr.sgml : 20050425 20050425170831 ACCESSION NUMBER: 0000950137-05-004834 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20050129 FILED AS OF DATE: 20050425 DATE AS OF CHANGE: 20050425 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUCKLE INC CENTRAL INDEX KEY: 0000885245 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 470366193 STATE OF INCORPORATION: NE FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12951 FILM NUMBER: 05770778 BUSINESS ADDRESS: STREET 1: 2407 W 24TH ST CITY: KEARNEY STATE: NE ZIP: 68847 BUSINESS PHONE: 3082368491 MAIL ADDRESS: STREET 1: P O BOX 1480 CITY: KEARNEY STATE: NE ZIP: 68848-1480 10-K 1 c94487e10vk.txt ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended JANUARY 29, 2005 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ____________ to ____________ Commission File Number: 001-12951 THE BUCKLE, INC. (Exact name of Registrant as specified in its charter) NEBRASKA 47-0366193 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2407 WEST 24TH STREET, KEARNEY, NEBRASKA 68845-4915 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (308) 236-8491 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED -------------- ----------------------------------------- Common Stock, $.01 par value New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No The aggregate market value (based on the closing price of the New York Stock Exchange) of the Common Stock of the Registrant held by non-affiliates of the Registrant was $251,423,878.75 on March 30, 2005. For purposes of this response, executive officers and directors are deemed to be the affiliates of the Registrant and the holdings by non-affiliates was computed as 7,677,065 shares. The number of shares outstanding of the Registrant's Common Stock, as of March 30, 2005, was 18,712,956. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement dated April 13, 2005 for Registrant's 2005 Annual Meeting of Shareholders to be held June 2, 2005 are incorporated by reference in Part III. THE BUCKLE, INC. FORM 10-K JANUARY 29, 2005 TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business 3 Item 2. Properties 13 Item 3. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 13 PART II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters 13 and Issuer Purchases of Equity Securities Item 6. Selected Financial Data 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14 Item 8. Financial Statements and Supplementary Data 14 Item 9. Changes In and Disagreements With Independent Registered Public 14 Accounting Firm on Accounting and Financial Disclosure Item 9A. Controls and Procedures 14 Item 9B. Other Information 17 PART III Item 10. Directors and Executive Officers of the Registrant 18 Item 11. Executive Compensation 18 Item 12. Security Ownership of Certain Beneficial Owners and Management 18 Item 13. Certain Relationships and Related Transactions 18 Item 14. Principal Accountant Fees and Services 18 PART IV Item 15. Exhibits and Financial Statements Schedules 18
2 PART I ITEM 1 - BUSINESS The Buckle, Inc. (the "Company") is a retailer of medium to better-priced casual apparel, footwear and accessories for fashion conscious young men and women. As of January 29, 2005, the Company operated 327 retail stores in 38 states throughout the central United States, as well as in the northwest, southeast and southwestern states under the names "Buckle" and "The Buckle." The Company markets a wide selection of mostly brand name casual apparel including denims, other casual bottoms, tops, sportswear, outerwear, accessories and footwear. The Company emphasizes personalized attention to its customers and provides customer services such as free alterations, free gift-wrapping, easy layaways, The Buckle private label credit card and a frequent shopper program. Most stores are located in regional, high-traffic shopping malls, and this is the Company's strategy for future expansion. All of the Company's central office functions, including purchasing, pricing, advertising and distribution, are controlled from its headquarters and distribution center in Kearney, Nebraska. Incorporated in Nebraska in 1948, the Company commenced business under the name Mills Clothing, Inc., a conventional men's clothing store with only one location. In 1967, a second store, under the trade name Brass Buckle, was purchased. In the early 1970s, the store image changed to that of a jeans store with a wide selection of denims and shirts. The first branch store was opened in Columbus, Nebraska, in 1976. In 1977, the Company began selling young women's apparel as well, and opened its first mall store. The Company has experienced significant growth over the past ten years, growing from 147 stores at the start of 1995 to 327 stores by the close of fiscal 2004. The Company changed its corporate name to The Buckle, Inc. on April 23, 1991. All references herein to fiscal 2004 refer to the 52-week period ended January 29, 2005. Fiscal 2003 refers to the 52-week period ended January 31, 2004 and fiscal 2002 refers to the 52-week period ended February 1, 2003. The Company's principal executive offices and distribution center are located at 2407 West 24th Street, Kearney, Nebraska 68845. The Company's telephone number is (308) 236-8491. The Company publishes its corporate web site at www.buckle.com. AVAILABLE INFORMATION The Company's annual reports on Form 10-K, along with all other reports and amendments filed with or furnished to the Securities and Exchange Commission, are publicly available free of charge on the Investor Information section of the Company's website at www.buckle.com as soon as reasonable practicable after the Company files such materials with, or furnishes them to, the Securities and Exchange Commission. The Company's corporate governance policies, ethics code and Board of Directors' committee charters are also posted within this section of the website. The information on the Company's website is not part of this or any other report The Buckle, Inc. files with, or furnishes to, the Securities and Exchange Commission. MARKETING AND MERCHANDISING The Company's marketing and merchandising strategy is designed to create customer loyalty by offering a wide selection of key brand name merchandise and providing a broad range of value-added services. The Company believes it provides a unique specialty apparel store with merchandise designed to appeal to the fashion conscious 12- to 24-year old. The merchandise mix includes denims, slacks/casual bottoms, tops, sportswear, outerwear, accessories and footwear. Denim is a significant contributor to total sales (40.3% of fiscal 2004 net sales) and is a key to the Company's merchandising concept. The Company believes it attracts customers with a selection of key brands and a wide variety of fits, finishes and styles in denim. Shirts and tops are also significant contributors to the total sales (31.8% of fiscal 2004 net sales). The Company strives to provide a continually changing selection of the latest casual fashions. 3 The percentage of net sales over the past three fiscal years of the Company's major product lines are set forth in the following table.
Percentage of Net Sales --------------------------------------- Fiscal 2004 Fiscal 2003 Fiscal 2002 ----------- ----------- ----------- Denims 40.3% 36.2% 32.8% Tops (including sweaters) 31.8 32.1 32.0 Accessories 11.4 11.4 11.3 Footwear 7.6 8.9 11.4 Sportswear/Fashions 4.2 4.5 4.8 Casual bottoms 2.1 3.8 3.7 Outerwear 2.5 2.9 3.7 Other 0.1 0.2 0.3 ----- ----- ----- Total 100.0% 100.0% 100.0% ===== ===== =====
Brand name merchandise accounted for more than 70% of the Company's sales volume during fiscal 2004. The remaining balance is comprised of private label merchandise that is manufactured to the Company's specifications. The Company's merchandisers continually work with manufacturers and vendors to produce brand name merchandise that they believe is unique in color and style. While the brands offered by the Company change to meet current customer preferences, the Company currently offers brands such as Lucky Brand Dungarees, Silver, Fossil, Billabong, Ecko, Quiksilver/Roxy and Hurley. The Company believes brand name merchandise will continue to constitute the majority of sales. Management believes the Company provides a unique store setting by maintaining a high level of customer service and by offering a wide selection of fashionable, quality merchandise at good values. The Company believes that it is essential to create an enjoyable shopping atmosphere and, in order to fulfill this mission, we must provide highly motivated employees who give personal attention to customers. Each salesperson is educated to help create a complete look for the customer by helping them find the best fits and showing merchandise as coordinating outfits. The Company also incorporates specialized services such as free alterations, free gift wrapping, layaways, a frequent shopper card, the Buckle private label credit card and a special order system which allows stores to obtain specifically requested merchandise from other Company stores. Customers are encouraged to use the Company's layaway plan, which allows customers to make a partial payment on merchandise that is then held by the store until the balance is paid. For the past three fiscal years, an average of approximately four percent of net sales have been made on a layaway basis. Merchandising and pricing decisions are made centrally; however, the Company's distribution system allows for variation in the mix of merchandise distributed to each store. This allows individual store inventories to be tailored to reflect differences in customer buying patterns at various locations. In addition, to assure a continually fresh, new look in its stores, the Company ships new merchandise daily to most stores, including varying styles and colors that differ from prior merchandise. The Company also has a transfer program that shifts specific merchandise to locations where it is selling best. This distribution and transfer system helps to maintain customer satisfaction by providing in-stock popular items and reducing the need to mark down slow-moving merchandise at a particular location. The Company believes the reduced markdowns justify the incremental costs of distribution associated with the transfer system. The Company does not hold storewide off-price sales at anytime. During fiscal 2002, the Company unveiled a totally new store design and corporate logo. The company worked with a national design firm to review architectural elements, including all wall systems, lighting, finishes and fixtures. The new design has been very positively received by guests, landlords and management. The last prior update to the store look was in fiscal 1997. New materials include: wood flooring, enhanced graphic elements, corrugated metals and Icon brand elements. Accessory and shoe fixtures were developed and rolled out to all stores in fiscal 2002. Additional new fixtures have been developed during the past year including two new table units and new wall displays fixtures which feature denim fits and t-shirt styles. Additionally, new sign holders featuring the corporate logo were added to the fixture package. The Company opened the first new prototype stores in the summer of 2002 with all subsequent remodels and new stores featuring the new design. At the end of fiscal 2004, a total of 68 stores had the new look - 37 new stores and 31 remodeled locations. 4 Management believes the basic overall store architectural design presents a unique atmosphere in which the store's architectural elements, including feature display walls, provide a backdrop, creating a strong visual presentation for the customer. Special care is taken to provide a comfortable environment to which customers can relate. MARKETING AND ADVERTISING In fiscal 2004, the Company spent $5.0 million or 1.0% of net sales on advertising, promotions and in-store point of sale materials. In-store seasonal sign kits, promotional signage, image brochures and catalogs are used to enhance merchandising presentations and the stores' image. Promotions such as sweepstakes, gift with purchase offers and special events are designed to create an enjoyable shopping experience for Buckle guests. Magazine advertising in leading teen publications is used during key seasons to introduce new merchandise, build awareness and brand the Buckle's image. The Buckle partners with key vendors on magazine opportunities and special promotions to extend its marketing reach. Radio advertising continues as a media source used to support special events and promotions such as sweepstakes, grand openings and end-of-season sales in approximately 75% of the Company's markets. In 2002, along with the new store concept, the Company rolled out a new logo to create a stronger brand identity for the Buckle. The new logo includes a B-Icon element and signature red color. All marketing materials and supplies were redesigned to translate the new brand identity throughout the Company including the retail stores, online and corporate communication. The Company offers programs to strengthen relationships with loyal guests. The Company continues to support a frequent shopper program (the Buckle Primo Card), a rewards program designed to build customer loyalty. Private label credit card marketing is another avenue for marketing to loyal guests. The Company extends exclusive benefits to active Buckle Cardholders such as coupons and other special targeted mailings. In 2004, the Buckle continued its B-Rewards, an exclusive rewards program for Buckle Cardholders. Qualifying Cardholders are mailed B-Rewards merchandise certificates at the end of each Rewards program inviting them back into the store at the start of the next season. The Buckle Card marketing program is partially funded by WFNNB, a third-party bank that owns the Buckle Card accounts. The Company publishes a corporate web site at www.buckle.com. The Company's web site serves as a second retail touch-point for cross-channel marketing, reaching a growing online audience. Buckle.com is an eCommerce enabled channel with an interactive, entertaining, informative and brand building environment where visitors can get the latest Buckle fashion information with special features including an online denim guide, "look" suggestions and style boutiques. The Company has an opt-in online database and sends periodic and targeted e-mail campaigns to notify members of the latest store promotions and product offerings. Online guests can shop, enter sweepstakes, fill out a wish list, find out about career opportunities, and read the latest Buckle financial news. The Buckle Online Store was launched April 26, 1999 as a marketing tool, to extend the Company's brand beyond the physical locations. Offering a growing selection of the merchandise inventory online, the Company presents the online store as a "taste test" in new markets as well as a cross-channel tool in existing markets, which means guests can shop both in the brick and mortar stores and via the online store. STORE OPERATIONS The Company has an Executive Vice President of Sales, a Vice President of Sales, 17 district managers and 63 area managers. Six of the district managers and all of the area managers also serve as manager of their home base store. Each store has one manager, one or two assistant managers, one to three additional full-time salespeople and up to 20 part-time salespeople. Most stores have peak levels of staff during the back-to-school and Christmas seasons. Almost every location also employs a seamstress. The Company places great importance on educating quality personnel. Along with sharing career opportunities with Buckle employees, the Company recruits interns and management trainees from college campuses. A majority of the Company's store managers, all of its Area and District managers and most of its upper level management are former salespeople, including the President and CEO, Dennis H. Nelson and Chairman, Daniel J. Hirschfeld. Recognizing talent and promoting managers from within allows the Company to build a strong foundation for management. 5 Store managers receive compensation in the form of a base salary and incentive bonuses. District and area managers also receive added incentives based upon the performance of stores in their district/area. Store managers perform sales training of new employees at the store level. Salespeople displaying particular talent are generally assigned to stores operated by district managers for training as a store manager. The Company has established a comprehensive program stressing the prevention and control of shrinkage losses. Steps taken to reduce shrinkage include monitoring cash refunds, voids, inappropriate discounts, employee sales and returns-to-vendor. The Company also has electronic article surveillance systems in approximately 99% of the Company's stores as well as surveillance camera systems in approximately 77% of the stores. As a result, the Company achieved a merchandise shrinkage rate of 0.7% of net sales for fiscal 2004, 0.6% of net sales for fiscal 2003 and 0.6% for fiscal year 2002. The average store is approximately 4,900 square feet (of which the Company estimates an average of approximately 80% is selling space), and stores range in size from 2,600 square feet to 8,475 square feet. PURCHASING AND DISTRIBUTION The Company has an experienced buying team. The buying team includes the President, the Vice President of Women's Merchandising, four women's buyers, two men's merchandisers and four buyers. The top four members of this buying team combined, have over 90 years of experience with the Company. The experience and leadership within the buying team contributes significantly to the Company's success by enabling the buying team to react quickly to changes in fashion and by providing extensive knowledge of sources for branded and private label goods. The Company purchases products from manufacturers within the United States and from some foreign manufacturers. The Company's merchandising team monitors U.S. fashion centers (in New York and on the West Coast) and shops high fashion stores to adapt new ideas to the Buckle. The Company continually monitors fabric selection, quality and delivery schedules. The Company has not experienced any material difficulties with merchandise manufactured in foreign countries. The Company does not have long-term or exclusive contracts with any brand name manufacturer, private label manufacturer or supplier. The Company plans its private label production with several private label vendors six to twelve months in advance of product delivery. In fiscal 2004, Lucky Brand Dungarees and Koos Manufacturing (one of the Company's private label producers) made up 22.9% and 15.8% of the Company's net sales, respectively. No other vendor accounted for more than 10% of the Company's sales. Other current significant vendors include Silver, Fossil, Ecko, LeTigre, Billabong, Quiksilver/Roxy and Hurley. The Company continually strives to offer brands that are currently popular with its customers and, therefore, the Company's suppliers and purchases from specific vendors may vary significantly from year to year. The Buckle stores generally carry the same merchandise, with quantity and seasonal variations based upon historical sales data, climate and perceived local customer interest. The Company uses a centralized receiving and distribution center located within the corporate headquarters building in Kearney, Nebraska. Merchandise is received daily in Kearney where it is sorted, tagged with bar-coded tickets (unless the vendor UPC code can be used or the merchandise is pre-ticketed), and packaged for distribution to individual stores primarily via United Parcel Service. The Company's goal is to ship the majority of its merchandise out to the stores within one to two business days of receipt. This system allows stores to receive new merchandise almost every day, creating excitement within each store and providing customers with a good reason to shop often. When available, the Company uses merchandise "pre-packs" to expedite the movement of product through the distribution center. The Company is currently undergoing construction on an 82,200 square foot expansion to its corporate headquarters facility. This expansion will allow additional space for our supplies and return departments, and growth for our online store as well as increased office space. Our distribution center should allow for handling of up to 450 stores. The Company has developed an effective computerized system for tracking merchandise from the time it is checked in at the Company's distribution center until it arrives at the stores and is sold to a customer. The system's function is to insure that store shipments are delivered accurately and promptly, to account for inventory and to assist in allocating merchandise among stores. Management can track, on a daily basis, which merchandise is selling at specific locations and directs transfers of merchandise from one store to another as necessary. This allows stores to carry a reduced inventory while at the same time satisfying customer demands. 6 To reduce inter-store shipping costs and provide timely restocking of in-season merchandise, the Company warehouses a portion of initial shipments for later distribution. Sales reports are then used to replenish, on a basis of one to three times each week, those stores that are experiencing the greatest success selling specific styles, colors and sizes of merchandise. This system is also designed to prevent an over-crowded look in the stores at the beginning of a season. STORE LOCATIONS AND EXPANSION STRATEGIES As of April 1, 2005, the Company operated 328 stores in 38 states, including 1 store opened in fiscal 2005. The existing stores are in 4 downtown locations, 11 strip centers, 8 lifestyle centers and 305 shopping malls. The Company anticipates opening approximately 14 additional new stores in fiscal 2005. All new stores for fiscal 2005 are expected to be located in higher traffic shopping malls except for four which are expected to be located in lifestyle centers. The following table lists the location of existing stores as of April 1, 2005. Location of Stores
State Number of Stores State Number of Stores - ----------- ---------------- -------------- ---------------- Alabama 5 Nebraska 15 Arizona 8 Nevada 1 Arkansas 5 New Mexico 4 California 11 North Carolina 7 Colorado 12 North Dakota 3 Florida 4 Ohio 12 Georgia 3 Oklahoma 13 Idaho 5 Oregon 2 Illinois 16 Pennsylvania 5 Indiana 12 South Carolina 1 Iowa 19 South Dakota 3 Kansas 16 Tennessee 9 Kentucky 6 Texas 35 Louisiana 7 Utah 10 Michigan 18 Virginia 2 Minnesota 11 Washington 8 Mississippi 5 West Virginia 2 Missouri 14 Wisconsin 13 Montana 5 Wyoming 1 --- Total 328 ===
The Buckle has grown significantly over the past ten years, with the number of stores increasing from 147 at the beginning of 1995 to 327 at the end of fiscal 2004. The Company's plan is to continue expansion by developing the geographic region it currently serves and by expanding into contiguous markets. The Company intends to open new stores only when management believes there is a reasonable expectation of satisfactory results. 7 The following table sets forth information regarding store openings and closings since the beginning of fiscal 1995 to the end of fiscal 2004: Total Number of Stores Per Year
Fiscal Open at start Opened in Closed in Year of year Current Year Current Year Total - ------ ------------- ------------ ------------ ----- 1995 147 17 - 164 1996 164 17 - 181 1997 181 19 1 199 1998 199 24 1 222 1999 222 27 1 248 2000 248 28 2 274 2001 274 24 3 295 2002 295 11 2 304 2003 304 16 4 316 2004 316 13 2 327
The Company's criteria used when considering a particular location for expansion include: 1. Market area, including proximity to existing markets to capitalize on name recognition; 2. Trade area population (number, average age, and college population); 3. Economic vitality of market area; 4. Mall location, anchor tenants, tenant mix, average sales per square foot; 5. Available location within a mall, square footage, storefront width, and facility of using the current store design; 6. Availability of suitable management personnel for the market; 7. Cost of rent, including minimum rent, common area and extra charges; 8. Estimated construction costs, including landlord charge backs and tenant allowances. The Company generally seeks sites of 4,000 to 5,000 square feet for its stores. The projected cost of opening a store with the new design is approximately $735,000, including construction costs of approximately $565,000 (prior to any construction allowance received) and inventory costs of approximately $170,000, net of accounts payable. The Company anticipates opening approximately 15 new stores during fiscal 2005 and completing the remodeling of approximately 9 existing stores. Remodels range from partial to full, with construction costs for a full remodel being nearly the same as for a new store. Of the stores scheduled for remodeling during fiscal 2005, it is estimated that each will receive full remodeling. The Company has budgeted a total of $23.4 million for new store construction, remodeling, technology upgrades and improvements at the corporate headquarters during fiscal 2005. The Company plans to expand in 2005 by opening stores in existing markets. The Company believes that, given the time required for training personnel, staffing a store and developing adequate district and regional managers, its current management infrastructure is sufficient to support its currently planned rate of growth. The Company's ability to expand in the future will depend, in part, on general business conditions, the ability to find suitable malls with acceptable sites on satisfactory terms, the availability of financing and the readiness of trained store managers. There can be no assurance that the Company's expansion plans will be fulfilled in whole or in part, or that leases under negotiation for planned new sites will be obtained on terms favorable to the Company. MANAGEMENT INFORMATION SYSTEMS The Company's management information systems (MIS) and electronic data processing systems (EDP) consist of a full range of retail, financial and merchandising systems, including purchasing, inventory distribution and control, sales reporting, accounts payable and merchandise management. The system includes PC based point-of-sale (POS) registers equipped with bar code readers in each store. These registers are polled nightly by the central computer (IBM iSeries) using a virtual private network for collection of 8 comprehensive data, including complete item-level sales information, employee time clocking, merchandise transfers and receipts, special orders, supply orders and returns-to-vendor. In conjunction with the nightly polling, the central computer sends the PC server messages from various departments at the Company headquarters and price changes for the price lookup (PLU) file maintained within the POS registers. Each weekday morning, the Company initiates an electronic "sweep" of the individual store bank accounts to the Company's primary concentration account. This allows the Company to meet its obligations with a minimum of borrowing and to invest excess cash on a timely basis. Management monitors the performance of each of its stores on a continual basis. Daily information is used to evaluate inventory, determine markdowns, analyze profitability and assist management in the scheduling and compensation of employees. Additionally, reports are generated verifying daily bank deposit information against recorded sales, identifying transactions rung at prices that differ from the PLU file, and listing selected "exception" transactions (e.g. refunds, cash paid-outs, discounts). These reports are used to help assure consistency among the stores and to help prevent losses due to error or dishonesty. The PLU system allows management to control merchandise pricing centrally, permitting faster and more accurate processing of sales at the store and the monitoring of specific inventory items to confirm that centralized pricing decisions are carried out in each of the stores. Management is able to direct all price changes, including promotional, clearance and markdowns on a central basis and estimate the financial impact of such changes. The virtual private network for communication with the stores also supports the Company's intranet site. The intranet allows stores to view various types of information from the corporate office, including timely information from the advertising, merchandising and benefits departments. Stores also have access to a variety of tools such as a product search feature with pictures, printable forms and links to transmit various requests and information to the corporate office. The Company is committed to ongoing review of the MIS and EDP systems to provide productive, timely information and effective controls. This review includes testing of new products and systems to assure that the Company is aware of technological developments. Most important, continual feedback is sought from every level of the Company to assure that information provided is pertinent to all aspects of the Company's operations. EMPLOYEES As of January 29, 2005, the Company had approximately 6,100 employees - approximately 1,172 of whom were full-time. The Company has an experienced management team and substantially all of the management team, from store managers through senior management, commenced work for the Company on the sales floor. The Company experiences high turnover of store and distribution center employees, primarily due to having a significant number of part-time employees. However, the Company has not experienced significant difficulty in hiring qualified personnel. Of the total employees, approximately 320 are employed at the corporate headquarters and in the distribution center. None of the Company's employees are represented by a union. Management believes that employee relations are good. The Company provides medical, dental, life insurance and long-term disability plans, as well as a 401(k) and a section 125 cafeteria plan for eligible employees. An employee must be at least 20 years of age and work a minimum of 1,000 hours during the plan year to be eligible for the 401(k) plan. To be eligible for the plans, other than the 401(k) Plan, an employee must have worked for the Company for 90 days or more, and his or her normal workweek must be 35 hours or more. As of January 29, 2005, 912 employees participated in the medical plan, 921 in the dental plan, 859 in the life insurance plan, 246 in the supplemental life insurance plan, 860 in the long-term disability plan and 462 in the cafeteria plan. With respect to the medical, dental and life insurance plans, the Company pays 80% to 100% of the employee's expected premium cost plus 20% to 100% of the expected cost of dependent coverage under the health plan. The exact percentage is based upon the employee's term of employment and job classification within the Company. In addition, all employees receive discounts on company merchandise. 9 COMPETITION The men's and women's apparel industries are highly competitive with fashion, selection, quality, price, location, store environment and service being the principal competitive factors. While the Company believes that it is able to compete favorably with other merchandisers, including department stores and specialty retailers, with respect to each of these factors, the Company believes it competes mainly on the basis of customer service and merchandise selection. In the men's merchandise areas, the Company competes with specialty retailers such as Abercrombie & Fitch, American Eagle Outfitters, Hollister, Hot Topic, Gap and Pacific Sunwear. The men's market also competes with certain department stores, such as Dillards, Federated stores, May Company stores, Saks and other local or regional department stores and specialty retailers, as well as with mail order and internet merchandisers. In the women's merchandise area, the Company competes with specialty retailers such as Abercrombie & Fitch, American Eagle Outfitters, Express, Aeropostale, Hollister, Gap, Maurices, Pacific Sunwear, Wet Seal and Vanity. The women's sales also compete with department stores, such as Dillards, Federated stores, May Company stores, Saks and certain local or regional department stores and specialty retailers, as well as with mail order and internet merchandisers. Many of the Company's competitors are considerably larger and have substantially greater financial, marketing and other resources than the Company, and there is no assurance that the Company will be able to compete successfully with them in the future. Furthermore, while the Company believes it competes effectively for favorable site locations and lease terms, competition for prime locations within a mall is intense. TRADEMARKS "BUCKLE", "BKLE", "RECLAIM", "BKE", "THE BUCKLE" and "GIMMICK" are federally registered trademarks of the Company. The Company believes the strength of its trademarks is of considerable value to its business, and its trademarks are important to its marketing efforts. The Company intends to protect and promote its trademarks as management deems appropriate. EXECUTIVE OFFICERS OF THE COMPANY The Executive Officers of the Company are listed below, together with brief accounts of their experience and certain other information. DANIEL J. HIRSCHFELD, AGE 63. Mr. Hirschfeld is Chairman of the Board of the Company. He has served as Chairman of the Board since April 19, 1991. Prior to that time, Mr. Hirschfeld served as President and Chief Executive Officer. Mr. Hirschfeld has been involved in all aspects of the Company's business, including the development of the Company's management information systems. DENNIS H. NELSON, AGE 55. Mr. Nelson is President and Chief Executive Officer and a Director of the Company. He has held the titles of President and Director since April 19, 1991. Mr. Nelson was elected Chief Executive Officer on March 17, 1997. Mr. Nelson began his career with the Company in 1970 as a part-time salesman while he was attending Kearney State College (now the University of Nebraska - Kearney). While attending college, he became involved in merchandising and sales supervision for the Company. Upon graduation from college in 1973, Mr. Nelson became a full-time employee of the Company and he has worked in all phases of the Company's operations since that date. Prior to his election as President and Chief Operating Officer on April 19, 1991, Mr. Nelson performed all of the functions normally associated with those positions. KAREN B. RHOADS, AGE 46. Ms. Rhoads is the Vice-President - Finance, Treasurer, Chief Financial Officer and a Director of the Company. Ms. Rhoads was elected a Director on April 19, 1991. She worked in the corporate offices while attending Kearney State College (now the University of Nebraska - Kearney) and later worked part-time on the sales floor. Ms. Rhoads practiced as a CPA for 6 1/2 years, during which time she began working on tax and accounting matters for the Company as a client. She has been employed with the Buckle since November 1987. 10 JAMES E. SHADA, AGE 49. Mr. Shada is Executive Vice President - Sales and a Director of the Company. He was elected Executive Vice President on May 31, 2001 and served as Vice President of Sales from April 19, 1991 until such date. Mr. Shada was elected Director of the Company on May 30, 2002. He began employment with the Company in November of 1978 as a salesperson. Between 1979 and 1985, he managed and opened new stores for the Company, and in 1985 Mr. Shada became the Company's sales manager. He is also involved in site selection and development and education of personnel as store managers and as area and district managers. BRETT P. MILKIE, AGE 45. Mr. Milkie is Vice President-Leasing. He was elected Vice President-Leasing on May 30, 1996. Mr. Milkie was a leasing agent for a national retail mall developer for 6 years prior to joining the company in January 1992 as director of leasing. KARI G. SMITH, AGE 41. Ms. Smith is Vice President - Sales. She has held this position since May 31, 2001. Ms. Smith joined the Company May 16, 1978 as a part-time salesperson. Later she became store manager in Great Bend, KS and then began working with other stores as an area manager. Ms. Smith has continued to develop her involvement with the sales management executive team, helping with manager meetings and new store manager development, as well as providing support for store managers, area managers and district managers. PATRICIA K. WHISLER, AGE 48. Ms. Whisler is Vice President of Women's Merchandising. She has held this position since May 31, 2001. Ms. Whisler joined the Company in February 1976 as a part-time salesperson and later became manager of a Buckle store before returning to the corporate office in 1983 to work as part of the growing merchandising team. KYLE L. HANSON, AGE 40. Ms. Hanson is the Corporate Secretary and General Counsel. She has held this position since February of 2001. Ms. Hanson joined the Company in May of 1998 as General Counsel. She also worked for the Company as a part-time salesperson while attending Kearney State College (now the University of Nebraska - Kearney). Ms. Hanson was previously First Vice President and Trial Attorney for Mutual of Omaha Companies for 2 years and an attorney with Kutak Rock law firm in Omaha from 1990 to 1996. CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND RISK FACTORS Certain statements herein, including anticipated store openings, trends in or expectations regarding The Buckle, Inc.'s revenue and net earnings growth, comparable store sales growth, cash flow requirements and capital expenditures, all constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, changes in product mix, changes in fashion trends and/or pricing, competitive factors, general economic conditions, economic conditions in the retail apparel industry, successful execution of internal performance and expansion plans and other risks detailed herein and in The Buckle, Inc.'s other filings with the Securities and Exchange Commission. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Users should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. The Company is under no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The following are material risk factors. MERCHANDISING/FASHION SENSITIVITY. The Company's success is largely dependent upon its ability to gauge the fashion tastes of its customers and to provide merchandise that satisfies customer demand in a timely manner. The Company's failure to anticipate, identify or react appropriately and timely to the changes in fashion trends would reduce the Company's net sales and profitability. Misjudgments or unanticipated fashion changes could have a negative impact on the Company's image with its customers, which would also reduce the Company's net sales and profitability. 11 PRIVATE LABEL MERCHANDISE. Sales from private label merchandise accounted for approximately 28% and 18% of the net sales for fiscal 2004 and fiscal 2003, respectively. The Company may increase or decrease the percentage of net sales in private label merchandise in the future. The Company's private label products generally earn a higher margin than branded product, thus reductions in the private label mix would decrease the Company's merchandise margin and as a result, reduce net earnings. FLUCTUATIONS IN COMPARABLE STORE NET SALES RESULTS. The Company's comparable store net sales results have fluctuated in the past and are expected to continue to fluctuate in the future. A variety of factors affect comparable sales results, including changes in fashion trends, changes in the Company's merchandise mix, calendar shifts of holiday periods, actions by competitors, weather conditions and general economic conditions. The Company's comparable store net sales results for a particular period in the future may decrease. As a result of these or other factors, the Company's future comparable sales could decrease, reducing overall net sales and profitability. These reductions could also cause the market price of the Company's common stock to decline. EXPANSION AND MANAGEMENT OF GROWTH. The Buckle, Inc.'s continued growth depends on its ability to open and operate stores on a profitable basis and management's ability to manage planned expansion. During fiscal 2005, the Company plans to open 15 new stores. This expansion is dependent upon factors such as the ability to locate and obtain favorable store sites, negotiate acceptable lease terms, obtain necessary merchandise and hire and train qualified management and other employees. There may be factors outside of the Company's control that affect the ability to expand, including general economic conditions. There is no assurance that the Company will be able to achieve its planned expansion or that such expansion will be profitable. If the Company fails to manage its store growth there would be less growth in the Company's net sales from new stores and less growth in profitability. If the Company opened unprofitable store locations, there could be a reduction in net earnings, even with the resulting growth in the Company's sales revenues. RELIANCE ON KEY PERSONNEL. The continued success of the Buckle, Inc. is dependent to a significant degree on the continued service of key personnel, including senior management. The loss of a member of senior management could create additional expense in covering their position as well as cause a reduction in net sales, thus causing a reduction in net earnings. The Company's success in the future will also be dependent upon the Company's ability to attract and retain qualified personnel. The Company's failure to attract and retain qualified personnel could reduce the number of new stores the Company could open in a year which would cause net sales to decline, could create additional operating expenses, and reduce overall profitability for the Company. DEPENDENCE ON A SINGLE DISTRIBUTION FACILITY. The distribution function for all of the Company's stores is handled from a single facility in Kearney, Nebraska. Any significant interruption in the operation of the distribution facility due to natural disasters, system failures or other unforeseen causes would impede the distribution of merchandise to the stores, causing a decline in store inventory, reduce store sales and reduce company profitability. There can be no assurance that the current facilities will be adequate to support the Company's future growth. RELIANCE ON FOREIGN SOURCES OF PRODUCTION. The Company purchases a portion of its private label merchandise directly in foreign markets. In addition, some of the Company's domestic vendors manufacture goods overseas. The Company does not have any long-term merchandise supply contracts and its imports are subject to existing or potential duties, tariffs and quotas. The Company faces a variety of risks associated with doing business overseas including competition for facilities and quotas, political instability, possible new legislation relating to imports that could limit the quantity of merchandise that may be imported, imposition of duties, taxes and other charges on imports and local business practice and political issues which may result in adverse publicity. The Company's inability to rely on foreign sources of production due to these or other causes could reduce the amount of inventory the Company is able to purchase, hold up the timing on the receipt of new merchandise, and reduce merchandise margins if comparable inventory is purchased from branded sources. Any or all of these changes would cause a decrease in the Company's net sales and also in net earnings. The Company cautions that the risk factors described above could cause actual results to vary materially from those anticipated from any forward-looking statements made by or on behalf of the Company. Management cannot assess the impact of each factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to vary from those contained in forward-looking statements. 12 ITEM 2 - PROPERTIES All of the store locations operated by the Company are leased facilities. Most of the Company's stores have lease terms of approximately ten years and generally do not contain renewal options. In the past, the Company has not experienced problems renewing its leases, although no assurance can be given that the Company can renew existing leases on favorable terms. The Company seeks to negotiate extensions on leases for stores undergoing remodeling to provide terms of approximately ten years after completion of remodeling. Consent of the landlord generally is required to remodel or change the name under which the Company does business. The Company has not experienced problems in obtaining such consent in the past. Most leases provide for a fixed minimum rental plus an additional rental cost based upon a set percentage of sales beyond a specified breakpoint, plus common area and other charges. The current terms of the Company's leases, including automatic renewal options, expire on or before January 31st of each of the following years:
Number of expiring Year leases - -------------- ------------------ 2006 62 2007 34 2008 25 2009 23 2010 50 2011 38 2012 28 2013 and later 67 --- Total 327 ===
The corporate headquarters and distribution center for the Company operate within a facility purchased by the Company in 1988, and located in Kearney, NE. The building currently provides approximately 179,000 square feet of space with over 70% of the area being allocated for the distribution and returns-to-vendor departments. The Company is currently adding approximately 82,200 square feet to this existing facility, which will add flexibility for future growth. The Company also owns a 40,000 square foot building with warehouse and office space near the corporate headquarters, as well as housing the Company's screenprinting operations. The Company also acquired a 50-year lease, with favorable lease terms, on the land the building is built upon. ITEM 3 - LEGAL PROCEEDINGS From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. As of the date of this form, the Company was not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on the Company. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 2004. PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUERS PURCHASE OF EQUITY SECURITIES The Company's common stock trades on the New York Stock Exchange under the symbol BKE. Prior to the Company's initial public offering on May 6, 1992, there was no public market for the Company's common stock. During the third quarter of fiscal 2003, the Board of Directors authorized the Company's first ever cash dividend of $.10 per share to be paid quarterly, with the initial dividend payment on October 27, 2003 and the second quarterly dividend payment on January 27, 2004. During fiscal 2004, the Company continued quarterly dividend payments with $.10 per share paid during each of the first two quarters and $.12 per share for the third and fourth quarters. The number of record holders of the Company's common stock as of March 30, 2005 was 346. Based upon information from the principal market makers, the Company believes there are approximately 3,000 beneficial owners. The closing price of the Company's common stock on March 30, 2005 was $32.75. 13 Additional information required by this item is incorporated by reference to the information on page 32 of the Company's 2004 Annual Report to Shareholders under the caption "Stock Prices by Quarter" which is attached to this Form 10-K. The remainder of the information required by this item appears in the Notes to Financial Statements under Footnote I "Stock-Based Compensation" on pages 28 and 29 in the Company's Annual Report to Shareholders which is attached to this Form 10-K and is incorporated by reference. ITEM 6 - SELECTED FINANCIAL DATA The information required by this item is incorporated by reference to information on page 6 in the Company's 2004 Annual Report to Shareholders under the caption "Selected Financial Data" which is attached to this Form 10-K. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated by reference to the information appearing on pages 7 through 13 in the Company's 2004 Annual Report to Shareholders which is attached to this Form 10-K. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK To the extent that we borrow under our line of credit facility, we would be exposed to market risk related to changes in interest rates. As of January 29, 2005, no borrowings were outstanding under our line of credit facility. We are not a party to any derivative financial instruments. Additionally, we are exposed to market risk related to interest rate risk on the short- and long-term investments of excess cash in short- and long-term investment grade interest-bearing securities. These investments have carrying values that are subject to interest rate changes that could impact our earnings to the extent that we did not hold the investments to maturity. If there are changes in interest rates, those changes would also affect the investment income we earn on our investments. If there are changes in interest rates, those changes would affect the investment income we earn on those investments. For each one-quarter of a percent decline in the interest/dividend rate earned on cash and investments (approximately a 10% change in the rate earned), the Company's net income would decrease approximately $230,000 or approximately $.01 per share. This amount could vary based upon the number of shares of the Company's stock outstanding and the level of cash and investments held by the Company. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements together with the report of independent registered public accountants thereon of Deloitte & Touche LLP, dated April 18, 2005, appearing on pages 17 through 31 of the Company's 2004 Annual Report to Shareholders (which is attached to this Form 10-K) are incorporated by reference in this Form 10-K. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A - CONTROLS AND PROCEDURES Evaluation of Disclosure Controls - The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as the Company's are designed to do, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 14 In connection with the preparation of this Annual Report on Form 10-K, as of January 29, 2005, an evaluation was performed by the Company's management, including the CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). In performing this evaluation, management reviewed the Company's lease account policies in light of the February 7, 2005 letter from the Office of the Chief Accountant of the Securities and Exchange Commission to the American Institute of Certified Public Accountants expressing views regarding lease-related accounting issues. As a result of this review, the Company concluded that its then-current lease accounting policies were not in accordance with generally accepted accounting principles in the United States of America. While such amounts were not material to any prior period, management determined to restate prior periods due to the size of the correction that would have been required in fiscal 2004. Based upon that evaluation, the CEO and CFO concluded that the Company's disclosure controls and procedures as of the end of the period covered by this report were not effective as January 29, 2005. Management's Report on Internal Control over Financial Reporting-- Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of the Company's internal control over financial reporting, as of January 29, 2005. In making its assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission in their Internal Control-Integrated Framework. In performing this assessment, management reviewed the Company's lease accounting policies in light of the February 7, 2005 letter from the Office of the Chief Accountant of the Securities and Exchange Commission to the American Institute of Certified Public Accountants expressing views regarding lease-related accounting issues. In light of this letter, the Company's management initiated a review of its lease accounting and determined that its then current method of accounting for leasehold improvements funded by landlord incentives or allowances under operating leases (tenant improvement allowances) and its then current method of accounting for rent holidays were not in accordance with GAAP. While such amounts are not material to any prior period, management determined to restate prior periods due to the size of the correction that would have been required in fiscal 2004. As a result, the Company restated its financial statements for each of the fiscal years ended January 31, 2004, February 1, 2003 and February 2, 2002. Management evaluated the impact of this restatement on the Company's assessment of its system of internal control. Based upon the definition of "material weakness" in the Public Company Accounting Oversight Board's Auditing Standards No. 2, an Audit of Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements, restatement of financial statements in prior filings with the SEC is a strong indicator of the existence of a "material weakness" in design or operation of internal control over financial reporting. Based on that, management concluded that a material weakness existed in the Company's internal control over financial reporting as of January 29, 2005, and disclosed this to the Audit Committee and to the independent registered public accountants. Management also identified deficiencies and significant deficiencies which, when aggregated, represent a material weakness. These control deficiencies related to information technology, including security and production change control, and segregation of duties and documentation in the business cycles. A material weakness in internal control over financial reporting is a control deficiency (within the meaning of the Public Company Accounting Oversight Board Auditing Standard No. 2), or combination of control deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. 15 As a result of the aforementioned material weaknesses in the Company's internal control over financial reporting, management has concluded that, as of January 29, 2005, the Company's internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles based on criteria set forth by the COSO of the Treadway Commission in their Internal Control-Integrated Framework. Remediation Steps to Address Material Weakness - To remediate the material weakness in the Company's internal control over financial reporting related to lease accounting, subsequent to year end the Company is implementing additional review procedures over the selection and monitoring of appropriate assumptions and factors affecting lease accounting practices. With respect to the material weakness related to information technology and segregation of duties and documentation in the business cycles, the Company is in the process of implementing additional monitoring activities as well as evaluating job responsibilities in order to improve internal controls. The Company's independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on management's assessment of the Company's internal control over financial reporting. This report follows. Change in Internal Control Over Financial Reporting - There were no changes in the Company's internal control over financial reporting that occurred during the Company's last fiscal quarter that have materially affected, or are reasonable likely to materially affect, the Company's internal control over financial reporting. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of The Buckle, Inc. Kearney, Nebraska We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that The Buckle, Inc. (the "Company") did not maintain effective internal control over financial reporting as of January 29, 2005, because of the effect of the material weaknesses identified in management's assessment based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit. We have conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides reasonable basis for our opinions. A company's internal control over financial reporting is a process by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorization of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of 16 unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override on controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a significant deficiency, or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management's assessment: As of January 29, 2005, management identified its lease-related accounting policies and its then-current method of accounting for leasehold improvements funded by landlord allowances under operating leases, accounting for rent holidays and straight-line rent appeared to be incorrect in light of the views expressed by the Office of the Chief Accountant of the Securities and Exchange Commission on February 7, 2005 regarding lease-related accounting issues. Control deficiencies included (1) accounting for leases not in accordance with generally accepted accounting principles and (2) improper disclosure of operating leases in the Company's financial statements. These deficiencies in the design and implementation of the Company's internal control over financial reporting caused the Company to amend its Form 10-K for the year ended January 31, 2004 and its Forms 10-Q for each of the quarters ended May 1, 2004, July 31, 2004 and October 30, 2004 in order to remediate this material weakness. While such amounts are not material to any prior period, management determined to restate prior periods due to the size of the correction that would have been required in fiscal 2004. As of January 29, 2005, management identified various segregation of duties deficiencies in the pervasive control function of information technology including: (1) security and (2) production change control. These information technology deficiencies along with (3) various segregation of duties deficiencies in business cycles; (4) segregation of duties deficiencies in financial close and reporting process, (5) segregation of duties deficiencies of non-routine transaction processing, as well as (6) lack of documentation of policies and procedures contribute to this material weakness. These deficiencies in the design and implementation of the Company's internal control over financial reporting did not result in an actual misstatement to the financial statements. However, due to (1) the significance of the potential material misstatement that could have resulted due to the deficient controls and (2) the absence of other mitigating control, there is more than a remote likelihood that a material misstatement of the interim and annual financial statements would not have been prevented or detected. These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the financial statements as of and for the year ended January 29, 2005, of the Company and this report does not affect our report on such financial statements. In our opinion, management's assessment that the Company did not maintain effective internal controls over financial reporting as of January 29, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of January 29, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the financial statements as of and for the year ended January 29, 2005 of the Company and our report dated April 18, 2005 expressed an unqualified opinion on those financial statements. DELOITTE & TOUCHE LLP Omaha, Nebraska April 18, 2005 17 ITEM 9B - OTHER INFORMATION None. 18 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item appears under the captions "Executive Officers of the Company" appearing on pages 10 and 11 of this report, and "Election of Directors" in the Company's Proxy Statement for its 2005 Annual Shareholders' Meeting and is incorporated by reference. ITEM 11- EXECUTIVE COMPENSATION The information required by this item appears under the following captions in the Company's Proxy Statement for its 2005 Annual Shareholders' Meeting and is incorporated by reference: "Executive Compensation and Other Information," "Directors Compensation" (included under the "Election of Directors" section), and "Report of the Audit Committee," including sub-captions "Option Grants in Last Fiscal Year," "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values," "Employment Agreements," and "Compensation Committee Interlocks and Insider Participation." ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item appears under the captions "Election of Directors" in the Company's Proxy Statement for its 2005 Annual Shareholders' Meeting and in the Notes to Financial Statements under Footnote I on pages 28 and 29 in the Annual Report to Shareholders for fiscal 2004, and is incorporated by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item appears under the caption "Compensation Committee Interlocks and Insider Participation" in the Company's Proxy for its 2005 Annual Shareholders' Meeting and is incorporated by reference. ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES Information regarding the fees billed by our independent auditor and the nature of services comprising the fees for each of the two most recent fiscal years is set forth under the caption "Ratification of Independent Accountants" in the Company's Proxy Statement and is incorporated herein by reference. PART IV ITEM 15 - EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES (a) (1) FINANCIAL STATEMENTS The Company's 2004 Annual Report to Shareholders, a copy of which appears as Exhibit 13 to this Form 10-K Report, contains the following on pages 17 through 31 and they are hereby incorporated by reference to this report: Report of Independent Registered Public Accounting Firm Balance Sheets as of January 29, 2005, and January 31, 2004 Statements of Income for each of the three years in the period ended January 29, 2005 Statements of Stockholders' Equity for each of the three years in the period ended January 29, 2005 Statements of Cash Flows for each of the three years in the period ended January 29, 2005 Notes to Financial Statements for each of the three years in the period ended January 29, 2005 (a) (2) FINANCIAL STATEMENT SCHEDULE Report of Independent Registered Public Accounting Firm All other schedules are omitted because they are not applicable or the required information is presented in the financial statements or notes thereto. This schedule is on page 20. (b) EXHIBITS See index to exhibits on pages 21 and 22. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE BUCKLE, INC. Date: April 18, 2005 By: /s/ DENNIS H. NELSON ----------------------------------- Dennis H. Nelson, President and Chief Executive Officer Date: April 18, 2005 By: /s/ KAREN B. RHOADS ----------------------------------- Karen B. Rhoads, Vice President of Finance, Treasurer, and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on the 18th day of April, 2005. /s/ DANIEL J. HIRSCHFELD - ---------------------------------------- -------------------------- Daniel J. Hirschfeld Bill L. Fairfield Chairman of the Board and Director Director /s/ DENNIS H. NELSON - ---------------------------------------- -------------------------- Dennis H. Nelson Ralph M. Tysdal President and Chief Executive Officer Director and Director /s/ KAREN B. RHOADS - ---------------------------------------- -------------------------- Karen B. Rhoads Bruce L. Hoberman Vice President of Finance and Director Chief Financial Officer and Director /s/ JAMES E. SHADA - ---------------------------------------- -------------------------- James E. Shada David A. Roehr Executive Vice President of Sales and Director Director /s/ ROBERT E. CAMPBELL /s/ WILLIAM D. ORR - ---------------------------------------- -------------------------- Robert E. Campbell William D. Orr Director Director 20 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM BOARD OF DIRECTORS THE BUCKLE, INC. We have audited the financial statements of The Buckle, Inc., ("the Company") as of January 29, 2005 and January 31, 2004, and for each of the three years in the period ended January 29, 2005, management's assessment of the effectiveness of the Company's internal control over financial reporting as of January 29, 2005, and the effectiveness of the Company's internal control over financial reporting as of January 29, 2005, and have issued our reports thereon dated April 18, 2005; such financial statements and reports are included in your 2004 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedule of The Buckle, Inc., listed in Item 15(a)(2). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP Omaha, Nebraska April 18, 2005 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Allowance for Doubtful Accounts ----------------- Balance, February 2, 2002 $ 250,000 Amounts charged to costs and expenses 856,309 Write-off of uncollectible accounts (889,309) ----------- Balance, February 1, 2003 217,000 Amounts charged to costs and expenses 769,383 Write-off of uncollectible accounts (805,383) ----------- Balance, January 31, 2004 181,000 Amounts charged to costs and expenses 379,281 Write-off of uncollectible accounts (447,281) ----------- Balance, January 29, 2005 $ 113,000 ===========
21 INDEX TO EXHIBITS
EXHIBITS PAGE NUMBER OR INCORPORATION BY REFERENCE TO (3) Articles of Incorporation and By-Laws. (3.1) Articles of Incorporation Exhibit 3.1 to Form S-1 of The Buckle, Inc. as amended No. 33-46294 (3.1.1) Amendment to the Articles of Incorporation of The Buckle, Inc. (3.2) By-Laws of The Buckle, Inc. Exhibit 3.2 to Form S-1 No. 33-46294 (4) Instruments defining the rights of security holders, including indentures (4.1) See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation and By-laws of the Registrant defining rights of holders of Common Stock of the registrant (4.2) Form of stock certificate for Common Stock Exhibit 4.1 to Form S-1 No. 33-46294 (9) Not applicable (10) Material Contracts (10.1) 1991 Stock Incentive Plan Exhibit 10.1 to Form S-1 No. 33-46294 (10.2) 1991 Non-Qualified Stock Option Plan Exhibit 10.2 to Form S-1 No. 33-46294 (10.3) Non-Qualified Stock Option Plan and Exhibit 10.3 to Form S-1 Agreement With Dennis Nelson No. 33-46294 (10.4) Acknowledgment for Dennis H. Nelson dated April 18, 2005 (10.5) Acknowledgment for James E. Shada dated April 18, 2005 (10.6) Acknowledgment for Brett P. Milkie dated April 18, 2005 (10.7) Acknowledgment for Patricia K. Whisler dated April 18, 2005 (10.8) Acknowledgment for Kari G. Smith dated April 18, 2005 (10.10) Cash or Deferred Profit Sharing Plan Exhibit 10.10 to Form S-1 No. 33-46294 (10.10.1) Non-Qualified Deferred Compensation Plan (10.11) Revolving Line of Credit Note dated Exhibit 10.11 to Form 10-K August 1, 2003 between The Buckle, Inc. and filed for the fiscal year Wells Fargo Bank, N.A. for a $17.5 million ended January 31, 2004 line of credit
22 (10.12) Credit Agreement dated August 1, 2003 Exhibit 10.12 to Form 10-K between The Buckle, Inc. and Wells filed for the fiscal year ended Fargo Bank, N.A, regarding $17.5 million January 31, 2004 line of credit for working capital and letters of credit. (10.17) 1993 Director Stock Option Plan Exhibit A to Proxy Statement for Annual Meeting to be held (10.23) 1997 Executive Stock Option Plan Exhibit B to Proxy Statement for Annual Meeting to be held May 28, 1998 (10.24) 1998 Restricted Stock Plan Exhibit C to Proxy Statement for Annual Meeting to be held May 28, 1998 (10.27) 2004 Management Incentive Plan Exhibit A to Proxy Statement for Annual Meeting to be held May 28, 2004 (12) Not applicable (13) 2004 Annual Report to Stockholders (18) Not applicable (19) Not applicable (22) Not applicable (23) Consent of Deloitte & Touche LLP (25) Not applicable (28) Not applicable (31a) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (31b) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (32) Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
23 EX-10.4 2 c94487exv10w4.txt ACKNOWLEDGMENT FOR DENNIS H. NELSON EXHIBIT 10.4 ACKNOWLEDGMENT 1. Dennis H. Nelson, currently employed by The Buckle, Inc. ("Company") of Kearney, Nebraska, will be paid an annual salary of $785,000 for so long as the employee is employed by the Company during the fiscal year ending January 28, 2006. 2. In addition to the salary outlined in paragraph 1, above, a "Cash Award" for the above fiscal year will be paid to you provided you are employed by the Company on the last day of such fiscal year. The "Cash Award" will be paid as part of the Incentive Plan which includes a Bonus Pool as Cash Incentive for executives. This Bonus Pool will be calculated for the fiscal year based upon dollars of growth in key performance categories compared to the Base Year amounts, multiplied by the applicable percentage amounts as outlined in the Plan and multiplied by the net income factor outlined in the plan (see Exhibit A to the Company's 2005 Proxy Statement). The applicable percentage amounts per the 2005 Executive Incentive Plan include 8.5% of the increase in Same Store Sales, 5.0% of the increase in Gross Profit and 15.0% of the increase in Pre-bonus Net Income. The Base Year amounts are determined using the immediately preceding fiscal year for Same Store Sales and the prior three-year rolling average, with the immediately preceding year receiving a 4:1 weighting over the other two years included in the calculation, for both Gross Profit and Pre-Bonus Net Income. Your percentage of the bonus pool has been pre-set for fiscal 2005 by the compensation committee of the Board of Directors. No payment of a Cash Award for the year may be made until the Company's key performance categories for the year are certified by the Compensation Committee. You shall not be entitled to receive payment of a Cash Award unless you are still in the employ of (and shall not have delivered notice of resignation to) the Company on the last day of the fiscal year for which the Cash Award is earned. The Cash Award will be paid on or before April 15 following the close of the fiscal year. For calculating this Cash Award, "Pre-Bonus Net Income" shall be defined as the Company's net income from operations after the deduction of all expenses, excluding administrative and store manager percentage bonuses and excluding income taxes, but including draws against such bonuses. Net income from operations does not include earnings on cash investments. For this purpose, net income shall be computed by the Company in accordance with the Company's normal accounting practices, and the Company's calculations will be final and conclusive. 3. You were awarded 21,200 shares of restricted stock in The Buckle, Inc. common stock pursuant to the 2005 Restricted Stock Plan as of February 22, 2005. Restricted stock granted under the Plan will vest according to the terms of the 2005 Restricted Stock Plan and the terms of the separate Restricted Stock Agreement dated as of February 10, 2005 between you and the Company, to which Agreement reference is hereby made. Those terms include a performance feature whereby the shares granted will vest over four years if an 8% increase in Pre-Bonus Net Income is achieved. If the performance goal is met, the shares will vest 20% upon certification by the compensation committee that such goal was met, and then 20% at January 31, 2007, 30% on January 31, 2008 and 30% on January 31, 2009. Those terms also provide that in the event that the foregoing performance target is not met, the shares of Restricted Stock may still become vested upon the attainment of a second performance feature which is based on the Fair Market Value (as defined in the Restricted Stock Agreement) of the Company's common stock. Shares may vest at the rate of 20% per year if the Fair Market Value of the Company's Common Stock increases over the next 5 years at a cumulative rate of 7.2% per year, commencing on the last day of the first fiscal quarter of the current fiscal year. You must continue to be employed by the Company on the date of vesting. The foregoing description of the vesting features of the Restricted Stock granted to you is qualified in its entirety by reference to the terms of the 2005 Restricted Stock Plan and the separate Restricted Stock Agreement between you and the Company. 4. You will be given a vehicle allowance of $17,000 to be paid quarterly throughout the fiscal year. You are also allowed personal use of a corporate owned aircraft for up to 30 hours this fiscal year. 5. A credit limit of $3,500 has been established on your The Buckle charge account, subject to annual change as determined by management. Please make sure your charge account balance does not exceed this limit. You may have payments made to your charge account via payroll withholding during the year. 1 Management is committed to reviewing its policies continually. Accordingly, the statements outlined above are subject to review and change at any time, with or without notice. I understand I have the right to terminate my employment with the Company at any time, with or without notice, and the Company retains the same right, with or without cause or notice. I recognize, therefore, that I am an "at will" employee. This acknowledgment supersedes any prior acknowledgment or agreement with the Company. This acknowledgment does not constitute an agreement of employment with the Company. April 18, 2005 The Buckle, Inc. Acknowledged by: /s/ DENNIS H. NELSON ----------------------------- Dennis H. Nelson 2 EX-10.5 3 c94487exv10w5.txt ACKNOWLEDGMENT FOR JAMES E. SHADA EXHIBIT 10.5 ACKNOWLEDGMENT 1. James E. Shada, currently employed by The Buckle, Inc. ("Company") of Kearney, Nebraska, will be paid an annual salary of $445,000 for so long as the employee is employed by the Company during the fiscal year ending January 28, 2006. 2. In addition to the salary outlined in paragraph 1, above, a "Cash Award" for the above fiscal year will be paid to you provided you are employed by the Company on the last day of such fiscal year. The "Cash Award" will be paid as part of the Incentive Plan which includes a Bonus Pool as Cash Incentive for executives. This Bonus Pool will be calculated for the fiscal year based upon dollars of growth in key performance categories compared to the Base Year amounts, multiplied by the applicable percentage amounts as outlined in the Plan and multiplied by the net income factor outlined in the plan (see Exhibit A to the Company's 2005 Proxy Statement). The applicable percentage amounts per the 2005 Executive Incentive Plan include 8.5% of the increase in Same Store Sales, 5.0% of the increase in Gross Profit and 15.0% of the increase in Pre-bonus Net Income. The Base Year amounts are determined using the immediately preceding fiscal year for Same Store Sales and the prior three-year rolling average, with the immediately preceding year receiving a 4:1 weighting over the other two years included in the calculation, for both Gross Profit and Pre-Bonus Net Income. Your percentage of the bonus pool has been pre-set for fiscal 2005 by the compensation committee of the Board of Directors. No payment of a Cash Award for the year may be made until the Company's key performance categories for the year are certified by the Compensation Committee. You shall not be entitled to receive payment of a Cash Award unless you are still in the employ of (and shall not have delivered notice of resignation to) the Company on the last day of the fiscal year for which the Cash Award is earned. The Cash Award will be paid on or before April 15 following the close of the fiscal year. For calculating this Cash Award, "Pre-Bonus Net Income" shall be defined as the Company's net income from operations after the deduction of all expenses, excluding administrative and store manager percentage bonuses and excluding income taxes, but including draws against such bonuses. Net income from operations does not include earnings on cash investments. For this purpose, net income shall be computed by the Company in accordance with the Company's normal accounting practices, and the Company's calculations will be final and conclusive. 3. You were awarded 9,800 shares of restricted stock in The Buckle, Inc. common stock pursuant to the 2005 Restricted Stock Plan as of February 22, 2005. Restricted stock granted under the Plan will vest according to the terms of the 2005 Restricted Stock Plan and the terms of the separate Restricted Stock Agreement dated as of February 10, 2005 between you and the Company, to which Agreement reference is hereby made. Those terms include a performance feature whereby the shares granted will vest over four years if an 8% increase in Pre-Bonus Net Income is achieved. If the performance goal is met, the shares will vest 20% upon certification by the compensation committee that such goal was met, and then 20% at January 31, 2007, 30% on January 31, 2008 and 30% on January 31, 2009. Those terms also provide that in the event that the foregoing performance target is not met, the shares of Restricted Stock may still become vested upon the attainment of a second performance feature which is based on the Fair Market Value (as defined in the Restricted Stock Agreement) of the Company's common stock. Shares may vest at the rate of 20% per year if the Fair Market Value of the Company's Common Stock increases over the next 5 years at a cumulative rate of 7.2% per year, commencing on the last day of the first fiscal quarter of the current fiscal year. You must continue to be employed by the Company on the date of vesting. The foregoing description of the vesting features of the Restricted Stock granted to you is qualified in its entirety by reference to the terms of the 2005 Restricted Stock Plan and the separate Restricted Stock Agreement between you and the Company. 4. You will be given a vehicle allowance of $12,000 to be paid quarterly throughout the fiscal year. You are also allowed personal use of a corporate owned aircraft for up to 10 hours this fiscal year. 1 5. A credit limit of $3,500 has been established on your The Buckle charge account, subject to annual change as determined by management. Please make sure your charge account balance does not exceed this limit. You may have payments made to your charge account via payroll withholding during the year. Management is committed to reviewing its policies continually. Accordingly, the statements outlined above are subject to review and change at any time, with or without notice. I understand I have the right to terminate my employment with the Company at any time, with or without notice, and the Company retains the same right, with or without cause or notice. I recognize, therefore, that I am an "at will" employee. This acknowledgment supersedes any prior acknowledgment or agreement with the Company. This acknowledgment does not constitute an agreement of employment with the Company. April 18, 2005 The Buckle, Inc. Acknowledged by: /s/ JAMES E. SHADA --------------------------- James E. Shada 2 EX-10.6 4 c94487exv10w6.txt ACKNOWLEDGMENT FOR BRETT P. MILKIE EXHIBIT 10.6 ACKNOWLEDGMENT 1. Brett P. Milkie, currently employed by The Buckle, Inc. ("Company") of Kearney, Nebraska, will be paid an annual salary of $260,000 for so long as the employee is employed by the Company during the fiscal year ending January 28, 2006. 2. In addition to the salary outlined in paragraph 1, above, a "Cash Award" for the above fiscal year will be paid to you provided you are employed by the Company on the last day of such fiscal year. The "Cash Award" will be paid as part of the Incentive Plan which includes a Bonus Pool as Cash Incentive for executives. This Bonus Pool will be calculated for the fiscal year based upon dollars of growth in key performance categories compared to the Base Year amounts, multiplied by the applicable percentage amounts as outlined in the Plan and multiplied by the net income factor outlined in the plan (see Exhibit A to the Company's 2005 Proxy Statement). The applicable percentage amounts per the 2005 Executive Incentive Plan include 8.5% of the increase in Same Store Sales, 5.0% of the increase in Gross Profit and 15.0% of the increase in Pre-bonus Net Income. The Base Year amounts are determined using the immediately preceding fiscal year for Same Store Sales and the prior three-year rolling average, with the immediately preceding year receiving a 4:1 weighting over the other two years included in the calculation, for both Gross Profit and Pre-Bonus Net Income. Your percentage of the bonus pool has been pre-set for fiscal 2005 by the compensation committee of the Board of Directors. No payment of a Cash Award for the year may be made until the Company's key performance categories for the year are certified by the Compensation Committee. You shall not be entitled to receive payment of a Cash Award unless you are still in the employ of (and shall not have delivered notice of resignation to) the Company on the last day of the fiscal year for which the Cash Award is earned. The Cash Award will be paid on or before April 15 following the close of the fiscal year. For calculating this Cash Award, "Pre-Bonus Net Income" shall be defined as the Company's net income from operations after the deduction of all expenses, excluding administrative and store manager percentage bonuses and excluding income taxes, but including draws against such bonuses. Net income from operations does not include earnings on cash investments. For this purpose, net income shall be computed by the Company in accordance with the Company's normal accounting practices, and the Company's calculations will be final and conclusive. 3. You were awarded 4,750 shares of restricted stock in The Buckle, Inc. common stock pursuant to the 2005 Restricted Stock Plan as of February 22, 2005. Restricted stock granted under the Plan will vest according to the terms of the 2005 Restricted Stock Plan and the terms of the separate Restricted Stock Agreement dated as of February 10, 2005 between you and the Company, to which Agreement reference is hereby made. Those terms include a performance feature whereby the shares granted will vest over four years if an 8% increase in Pre-Bonus Net Income is achieved. If the performance goal is met, the shares will vest 20% upon certification by the compensation committee that such goal was met, and then 20% at January 31, 2007, 30% on January 31, 2008 and 30% on January 31, 2009. Those terms also provide that in the event that the foregoing performance target is not met, the shares of Restricted Stock may still become vested upon the attainment of a second performance feature which is based on the Fair Market Value (as defined in the Restricted Stock Agreement) of the Company's common stock. Shares may vest at the rate of 20% per year if the Fair Market Value of the Company's Common Stock increases over the next 5 years at a cumulative rate of 7.2% per year, commencing on the last day of the first fiscal quarter of the current fiscal year. You must continue to be employed by the Company on the date of vesting. The foregoing description of the vesting features of the Restricted Stock granted to you is qualified in its entirety by reference to the terms of the 2005 Restricted Stock Plan and the separate Restricted Stock Agreement between you and the Company. 4. A credit limit of $3,500 has been established on your The Buckle charge account, subject to annual change as determined by management. Please make sure your charge account balance does not exceed this limit. You may have payments made to your charge account via payroll withholding during the year. Management is committed to reviewing its policies continually. Accordingly, the statements outlined above are subject to review and change at any time, with or without notice. 1 I understand I have the right to terminate my employment with the Company at any time, with or without notice, and the Company retains the same right, with or without cause or notice. I recognize, therefore, that I am an "at will" employee. This acknowledgment supersedes any prior acknowledgment or agreement with the Company. This acknowledgment does not constitute an agreement of employment with the Company. April 18, 2005 The Buckle, Inc. Acknowledged by: /s/ BRETT P. MILKIE --------------------------- Brett P. Milkie 2 EX-10.7 5 c94487exv10w7.txt ACKNOWLEDGMENT FOR PATRICIA K. WHISLER EXHIBIT 10.7 ACKNOWLEDGMENT 1. Patricia K. Whisler, currently employed by The Buckle, Inc. ("Company") of Kearney, Nebraska, will be paid an annual salary of $275,000 for so long as the employee is employed by the Company during the fiscal year ending January 28, 2006. 2. In addition to the salary outlined in paragraph 1, above, a "Cash Award" for the above fiscal year will be paid to you provided you are employed by the Company on the last day of such fiscal year. The "Cash Award" will be paid as part of the Incentive Plan which includes a Bonus Pool as Cash Incentive for executives. This Bonus Pool will be calculated for the fiscal year based upon dollars of growth in key performance categories compared to the Base Year amounts, multiplied by the applicable percentage amounts as outlined in the Plan and multiplied by the net income factor outlined in the plan (see Exhibit A to the Company's 2005 Proxy Statement). The applicable percentage amounts per the 2005 Executive Incentive Plan include 8.5% of the increase in Same Store Sales, 5.0% of the increase in Gross Profit and 15.0% of the increase in Pre-bonus Net Income. The Base Year amounts are determined using the immediately preceding fiscal year for Same Store Sales and the prior three-year rolling average, with the immediately preceding year receiving a 4:1 weighting over the other two years included in the calculation, for both Gross Profit and Pre-Bonus Net Income. Your percentage of the bonus pool has been pre-set for fiscal 2005 by the compensation committee of the Board of Directors. No payment of a Cash Award for the year may be made until the Company's key performance categories for the year are certified by the Compensation Committee. You shall not be entitled to receive payment of a Cash Award unless you are still in the employ of (and shall not have delivered notice of resignation to) the Company on the last day of the fiscal year for which the Cash Award is earned. The Cash Award will be paid on or before April 15 following the close of the fiscal year. For calculating this Cash Award, "Pre-Bonus Net Income" shall be defined as the Company's net income from operations after the deduction of all expenses, excluding administrative and store manager percentage bonuses and excluding income taxes, but including draws against such bonuses. Net income from operations does not include earnings on cash investments. For this purpose, net income shall be computed by the Company in accordance with the Company's normal accounting practices, and the Company's calculations will be final and conclusive. 3. You were awarded 4,750 shares of restricted stock in The Buckle, Inc. common stock pursuant to the 2005 Restricted Stock Plan as of February 22, 2005. Restricted stock granted under the Plan will vest according to the terms of the 2005 Restricted Stock Plan and the terms of the separate Restricted Stock Agreement dated as of February 10, 2005 between you and the Company, to which Agreement reference is hereby made. Those terms include a performance feature whereby the shares granted will vest over four years if an 8% increase in Pre-Bonus Net Income is achieved. If the performance goal is met, the shares will vest 20% upon certification by the compensation committee that such goal was met, and then 20% at January 31, 2007, 30% on January 31, 2008 and 30% on January 31, 2009. Those terms also provide that in the event that the foregoing performance target is not met, the shares of Restricted Stock may still become vested upon the attainment of a second performance feature which is based on the Fair Market Value (as defined in the Restricted Stock Agreement) of the Company's common stock. Shares may vest at the rate of 20% per year if the Fair Market Value of the Company's Common Stock increases over the next 5 years at a cumulative rate of 7.2% per year, commencing on the last day of the first fiscal quarter of the current fiscal year. You must continue to be employed by the Company on the date of vesting. The foregoing description of the vesting features of the Restricted Stock granted to you is qualified in its entirety by reference to the terms of the 2005 Restricted Stock Plan and the separate Restricted Stock Agreement between you and the Company. 4. A credit limit of $3,500 has been established on your The Buckle charge account, subject to annual change as determined by management. Please make sure your charge account balance does not exceed this limit. You may have payments made to your charge account via payroll withholding during the year. Management is committed to reviewing its policies continually. Accordingly, the statements outlined above are subject to review and change at any time, with or without notice. 1 I understand I have the right to terminate my employment with the Company at any time, with or without notice, and the Company retains the same right, with or without cause or notice. I recognize, therefore, that I am an "at will" employee. This acknowledgment supersedes any prior acknowledgment or agreement with the Company. This acknowledgment does not constitute an agreement of employment with the Company. April 18, 2005 The Buckle, Inc. Acknowledged by: /s/ PATRICIA K. WHISLER Patricia K. Whisler ------------------------------------ 2 EX-10.8 6 c94487exv10w8.txt ACKNOWLEDGMENT FOR KARI G. SMITH EXHIBIT 10.8 ACKNOWLEDGMENT 1. Kari G. Smith, currently employed by The Buckle, Inc. ("Company") of Kearney, Nebraska, will be paid an annual salary of $256,000 for so long as the employee is employed by the Company during the fiscal year ending January 28, 2006. 2. In addition to the salary outlined in paragraph 1, above, a "Cash Award" for the above fiscal year will be paid to you provided you are employed by the Company on the last day of such fiscal year. The "Cash Award" will be paid as part of the Incentive Plan which includes a Bonus Pool as Cash Incentive for executives. This Bonus Pool will be calculated for the fiscal year based upon dollars of growth in key performance categories compared to the Base Year amounts, multiplied by the applicable percentage amounts as outlined in the Plan and multiplied by the net income factor outlined in the plan (see Exhibit A to the Company's 2005 Proxy Statement). The applicable percentage amounts per the 2005 Executive Incentive Plan include 8.5% of the increase in Same Store Sales, 5.0% of the increase in Gross Profit and 15.0% of the increase in Pre-bonus Net Income. The Base Year amounts are determined using the immediately preceding fiscal year for Same Store Sales and the prior three-year rolling average, with the immediately preceding year receiving a 4:1 weighting over the other two years included in the calculation, for both Gross Profit and Pre-Bonus Net Income. Your percentage of the bonus pool has been pre-set for fiscal 2005 by the compensation committee of the Board of Directors. No payment of a Cash Award for the year may be made until the Company's key performance categories for the year are certified by the Compensation Committee. You shall not be entitled to receive payment of a Cash Award unless you are still in the employ of (and shall not have delivered notice of resignation to) the Company on the last day of the fiscal year for which the Cash Award is earned. The Cash Award will be paid on or before April 15 following the close of the fiscal year. For calculating this Cash Award, "Pre-Bonus Net Income" shall be defined as the Company's net income from operations after the deduction of all expenses, excluding administrative and store manager percentage bonuses and excluding income taxes, but including draws against such bonuses. Net income from operations does not include earnings on cash investments. For this purpose, net income shall be computed by the Company in accordance with the Company's normal accounting practices, and the Company's calculations will be final and conclusive. 3. You were awarded 4,750 shares of restricted stock in The Buckle, Inc. common stock pursuant to the 2005 Restricted Stock Plan as of February 22, 2005. Restricted stock granted under the Plan will vest according to the terms of the 2005 Restricted Stock Plan and the terms of the separate Restricted Stock Agreement dated as of February 10, 2005 between you and the Company, to which Agreement reference is hereby made. Those terms include a performance feature whereby the shares granted will vest over four years if an 8% increase in Pre-Bonus Net Income is achieved. If the performance goal is met, the shares will vest 20% upon certification by the compensation committee that such goal was met, and then 20% at January 31, 2007, 30% on January 31, 2008 and 30% on January 31, 2009. Those terms also provide that in the event that the foregoing performance target is not met, the shares of Restricted Stock may still become vested upon the attainment of a second performance feature which is based on the Fair Market Value (as defined in the Restricted Stock Agreement) of the Company's common stock. Shares may vest at the rate of 20% per year if the Fair Market Value of the Company's Common Stock increases over the next 5 years at a cumulative rate of 7.2% per year, commencing on the last day of the first fiscal quarter of the current fiscal year. You must continue to be employed by the Company on the date of vesting. The foregoing description of the vesting features of the Restricted Stock granted to you is qualified in its entirety by reference to the terms of the 2005 Restricted Stock Plan and the separate Restricted Stock Agreement between you and the Company. 4. A credit limit of $3,500 has been established on your The Buckle charge account, subject to annual change as determined by management. Please make sure your charge account balance does not exceed this limit. You may have payments made to your charge account via payroll withholding during the year. Management is committed to reviewing its policies continually. Accordingly, the statements outlined above are subject to review and change at any time, with or without notice. 1 I understand I have the right to terminate my employment with the Company at any time, with or without notice, and the Company retains the same right, with or without cause or notice. I recognize, therefore, that I am an "at will" employee. This acknowledgment supersedes any prior acknowledgment or agreement with the Company. This acknowledgment does not constitute an agreement of employment with the Company. April 18, 2005 The Buckle, Inc. Acknowledged by: /s/ KARI G. SMITH Kari G. Smith --------------------------- 2 EX-13 7 c94487exv13.txt 2004 ANNUAL REPORT TO STOCKHOLDERS [PICTURE] [PICTURE] "It's a competitive and evolving marketplace, but the one thing that never changes is that customers want value. When guests leave our stores, we want them to feel they received value -- both in terms of selection and service -- and feel good about shopping us again." -- James Shada, Executive Vice President of Sales, with the Buckie since 1978 [PICTURE] [PICTURE] Leading the Way During fiscal 2004, the Buckle's sales grew 11.4% to a record $470.9 million. Net income was $43.2 million, $1.94 per share on a diluted basis, which was an increase of $9.6 million or 28.4%. Average sales per store were $1.5 million, average sales per square foot were $291, compared to $274 in fiscal 2003, and our overall net income to sales ratio was 9.2%, compared to 8.0% in fiscal 2003. The Buckle's balance sheet remains strong with shareholders' equity of $332.9 million, working capital of $229.6 million and no long term debt as of January 29, 2005. > MORE 2004 BUCKLE HIGHLIGHTS - - Opened 13 new stores and completed 8 full remodels and 13 partial remodels. Closed 2 stores in January to end the year with 327 stores in 38 states. - - Increased cash and investments to $243.5 million as of January 29,2005. - - Repurchased 130,700 shares of Buckle stock at an average price of $26.29. - - Increased our quarterly cash dividend from $.10 per share to $.12 per share effective with the third quarter of fiscal 2004. - - Grew denim sales by 24% on top of the 16% growth achieved during fiscal 2003, bringing sales for the category to approximately 40% of our fiscal 2004 net sales. - - Continued to market our stores, build our brand image and reach new guests through the growth and enhancement of buckle.com. We continue to be committed to our mission of creating the most enjoyable shopping experience possible for our guests. We accomplish this by focusing on our product and our people and by helping each guest find the perfect look for his or her individual style. Denim is one of our many strengths and we pride ourselves on being a denim destination where our guests find their favorite jeans. During the year, we continued to develop our BKE denim business by expanding the fits, finishes and details offered. We also teamed with Lucky, Silver and Big Star to further enhance the quality and selection of our branded denim. We complement our strength in denim by partnering with vendors such as Bed Stu, Billabong, Fossil, Ecko, Hurley, LeTigre, Penguin, Puma, Report, Roxy and 7 Diamonds to provide our guests with a wide selection of tops, footwear and accessories. Our outstanding sales management team has worked diligently to earn a reputation as an industry leader in customer service. Our leaders and teammates are focused on providing individualized customer service that meets the needs of each and every guest. We promote from within to preserve these ideals. Additionally, we remain dedicated to recruiting and developing the best talent to help fulfill our mission and further strengthen our team. Building on the early successes of our college recruiting and management development programs, we expanded on both during fiscal 2004. Our stores and fixtures are designed to enhance the shopping experience. We introduced a new store design in 2002 and have continued to refine the design with each new store. As of the end of the fiscal year, 68 of our 327 stores featured this design. During the year we also rolled out several new fixtures to all of our stores that enable our guests to more easily see and touch the product. We believe this allows our guests to experience the variety of details that distinguish our merchandise from that of our competitors. As a specialty retail store, our growth strategy is centered on quality and finding great locations in the best malls. Expansion plans for fiscal 2005 include opening approximately 15 new stores; including our first store in Jacksonville, second store in Tampa, fourth in Atlanta and Chicago, seventh in Houston, and second and third in Seattle. Plans for fiscal 2005 also include approximately 9 complete remodels and 14 partial remodels. Teammates in the Home Office are also vital to our overall success. To support future growth and accommodate our growing buckle.com business, we have expanded our support center team and are currently in the process of enlarging our home office facility and distribution center. This project should be completed by the fall of 2005 and will add approximately 82,200 square feet to our existing structure. We believe this expansion will provide the space necessary to accommodate future store growth and allow us to better serve our guests and support our teammates. > OTHER 2004 FACTS - - In the aggregate, average price points for fiscal 2004 were approximately $36.75, up approximately 2% from fiscal 2003. - - Private Label product represented approximately 28% of our net sales in fiscal 2004, compared with approximately 18% in fiscal 2003, due in large part to the growth of BKE denim. Fiscal 2004 was a strong year and we are excited about opportunities for additional growth in 2005. We remain focused on enhancing shareholder value. With that in mind, we recently completed the repurchase of 3 million shares from our founder and Chairman on March 24,2005. I would like to take this opportunity to thank our guests, vendors and shareholders for their continued support. And to our many talented teammates, "Thank you for your hard work and dedication during the year. Your efforts are sincerely appreciated and contributed significantly to another outstanding year." /s/ Dennis H. Nelson - -------------------------------------- Dennis H. Nelson President and Chief Executive Officer FINANCIAL HIGHLIGHTS (Dollar Amounts in Thousands, Except Per Share and Selected Operating Data)
JANUARY 29, JANUARY 31, FEBRUARY 1, 2005 2004 2003 ----------- ----------- ----------- INCOME STATEMENT DATA Net sales $ 470,937 $ 422,820 $ 401,060 Income before income taxes $ 67,842 $ 52,791 $ 50,509 Income taxes $ 24,613 $ 19,112 $ 18,434 Net income $ 43,229 $ 33,679 $ 32,075 Diluted income per share $ 1.94 $ 1.56 $ 1.47 Net income as a percentage of net sales 9.2% 8.0% 8.0% BALANCE SHEET DATA Working capital $ 229,594 $ 180,678 $ 144,540 Total assets $ 405,543 $ 356,222 $ 318,011 Long term debt -- -- -- Stockholders' equity $ 332,928 $ 293,845 $ 261,027 SELECTED OPERATING DATA Number of stores open at year end 327 316 304 Average sales per square foot $ 291 $ 274 $ 274 Average sales per store (000's) $ 1,454 $ 1,350 $ 1,334 Comparable store sales change 6.3% 1.1% -0.5%
* CORPORATE HEADQUARTERS > 327 STORES IN 38 STATES, [MAP] AS OF JANUARY 29, 2005 Building the Team > GUEST SERVICES As we continue to grow beyond our Midwestern roots, we still consider ourselves to be the hometown store, with considerate teammates who take the time to listen. By paying attention to what our guests have to say -- what they like, what they don't like, what works and what doesn't -- we form lasting relationships and build loyalty. The one-on-one connections that we forge with our guests comprise the hallmark of our approach. At the Buckle, we believe that good business starts with good people. That's why we've bolstered our efforts to identify and attract talented individuals who possess the ambition and skills necessary to move the Company forward. We nurture their career development and invest in their education by hosting meetings throughout the year and taking advantage of daily learning opportunities. Our dedication to service doesn't stop when the transaction is complete. Free gift wrapping, free alterations and electronic gift cards are all enhancements that add value to each guest's experience. We also work to continually refine our guests' online experiences at Buckle.com by suggesting pre-coordinated looks and providing a BKE denim finder. Knowledgeable staff. Great selection. Attentive service. Individually, these are all strong attributes, but when you add them up you get something truly exceptional -- a shopping experience that's perfectly tailored to each and every guest. [BAR CHART] [PICTURE]
NET SALES (amounts in thousands) - ---------------------- $387,638 2001 $401,060 2002 $422,820 2003 $470,937 2004
page no: 1 [PICTURE] "The small things make all the difference. From the custom fit to a distinctive button, contrasting fabric or raw edge, our product enhancements result in unique merchandise that our guests enjoy wearing -- time and time again." -- Pat Whisler, Vice President of Women's Merchandising, with the Buckle since 1976 [PICTURE] page no:2 Creating the Style > MERCHANDISE Offering guests their own complete look, in addition to providing outstanding service, is what truly sets the Buckle apart. From denim and footwear to accessories and tops, our knowledgeable team can pull from a wide variety of styles to create a head-to-toe look that suits the personal tastes of each and every guest. Our flexible approach to fashion allows us to nimbly adjust our product mix to meet ever-changing trends and styles. A constant flow of communication -- from our guests and teammates on the sales floor to our merchandisers in the home office -- enables us to keep on top of buying trends and hone our merchandise selection even further. We also have a keen eye for detail. To that end, much of our merchandise has been enhanced to make it truly unique to the Buckle. Whether it's a custom fit or a styling detail, we are proud to offer products that cannot be found anywhere else. It's one reason that our guests like to shop our stores first. Long known as a denim destination, the Buckle's denim is stronger than ever. Over the past year, we've introduced several new variations, styles and fits to our denim selection, including expansions within our private label as well as exclusive products developed in partnership with our longtime vendors. [PICTURE] [PICTURE] [BAR CHART]
DENIM SALES (amounts in thousands) - ---------------------- $111,733 2001 $131,504 2002 $152,612 2003 $189,329 2004
page no:3 [PICTURE] "Our inviting store design and wide selection of apparel, footwear and accessories are what bring people in the door. Our high degree of product knowledge and the relationships we build are what keep them coming back." -- Tracy Purcell, Area Manager, with the Buckle since 1996 [PICTURE] page no: 4 Strengthening the Brand > STORE ENVIRONMENT Creating the most enjoyable shopping experience possible starts the moment a guest walks through the door. And how inviting our store looks often influences a guest's decision to walk in... or to walk right by. Guests and teammates alike have embraced the Buckle's new store environment. Our 2002 design and layout is now featured in 68 stores, with plans for an additional 24 in 2005 -- comprised of 15 new stores and 9 remodels. The fresh, appealing look that our stores convey provides the perfect setting for our unique and carefully selected merchandise. Updated display walls, garment tables and fixtures allow guests to better see, touch and experience product details as never before. These enhancements strengthen the overall shopping experience for our guests and showcase our products in the most engaging way possible. The Buckle's real estate continues to be well-positioned. Our appealing store design and solid reputation in the marketplace enable us to capitalize on outstanding opportunities in areas with high foot traffic, great visibility and easy access. We remain confident that continuing to enhance our store environment will be key to our enduring success. [BAR CHART] [PICTURE] [PICTURE]
NET INCOME (amounts in thousands) - ---------------------- $32,642 2001 $32,075 2002 $33,679 2003 $43,229 2004
page no: 5 SELECTED FINANCIAL DATA (Dollar Amounts in Thousands Except Share, Per Share Amounts and Selected Operating Data)
FISCAL YEARS ENDED ------------------------------------------------------------------- JANUARY 29, JANUARY 31, FEBRUARY 1, FEBRUARY 2, FEBRUARY 3, 2005 2004 2003 2002 2001 (a) ----------- ----------- ----------- ----------- ----------- INCOME STATEMENT DATA Net sales $ 470,937 $ 422,820 $ 401,060 $ 387,638 $ 393,247 Cost of sales (including buying, distribution and occupancy costs) 299,958 280,004 269,516 259,994 262,534 ----------- ----------- ----------- ----------- ---------- Gross profit 170,979 142,816 131,544 127,644 130,713 Selling expenses 89,008 79,668 74,754 69,786 69,635 General and administrative expenses 18,599 15,045 10,979 10,939 10,365 ----------- ----------- ----------- ----------- ---------- Income from operations 63,372 48,103 45,811 46,919 50,713 Other income, net 4,470 4,688 4,698 4,820 3,860 Income before income taxes and cumulative effect of change in accounting 67,842 52,791 50,509 51,739 54,573 Provision for income taxes 24,613 19,112 18,434 19,097 20,022 ----------- ----------- ----------- ----------- ---------- Income before cumulative effect of change in accounting 43,229 33,679 32,075 32,642 34,551 Cumulative effect of change in accounting, net of taxes (b) -- -- -- -- (270) ----------- ----------- ----------- ----------- ---------- Net income $ 43,229 $ 33,679 $ 32,075 $ 32,642 $ 34,281 ----------- ----------- ----------- ----------- ---------- Basic income per share $ 2.02 $ 1.60 $ 1.52 $ 1.57 $ 1.67 ----------- ----------- ----------- ----------- ---------- Diluted income per share $ 1.94 $ 1.56 $ 1.47 $ 1.51 $ 1.60 ----------- ----------- ----------- ----------- ---------- Dividends per share (c) $ 0.44 $ 0.20 $ 0.00 $ 0.00 $ 0.00 ----------- ----------- ----------- ----------- ---------- SELECTED OPERATING DATA Stores open at end of period 327 316 304 295 274 Average sales per square foot $ 291 274 274 279 309 Average sales per store (000's) $ 1,454 $ 1,350 $ 1,334 $ 1,352 $ 1,482 Comparable store sales change (d) 6.3% $ 1.1% $ -0.5% $ -6.2% $ -6.0% BALANCE SHEET DATA Working capital $ 229,594 $ 180,678 $ 144,540 $ 145,629 $ 116,283 Long-term investments $ 44,032 $ 52,647 $ 54,548 $ 32,556 $ 20,688 Total assets $ 405,543 $ 356,222 $ 318,011 $ 282,871 $ 245,437 Long-term debt -- -- -- -- -- Stockholders' equity $ 332,928 $ 293,845 $ 261,027 $ 230,046 $ 190,630 ----------- ----------- ----------- ----------- ----------
(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 the first and second quarters of fiscal 2004 and $.12 per share in the third and fourth 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 presented. 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. page no: 6 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 report. The following is management's discussion and analysis of certain significant factors which have affected the Company's financial condition and results of operations during the periods included in the accompanying financial statements. > EXECUTIVE OVERVIEW Company management considers the following items to be key performance indicators in evaluating Company performance. COMPARABLE STORE SALES - Stores are deemed to be comparable stores if they were open in the prior year on the first day of the fiscal period presented. 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. 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. page no: 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS > 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 PERCENTAGE INCREASE FOR FISCAL YEARS ENDED (DECREASE) --------------------------------------- ----------------------------- JANUARY 29, JANUARY 31, FEBRUARY 1, FISCAL YEAR 2005 2004 2003 2003 TO 2004 2002 TO 2003 ----------- ----------- ----------- ------------ ------------ INCOME STATEMENT DATA Net sales 100.0% 100.0% 100.0% 11.4% 5.4% Cost of sales (including buying, distribution and occupancy costs) 63.7% 66.2% 67.2% 7.1% 3.9% ----- ----- ----- ---- ---- Gross profit 36.3% 33.8% 32.8% 19.7% 8.6% Selling expenses 18.9% 18.8% 18.7% 11.7% 6.6% General and administrative expenses 3.9% 3.6% 2.7% 23.6% 37.0% ----- ----- ----- ---- ---- Income from operations 13.5% 11.4% 11.4% 31.7% 5.0% Other income 0.9% 1.1% 1.2% -4.6% -0.2% ----- ----- ----- ---- ---- Income before income taxes 14.4% 12.5% 12.6% 28.5% 4.5% Provision for income taxes 5.2% 4.5% 4.6% 28.8% 3.7% ----- ----- ----- ---- ---- Net income 9.2% 8.0% 8.0% 28.4% 5.0% ===== ===== ===== ==== ====
> FISCAL 2004 COMPARED TO FISCAL 2003 Net sales increased from $422.8 million in fiscal 2003 to $470.9 million in fiscal 2004, an 11.4% increase. Comparable store sales increased by $25.5 million, or 6.3% for the 52 weeks ended January 29,2005 compared to the same 52-week period in the prior year. The Company had 1.6% sales growth in fiscal 2004 that was attributable to the inclusion of a full year of operating results in fiscal 2004 for stores opened in fiscal 2003 and 3.5% growth from the opening of 13 new stores in fiscal 2004. The Company's average retail price per piece of merchandise increased $0.76 per piece, approximately 2%, in fiscal 2004 compared to fiscal 2003. This $0.76 increase 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 4.6% increase in denim price points ($0.65), a 5.1% increase in accessory price points ($0.20), a 6.3% increase in woven shirt price points ($0.19) and a shift in the merchandise mix ($0.31). These increases were partially offset by reduced price points for outerwear ($0.18), knit shirts ($0.17),footwear ($0.09), sweaters ($0.08),fashion clothes ($0.04) and casual bottoms ($0.04). 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 2004 increased 6.3% from $274 to $291. Gross profit after buying, distribution and occupancy costs increased $28.2 million in fiscal 2004 to $171.0 million, a 19.7% increase. As a percentage of net sales, gross profit increased from 33.8% in fiscal 2003 to 36.3% in fiscal 2004. The increase was primarily attributable to a 1.4% improvement, as a percentage of net sales, in actual merchandise margins; achieved through timely sell-throughs on new product and an increase in sales of private label merchandise, which achieves a higher margin. This improvement was also impacted by a 0.93% reduction, as a percentage of net sales, in occupancy costs. Merchandise shrinkage increased to 0.7% in fiscal 2004 from 0.6% in fiscal 2003. Selling expenses increased from $79.7 million for fiscal 2003 to $89.0 million for fiscal 2004, an 11.7% increase. Selling expenses as a percentage of net sales increased from 18.8% for fiscal 2003 to 18.9% for fiscal 2004. The increase was primarily attributable to a higher accrual for store page no: 8 manager incentive bonuses due to increased net profits, an increase of 0.54% 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 0.11% as a percentage of net sales. These increases were partially offset by slight reductions in spending for store salaries (-0.3%, as a percentage of net sales), magazine advertising (-0.06%, as a percentage of net sales), store visit and meeting travel (-0.11%, as a percentage of net sales), selling supplies (-0.07%, as a percentage of net sales) and bad debt expense (-0.1%, as a percentage of net sales), during fiscal 2004 compared to fiscal 2003. General and administrative expenses increased from $15.0 million in fiscal 2003 to $18.6 million in fiscal 2004, a 23.6% increase. As a percentage of net sales, general and administrative expense increased from 3.6% for fiscal 2003 to 3.9% for fiscal 2004. The increase in general and administrative expense, as a percentage of net sales, resulted primarily from higher incentive bonuses due to increased net profits and increased expense related to restricted stock compensation, partially offset by lower salaries. As a result of the above changes, the Company's income from operations increased $15.3 million to $63.4 million for fiscal 2004,a 31.7% increase compared to fiscal 2003. Income from operations was 13.5% as a percentage of net sales in fiscal 2004 compared to 11.4% as a percentage of net sales in fiscal 2003. Other income for fiscal 2004 decreased 4.6% from fiscal 2003 to $4.5 million. The decrease is primarily due to a reduction in interest income, as interest rates continued to be lower in fiscal 2004 compared with fiscal 2003; although balances in cash and investments were higher during fiscal 2004 than they were during the prior fiscal year. Income tax expense as a percentage of pre-tax income was 36.3% in fiscal 2004 compared to 36.2% in fiscal 2003, bringing net income to $43.2 million for fiscal 2004 versus $33.7 million for fiscal 2003, an increase of 28.4%. > 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. 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 page no: 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. > LIQUIDITY AND CAPITAL RESOURCES As of January 29,2005, the Company's working capital was $229.6 million, including $173.9 million of cash and cash equivalents. 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 and continued paying quarterly dividends during fiscal 2004, with a $.10 per share dividend paid for each of the first two quarters, and a $.12 per share dividend paid during the third and fourth quarters of fiscal 2004. The Company plans to continue its quarterly dividends during fiscal 2005. During fiscal 2004,2003 and 2002 the Company's cash flow from operations was $72.6 million, $57.9 million and $45.5 million, respectively. During fiscal 2004,2003 and 2002, the Company also used cash for repurchasing shares of the Company's common stock. In fiscal 2004, the Company purchased 130,700 shares at a cost of $3.4 million. The Company purchased 152,300 shares in fiscal 2003 at a cost of $2.9 million and 119,125 shares in fiscal 2002 at a cost of $2.0 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 line of credit 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. 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 2004, 2003 and 2002. The Company had no bank borrowings as of January 29,2005. During fiscal 2004,2003 and 2002, the Company invested $14.8 million, $19.4 million and $18.6 million, respectively, in new store construction, store renovation and store technology upgrades. The Company also spent $1.8 million, $0.8 million and $0.6 million, in fiscal 2004,2003 and 2002, 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 2005, the Company anticipates completing approximately 24 store construction projects, including approximately 15 new stores and approximately 9 stores to be remodeled and/or relocated. As of March 2005, leases for eight new stores have been signed, and leases for ten additional locations are under negotiation; however, exact page no: 10 new store openings, remodels and relocations may vary from those anticipated. The average cost of opening a new store during fiscal 2004 was approximately $735,000, including construction costs of approximately $565,000 and inventory costs of approximately $170,000, net of payables. Management estimates that total capital expenditures during fiscal 2005 will be approximately $23.4 million.The Company believes that existing cash and cash equivalents, investments 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.See Note M for subsequent event. > 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 and income taxes. Management bases its estimates on past experience and on various other factors that are thought to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company's certain critical accounting policies are listed below. 1. REVENUE RECOGNITION. Sales are recorded upon the purchase of merchandise by customers. 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 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 sales returns was $277,000 and $258,000 at January 29,2005 and January 31,2004, 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 4 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 fluctuations 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, 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 $5.0 million and $2.5 million as of January 29,2005 and January 31,2004, 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 page no: 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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 29,2005:
PAYMENTS DUE BY PERIOD (dollar amounts in thousands) ----------------------------------------------------------------------- Contractual obligations Total Less than 1 year 1-3 years 4-5 years After 5 years -------- ---------------- --------- --------- ------------- Long term debt $ -- $ -- $ -- $ -- $ -- Purchase Obligations $ -- $ -- $ -- $ -- $ -- Deferred Compensation $ 1,799 $ -- $ -- $ -- $ 1,799 Operating leases $178,458 $ 31,030 $ 54,892 $46,628 $45,908 -------- -------- -------- ------- ------- Total contractual obligations $180,257 $ 31,030 $ 54,892 $46,628 $47,707 ======== ======== ======== ======= =======
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD (dollar amounts in thousands) -------------------------------------------------------------------------- Other Commercial Commitments Total Amounts Less than Committed 1 year 1-3 years 4-5 years After 5 years ------------- --------- --------- --------- ------------- Lines of credit $1 7,500 $ 17,500 $ -- $ -- $ -- -------- -------- -------- ------- --------- Total commercial commitments $1 7,500 $ 17,500 $ -- $ -- $ -- ======== ======== ======== ======= =========
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. The amounts of outstanding letters of credit reported 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. page no: 12 > 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 2004, 2003 and 2002, 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. On December 16, 2004,the FASB issued Statement No. 123 (revised 2004) ("SFAS 123(R)"), "Share-Based Payment," which is effective for fiscal years beginning after June 15, 2005. SFAS 123(R) requires an entity to recognize compensation expense in an amount equal to the fair value of share-based payments granted to employees. The Company will adopt SFAS 123(R) as of the beginning of fiscal 2006 and apply the standard using the modified prospective method, which requires compensation expense to be recorded for new and modified awards. For any unvested portion of previously issued and outstanding awards, compensation expense is required to be recorded based on the previously disclosed SFAS 123 methodology and amounts. Prior periods presented are not required to be restated.The Company is still assessing the impact on results of operations and financial position upon the adoption of SFAS 123(R). > 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. page no: 13 MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f)and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of the Company's internal control over financial reporting, as of January 29, 2005. In making its assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission in their Internal Control-Integrated Framework. In performing this assessment, management reviewed the Company's lease accounting policies in light of the February 7, 2005 letter from the Office of the Chief Accountant of the Securities and Exchange Commission to the American Institute of Certified Public Accountants expressing views regarding lease-related accounting issues. In light of this letter, the Company's management initiated a review of its lease accounting and determined that its then current method of accounting for leasehold improvements funded by landlord incentives or allowances under operating leases (tenant improvement allowances) and its then current method of accounting for rent holidays were not in accordance with GAAP. While such amounts are not material to any prior period, management determined to restate prior periods due to the size of the correction that would have been required in fiscal 2004. As a result, the Company restated its financial statements for each of the fiscal years ended January 31, 2004, February 1, 2003 and February 2, 2002. Management evaluated the impact of this restatement on the Company's assessment of its system of internal control. Based upon the definition of "material weakness" in the Public Company Accounting Oversight Board's Auditing Standards No. 2, an Audit of Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements, restatement of financial statements in prior filings with the SEC is a strong indicator of the existence of a "material weakness" in design or operation of internal control over financial reporting. Based on that, management concluded that a material weakness existed in the Company's internal control over financial reporting as of January 29, 2005, and disclosed this to the Audit Committee and to the independent registered public accountants. Management also identified deficiencies and significant deficiencies which, when aggregated, represent a material weakness. These control deficiencies and significant deficiencies related to information technology, including security and production change control, and segregation of duties and documentation in the business cycles. A material weakness in internal control over financial reporting is a control deficiency (within the meaning of the Public Company Accounting Oversight Board Auditing Standard No. 2), or combination of control deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Remediation Steps to Address Material Weakness - To remediate the material weakness in the Company's internal control over financial reporting related to lease accounting, subsequent to year end the Company is implementing additional review procedures over the selection and monitoring of appropriate assumptions and factors affecting lease accounting practices. With respect to the material weakness related to information technology and segregation of duties and documentation in the business cycles, the Company is in the process of implementing additional monitoring activities as well as evaluating job responsibilities in order to improve internal controls. As a result of the aforementioned material weaknesses in the Company's internal control over financial reporting, management has concluded that, as of January 29, 2005, the Company's internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles based on criteria set forth by the COSO of the Treadway Commission in their Internal Control- Integrated Framework. The Company's independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on management's assessment of the Company's internal control over financial reporting. This report follows on the next page. page no: 14 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING To the Board of Directors and Stockholders of The Buckle, Inc. Kearney, Nebraska We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that The Buckle, Inc. (the "Company") did not maintain effective internal control over financial reporting as of January 29, 2005, because of the effect of the material weaknesses identified in management's assessment based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit. We have conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides reasonable basis for our opinions. A company's internal control over financial reporting is a process by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorization of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override on controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a significant deficiency, or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management's assessment: As of January 29, 2005, management identified its lease-related accounting policies and its then-current method of accounting for leasehold improvements funded by landlord allowances under operating leases, accounting for rent holidays and straight-line rent appeared to be incorrect in light of the views expressed by the Office of the Chief Accountant of the Securities and Exchange Commission on February 7, 2005 regarding lease-related accounting issues. Control deficiencies included (1) accounting for leases not in accordance with generally accepted accounting principles and (2) improper disclosure of operating leases in the Company's financial statements. These deficiencies in the design and implementation of the Company's internal control over financial reporting caused the Company to amend its Form 10-K for the year ended January 31, 2004 and its Forms 10-Q for each of the quarters ended May 1, 2004, July 31, 2004 and October 30, 2004 in order to remediate this page no: 15 material weakness. While such amounts are not material to any prior period, management determined to restate prior periods due to the size of the correction that would have been required in fiscal 2004. As of January 29, 2005, management identified various segregation of duties deficiencies in the pervasive control function of information technology including: (1) security and (2) production change control. These information technology deficiencies along with (3) various segregation of duties deficiencies in business cycles; (4) segregation of duties deficiencies in financial close and reporting process, (5) segregation of duties deficiencies of non-routine transaction processing, as well as (6) lack of documentation of policies and procedures contribute to this material weakness. These deficiencies in the design and implementation of the Company's internal control over financial reporting did not result in an actual misstatement to the financial statements. However, due to (1) the significance of the potential material misstatement that could have resulted due to the deficient controls and (2) the absence of other mitigating control, there is more than a remote likelihood that a material misstatement of the interim and annual financial statements would not have been prevented or detected. These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the financial statements as of and for the year ended January 29, 2005, of the Company and this report does not affect our report on such financial statements. In our opinion, management's assessment that the Company did not maintain effective internal controls over financial reporting as of January 29, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of January 29, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the financial statements as of and for the year ended January 29, 2005 of the Company and our report dated April 18, 2005 expressed an unqualified opinion on those financial statements. DELOITTE & TOUCHE LLP Omaha, Nebraska April 18, 2005 page no: 16 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 29, 2005 and January 31, 2004, and the related statements of income, stockholders' equity and cash flows for each of the three fiscal years in the period ended January 29, 2005. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether 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 29, 2005 and January 31, 2004, and the results of its operations and its cash flows for each of the three fiscal years in the period ended January 29, 2005, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of January 29, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report, dated April 18, 2005, expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an adverse opinion on the effectiveness of the Company's internal control over financial reporting because of material weaknesses. DELOITTE & TOUCHE LLP Omaha, Nebraska April 18, 2005 Page no: 17 BALANCE SHEETS (Dollar Amounts in Thousands Except Share and Per Share Amounts)
JANUARY 29, JANUARY 31, 2005 2004 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 173,897 $ 119,976 Investments (Note B) 25,523 23,346 Accounts receivable, net of allowance of $ 113 and $ 181 , respectively 1,887 3,585 Inventory 68,330 61,156 Prepaid expenses and other assets (Note E) 5,693 9,083 --------- --------- Total current assets 275,330 217,146 --------- --------- PROPERTY AND EQUIPMENT (Note C): 179,056 169,453 Less accumulated depreciation and amortization (95,514) (85,550) --------- --------- 83,542 83,903 --------- --------- LONG-TERM INVESTMENTS (Note B) 44,032 52,647 OTHER ASSETS (Notes E and F) 2,639 2,526 --------- --------- $ 405,543 $ 356,222 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 12,665 $ 14,207 Accrued employee compensation 18,467 11,890 Accrued store operating expenses 4,236 3,833 Gift certificates redeemable 4,654 3,778 Income taxes payable 5,714 2,760 --------- --------- Total current liabilities 45,736 36,468 DEFERRED COMPENSATION (Note H) 1,799 1,467 DEFERRED RENT LIABILITY (Note A) 25,080 24,442 --------- --------- Total liabilities 72,615 62,377 --------- --------- COMMITMENTS (Notes D and G) STOCKHOLDERS' EQUITY (Note I): Common stock, authorized 100,000,000 shares of $.01 par value; issued and outstanding; 21,685,008 and 21,484,316 shares, respectively 217 215 Additional paid-in capital 26,857 24,245 Retained earnings 305,854 272,125 Unearned compensation - restricted stock -- (2,740) --------- --------- Total stockholders' equity 332,928 293,845 --------- --------- $ 405,543 $ 356,222 ========= =========
See notes to financial statements. page no: 18 STATEMENTS OF INCOME (Dollar Amounts in Thousands Except Per Share Amounts)
FISCAL YEARS ENDED ------------------------------------------- JANUARY 29, JANUARY 31, FEBRUARY 1, 2005 2004 2003 ----------- ----------- ----------- SALES, Net of returns and allowances of $35,028, $32,364 and $31,826, respectively $470,937 $422,820 $401,060 COST OF SALES (Including buying, distribution and occupancy costs) 299,958 280,004 269,516 -------- -------- -------- Gross profit 170,979 142,816 131,544 -------- -------- -------- OPERATING EXPENSES: Selling 89,008 79,668 74,754 General and administrative 18,599 15,045 10,979 -------- -------- -------- 107,607 94,713 85,733 -------- -------- -------- INCOME FROM OPERATIONS 63,372 48,103 45,811 OTHER INCOME, Net 4,470 4,688 4,698 -------- -------- -------- INCOME BEFORE INCOME TAXES 67,842 52,791 50,509 PROVISION FOR INCOME TAXES (Note E) 24,613 19,112 18,434 -------- -------- -------- NET INCOME $ 43,229 $ 33,679 $ 32,075 ======== ======== ======== EARNINGS PER SHARE (Note J): Basic $ 2.02 $ 1.60 $ 1.52 ======== ======== ======== Diluted $ 1.94 $ 1.56 $ 1.47 ======== ======== ========
See notes to financial statements. page no: 19 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, February 3, 2002 $ 211 $ 19,320 $ 210,653 $ (126) $(12) $ 230,046 Comprehensive income: Net income -- -- 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 $ 32,087 ======== 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 210 18,089 242,728 -- -- 261,027 Comprehensive income: Net income -- -- 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 215 24,245 272,125 (2,740) -- 293,845 Comprehensive income: Net income -- -- 43,229 -- -- 43,229 $ 43,229 ======== Dividends paid on common stock, ($.10 per share in the 1st and 2nd quarters and $.12 per share in the 3rd and 4th quarters) -- -- (9,500) -- -- (9,500) Common stock (336,108 shares) issued on exercise of stock options 3 4,297 -- -- -- 4,300 Amortization of restricted stock grant -- -- -- 2,724 -- 2,724 Forfeiture of restricted stock (3,959 shares) -- (117) -- 16 -- (101) Common stock (130,700 shares) purchased and retired (1) (3,442) -- -- -- (3,443) Tax benefit related to exercise of employee stock options -- 1,874 -- -- -- 1,874 -------- -------- --------- ------- ---- --------- BALANCE,January 29, 2005 $ 217 $ 26,857 $ 305,854 $ -- $ -- $ 332,928 ======== ======== ========= ===== ==== =========
See notes to financial statements. Page no: 20 STATEMENTS OF CASH FLOWS (Dollar Amounts in Thousands)
FISCAL YEARS ENDED ------------------------------------------- JANUARY 29, JANUARY 31, FEBRUARY 1, 2005 2004 2003 ----------- ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 43,229 $ 33,679 $ 32,075 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation 16,353 15,956 14,869 Provision for impairments and asset disposals 157 -- -- Amortization of unearned compensation - restricted stock 2,724 1,635 126 Forfeiture of restricted stock (101) -- -- Deferred taxes (1,184) 1,813 (174) Tax benefit from employee stock option exercises 1,874 2,185 182 Loss (gain) on disposal of assets 475 773 (53) Changes in operating assets and liabilities: Accounts receivable 1,698 (2,195) 631 Inventory (7,174) (1,115) (5,744) Prepaid expenses 4,291 (256) (552) Accounts payable (1,542) 889 2,185 Accrued employee compensation 6,577 1,564 (199) Accrued store operating expenses 403 671 (383) Gift certificates redeemable 876 300 432 Long-term liabilities and deferred compensation 970 2,175 554 Income taxes payable 2,954 (206) 1,569 --------- --------- --------- Net cash flows from operating activities 72,580 57,868 45,518 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (16,637) (20,237) (28,328) Proceeds from sale of property and equipment 13 22 3,049 Decrease in other assets 170 23 (54) Purchase of investments (24,807) (40,117) (50,135) Proceeds from sales and maturities of investments 31,245 34,122 22,425 --------- --------- --------- Net cash flows from investing activities (10,016) (26,187) (53,043) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the exercise of stock options 4,300 2,509 574 Purchases of common stock (3,443) (2,908) (1,988) Payment of dividends (9,500) (4,282) -- --------- --------- --------- Net cash flows from financing activities (8,643) (4,681) (1,414) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 53,921 27,000 (8,939) CASH AND CASH EQUIVALENTS, Beginning of year 119,976 92,976 101,915 --------- --------- --------- CASH AND CASH EQUIVALENTS, End of year $ 173,897 $ 119,976 $ 92,976 ========= ========= =========
See notes to financial statements. page no: 21 NOTES TO FINANCIAL STATEMENTS FISCAL YEARS ENDED JANUARY 29, 2005, JANUARY 31, 2004 AND FEBRUARY 1, 2003 (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 2004, 2003 and 2002 represent the 52-week periods ended January 29, 2005, January 31, 2004 and February 1, 2003, 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 327 stores located in 38 states throughout the central, northwestern and southern regions of the United States, plus an online store, as of January 29, 2005. During fiscal 2004, the Company opened thirteen new stores, substantially renovated eight stores and closed two stores. 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. 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 $277 and $258 as of January 29, 2005 and January 31, 2004, 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, using the face amount of the certificates. 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 $5,000 and $2,500 as of January 29, 2005 and January 31, 2004, respectively. The amount of net write-off charged (credited) to cost of goods sold, resulting from changes in the markdown reserve balance, was $2,416, $323 and $163, for fiscal years 2004, 2003, and 2002, 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. When circumstances indicate the carrying values on long-lived assets may be impaired, an evaluation is performed on current net book value amounts. Judgments made by the Company related to the expected useful lives of property and equipment and the ability to realize cash flows in excess of carrying amounts of such assets are affected by factors such as changes in economic conditions and changes in operating performance. As the Company assesses the expected cash flows and carrying amounts of long-lived assets, adjustments are made to such carrying values. The Company's reserve for impairment losses on long-lived assets was $157 and $- as of January 29, 2005 and January 31, 2004, respectively. 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. page no: 22 PRE-OPENING EXPENSES - Costs related to opening new stores are expensed as incurred. ADVERTISING COSTS - Advertising costs are expensed as incurred and amounted to $4,969, $4,304 and $4,404 for fiscal years 2004, 2003 and 2002, 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 $325 and $275 at January 29, 2005 and January 31, 2004, 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 expensing rent, 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 income. 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 earnings. 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 in "Accrued store operating expenses" 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 primarily from interest and dividends on cash and investments, but also includes miscellaneous other sources of income, none of which are individually material. The amount of other income generated from interest and dividends on cash and investments was $3,739 and $4,046 for fiscal 2004 and fiscal 2003, 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 $2,640, $1,635 and $126 for the fiscal years 2004, 2003 and 2002, respectively. 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 -------------------------------------------- 2004 2003 2002 ---------- ---------- ---------- Net income, as reported $ 43,229 $ 33,679 $ 32,075 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 1,650 1,037 80 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (4,568) (3,740) (4,117) ---------- ---------- ---------- Pro forma net income $ 40,311 $ 30,976 $ 28,038 ========== ========== ========== Earnings per share: Basic - as reported $ 2.02 $ 1.60 $ 1.52 ---------- ---------- ---------- Basic - pro forma $ 1.88 $ 1.47 $ 1.33 ---------- ---------- ---------- Diluted -as reported $ 1.94 $ 1.56 $ 1.47 ---------- ---------- ---------- Diluted -pro forma $ 1.81 $ 1.43 $ 1.29 ========== ========== ==========
page no: 23 NOTES TO FINANCIAL STATEMENTS (Dollar Amounts are in Thousands Except Share and Per Share Amounts) 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 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. On December 16, 2004, the FASB issued Statement No. 123 (revised 2004) ("SFAS 123(R)"),"Share-Based Payment," which is effective for fiscal years beginning after June 15, 2005. SFAS 123(R) requires an entity to recognize compensation expense in an amount equal to the fair value of share-based payments granted to employees. The Company will adopt SFAS 123(R) as of the beginning of fiscal 2006 and apply the standard using the modified prospective method, which requires compensation expense to be recorded for new and modified awards. For any unvested portion of previously issued and outstanding awards,compensation expense is required to be recorded based on the previously disclosed SFAS 123 methodology and amounts. Prior periods presented are not required to be restated. The Company is still assessing the impact on results of operations and financial position upon the adoption of SFAS 123(R). RECLASSIFICATIONS - Certain reclassification have been made to the balance sheets to consistently report current classifications of assets and liabilities. page no: 24 B. INVESTMENTS The following is a summary of investments as of January 29, 2005:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- --------- Held-to-Maturity Securities: State and municipal bonds $57,577 $414 $(307) $57,684 U.S. corporate bonds 2,500 62 (6) 2,556 U.S. treasuries 7,679 -- (62) 7,617 ------- ---- ----- -------- $67,756 $476 $(375) $67,857 ======= ==== ===== ======= Trading Securities: Mutual funds $ 1,438 $366 $ (5) $ 1,799 ======= ==== ===== =======
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 ======= ======= ======== =======
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 H). The amortized cost and fair value of debt securities by contractual maturity at January 29, 2005 is as follows:
AMORTIZED FAIR COST VALUE --------- ------- 2005 $25,523 $25,427 2006 18,463 18,422 2007 12,206 12,174 2008 3,842 3,905 2009 1,613 1,639 Thereafter 6,109 6,290 ------- ------- $67,756 $67,857 ======= =======
At January 29, 2005 and January 31, 2004, held to maturity investments of $42,233 and $51,180 are classified in long-term investments. page no: 25 NOTES TO FINANCIAL STATEMENTS (Dollar Amounts are in Thousands Except Share and Per Share Amounts) C. PROPERTY AND EQUIPMENT A summary of the cost of property and equipment follows:
JANUARY 29, JANUARY 31, 2005 2004 ----------- ----------- Land $ 920 $ 917 Building and improvements 8,930 8,908 Office equipment 3,075 3,120 Transportation equipment 15,856 15,778 Leasehold improvements 81,349 76,062 Furniture and fixtures 61,885 58,254 Shipping/receiving equipment 4,336 4,231 Screenprinting equipment 106 102 Construction-in-progress 2,599 2,081 -------- -------- $179,056 $169,453 ======== ========
D. 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 29, 2005 and January 31, 2004. There were immaterial bank borrowings during fiscal 2004, 2003 and 2002. The Company had outstanding letters of credit totaling $967 and $799 at January 29, 2005 and January 31, 2004, respectively. E. INCOME TAXES The provision for income taxes consists of:
FISCAL YEAR -------------------------------------------- 2004 2003 2002 -------- ------- -------- Current: Federal $ 21,851 $14,414 $ 15,718 State 3,946 2,885 2,890 Deferred (1,184) 1,813 (174) -------- ------- -------- Total $ 24,613 $19,112 $ 18,434 ======== ======= ========
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: page no: 26
FISCAL YEAR ----------------------------- 2004 2003 2002 ----- ----- ----- Statutory rate 35.0% 35.0% 35.0% State income tax effect 3.9 3.9 3.9 Tax exempt interest income (2.1) (2.8) (2.6) Other (0.5) 0.1 0.2 ---- ---- ---- Effective tax rate 36.3% 36.2% 36.5% ==== ==== ====
Deferred tax assets and liabilities are comprised of the following:
JANUARY 29, JANUARY 31, 2005 2004 ----------- ----------- Deferred tax assets (liabilities): Inventory $ 2,749 $ 1,620 Stock-based compensation 1,905 1,108 Accrued compensation 1,076 806 Accrued store operating costs 139 82 Unrealized (gain) loss on trading securities (135) (98) Capital loss carryforward on trading securities 143 145 Gift certificates redeemable 115 90 Allowance for doubtful accounts 42 68 Deferred rent liability 9,590 9,336 Property and equipment (10,159) (8,876) ---------- ---------- $ 5,465 $ 4,281 ========== ==========
At January 29, 2005 and January 31, 2004, respectively, the net current deferred tax assets of $3,962 and $3,061 are classified in prepaid expenses and other assets. The net non-current deferred tax assets of $1,503 and $1,220 are classified in other assets at January 29, 2005 and January 31, 2004, respectively. Cash paid for income taxes was $21,084, $15,527 and $17,662 in fiscal years 2004, 2003 and 2002, respectively. F. RELATED PARTY TRANSACTIONS Included in other assets is a note receivable of $885 and $855 at January 29, 2005 and January 31, 2004, 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. page no: 27 NOTES TO FINANCIAL STATEMENTS (Dollar Amounts are in Thousands Except Share and Per Share Amounts) G. 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 amortization, 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 2004, 2003 and 2002 was $27,952, $29,897 and $27,611, 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 2004, 2003 and 2002 were $518, $403 and $656, respectively. Total future minimum rental commitments under these operating leases are as follows:
FISCAL YEAR - ----------- 2005 $ 31,030 2006 28,343 2007 26,549 2008 24,596 2009 22,032 Thereafter 45,908 ---------- Total minimum payments required $ 178,458 ==========
H. EMPLOYEE BENEFITS The Company has a 401(k) profit sharing plan covering all eligible employees who elect 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 $548, $567 and $600 for fiscal years 2004, 2003 and 2002, respectively. The Buckle, Inc. Deferred Compensation Plan covers certain of 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 $76, $56 and $66 for fiscal years 2004, 2003 and 2002, respectively. I. 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. At January 31, 2005, 322,891 shares of common stock were available for grant under the various option plans of which 192,950 shares were available to executive officers of the Company. 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 $2,640 and $1,635 of compensation expense during fiscal 2004 and fiscal 2003, respectively. Due to participants terminating their employment prior to the vesting date, 3,959 of these shares were forfeited during fiscal 2004 and the remainder vested on January 29, 2005. page no: 28 The weighted average fair value of options granted during the year under the SFAS No. 123 methodology was $14.93, $15.74 and $15.68 per option for fiscal 2004, 2003 and 2002, 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:
2004 2003 2002 ------- ------- ------- Risk-free interest rate 4.00% 4.25% 4.50% Dividend yield 1.50% 0.00% 0.00% Expected volatility 65.00% 64.00% 62.00% Expected life (years) 7 years 7 years 7 years
A summary of the Company's stock-based compensation activity related to stock options for the last three fiscal years is as follows:
2004 2003 2002 --------------------- --------------------- --------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE NUMBER PRICE NUMBER PRICE NUMBER PRICE ---------- -------- ---------- -------- ---------- -------- Outstanding - beginning of year 3,502,052 $ 17.92 3,867,377 $ 16.10 3,407,135 $ 15.29 Granted 523,150 26.01 508,250 16.88 546,870 20.62 Expired/terminated (231,875) 21.49 (452,090) 11.07 (37,637) 22.41 Exercised (336,108) 12.79 (421,485) 5.96 (48,991) 11.72 --------- -------- --------- -------- --------- -------- Outstanding - end of year 3,457,219 $ 19.40 3,502,052 $ 17.92 3,867,377 $ 16.10 ========= ======== ========= ======== ========= ========
There were 1,401,679, 1,682,784 and 2,371,042 options exercisable at January 29, 2005, January 31,2004 and February 1, 2003, respectively. The following table summarizes information about stock options outstanding as of January 29, 2005:
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 $ 6.333 238,575 1.00 YEARS $ 6.31 238,575 $ 6.31 8.500 9.292 323,963 2.02 9.24 323,963 9.24 11.654 17.010 666,066 6.72 16.49 44.316 16.25 17.199 23.950 1,397,720 5.12 20.90 690.611 21.35 25.750 34.083 830,895 6.86 26.95 104,214 31.89 --------- ---------- ------- --------- ------- 3,457,219 5.27 YEARS $ 19.40 1,401,679 $ 16.62 ========= ========== ======= ========= =======
page no: 29 NOTES TO FINANCIAL STATEMENTS (Dollar Amounts are in Thousands Except Share and Per Share Amounts) J. EARNINGS PER SHARE The following table provides a reconciliation between basic and diluted earnings per share (amounts in thousands except per share amounts):
2004 2003 2002 -------------------------- -------------------------- -------------------------- 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 $ 43,229 21,436 $ 2.02 $ 33,679 21,094 $ 1.60 $ 32,075 21,119 $ 1.52 EFFECT OF DILUTIVE SECURITIES Stock options -- 821 (0.08) -- 530 (0.04) -- 693 (0.05) -------- ------ ------ -------- ------ ------ -------- ------ ------ DILUTED EPS $ 43,229 22,257 $ 1.94 $ 33,679 21,624 $ 1.56 $ 32,075 21,812 $ 1.47 ======== ====== ====== ======== ====== ====== ======== ====== ======
Options to purchase 71,820, 787,965 and 1,122,094 shares of common stock in fiscal 2004, 2003 and 2002, respectively, are not included in the computation of diluted earnings per share because the options would be considered anti-dilutive. K. SEGMENT INFORMATION The Company is a retailer of medium to better priced casual apparel, footwear and accessories. The Company operates 327 stores located in 38 states throughout the central, northwestern and southern regions of the United States, plus an online store, at January 29, 2005. 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:
FISCAL YEAR ----------------------------- MERCHANDISE GROUP 2004 2003 2002 - ------------------------- ------ ------ ------ Denims 40.3% 36.2% 32.8% Tops (including sweaters) 31.8 32.1 32.0 Accessories 11.4 11.4 11.3 Footwear 7.6 8.9 11.4 Sportswear/Fashions 4.2 4.5 4.8 Casual bottoms 2.1 3.8 3.7 Outerwear 2.5 2.9 3.7 Other 0.1 0.2 0.3 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== =====
page no: 30 L. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial information for fiscal 2004 and 2003 are as follows:
QUARTER ------------------------------------------------------- FISCAL 2004 FIRST SECOND THIRD FOURTH - ------------------------- ---------- ---------- ---------- ---------- Net sales $ 94,774 $ 96,848 $ 133,722 $ 145,593 Gross profit $ 30,662 $ 29,794 $ 52,191 $ 58,332 Net income $ 5,888 $ 5,317 $ 14,878 $ 17,146 Basic income per share $ 0.28 $ 0.25 $ 0.70 $ 0.79 Diluted income per share $ 0.27 $ 0.24 $ 0.67 $ 0.76
QUARTER ------------------------------------------------------- FISCAL 2003 FIRST SECOND THIRD FOURTH - ------------------------- ---------- ---------- ---------- ---------- Net sales $ 81,713 $ 85,683 $ 121,325 $ 134,099 Gross profit $ 22,844 $ 24,572 $ 43,619 $ 51,781 Net income $ 2,974 $ 3,575 $ 12,167 $ 14,963 Basic income per share $ 0.14 $ 0.17 $ 0.57 $ 0.71 Diluted income per share $ 0.14 $ 0.17 $ 0.56 $ 0.69
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. M. SUBSEQUENT EVENT On March 25, 2005, the Company announced that it entered into an agreement on March 24, 2005, with Daniel J. Hirschfeld, founder and Chairman, to purchase a total of 3,000,000 shares of the Company's outstanding stock from Mr. Hirschfeld. The shares represent approximately 13.8% of the Company's total outstanding Common Stock. The shares were purchased for $28.00 per share, or a total purchase price of $84 million. The Company retired the purchased shares, reducing the total shares outstanding and reducing Mr. Hirschfeld's ownership percentage to approximately 53%. The stock repurchase transaction was negotiated by a Special Committee of The Buckle, Inc.'s Board of Directors. The Special Committee was comprised of all of the Company's independent Directors, and therefore the transaction was approved by the independent Directors on the Company's Board. In connection with this transaction, the Special Committee received a written fairness opinion from Houlihan Lokey Howard & Zukin Financial Advisors, Inc., an international investment bank. page no: 31 STOCK PRICES BY QUARTER The Company's common stock trades on the New York Stock Exchange under the symbol BKE. The Company declared and paid a cash dividend of $.12 per share during both the third and fourth quarters of fiscal 2004. Prior to the third quarter of fiscal 2004, the Company had paid a quarterly cash dividend of $.10 per share each quarter beginning with the third quarter of fiscal 2003.The Company did not pay any cash dividends in the first or second quarters of fiscal 2003 or in fiscal 2002. The number of record holders of the Company's common stock as of March 30, 2005 was 346. Based upon information from the principal market makers, the Company believes there are more than 3,000 beneficial owners.The last reported sales price of the Company's common stock on March 30,2005 was $32.75. The following table lists the Company's quarterly market range for fiscal years 2004, 2003 and 2002.
QUARTER ------------------------------------------------------- 2004 2003 2002 --------------- --------------- --------------- QUARTER HIGH LOW HIGH LOW HIGH LOW First 29.73 25.00 18.85 15.52 24.90 20.05 Second 29.00 25.40 20.60 16.10 25.46 20.40 Third 28.50 25.15 22.75 19.11 22.30 15.72 Fourth 31.97 25.67 25.77 20.69 20.35 16.46
page no: 32 CORPORATE INFORMATION DATE FOUNDED 1948 NUMBER OF EMPLOYEES 6,100 STOCK TRANSFER AGENT & REGISTRAR UMB Bank, n.a. P.O. Box 419226 Kansas City, Missouri 64141-6226 (816)860-7000 STOCK EXCHANGE LISTING New York Stock Exchange Trading Symbol: BKE INDEPENDENT PUBLIC ACCOUNTANTS Deloitte & Touche LLP Omaha, Nebraska ANNUAL MEETING The Annual Meeting of Shareholders is scheduled for 10:00 a.m. Thursday, June 2, 2005, at the Holiday Inn Kearney, Nebraska FORM 10-K A copy of the 10-K is available to shareholders without charge upon written request to: Karen B. Rhoads Vice President of Finance The Buckle, Inc. P.O. Box 1480 Kearney, Nebraska 68848-1480 TRADEMARKS BUCKLE, THE BUCKLE, BKLE, GIMMICK, RECLAIM and BKE are trademarks of The Buckle, Inc., which is registered in the United States. > BOARD OF DIRECTORS Daniel J. Hirschfeld Chairman of the Board Dennis H. Nelson President and Chief Executive Officer James E. Shada Executive Vice President of Sales Karen B. Rhoads Vice President of Finance, Treasurer and Chief Financial Officer Ralph M. Tysdal William D. Orr Bill L. Fairfield Chairman, Dream Field Capital Ventures and Director, MSI, Inc. Robert E. Campbell President and Operating Manager, Miller & Paine, LLC and Director of Development, Madonna Foundation Bruce L. Hoberman Chief Executive Officer, Proxibid, Inc. David A. Roehr Executive Vice President, Cabela's, Inc. and Chairman, President and CEO of World's Foremost Bank > EXECUTIVE OFFICERS Dennis H. Nelson President and Chief Executive Officer James E. Shada Executive Vice President of Sales Karen B. Rhoads Vice President of Finance, Treasurer and Chief Financial Officer Brett P. Milkie Vice President of Leasing Kari G. Smith Vice President of Sales Patricia K. Whisler Vice President of Women's Merchandising Kyle L. Hanson Corporate Secretary and General Counsel [PICTURE] EX-23 8 c94487exv23.txt CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement Nos. 333-82448, 333-70633, 333-70641 and 33-70643 on Form S-8 of our reports relating to the financial statements and financial statement schedule of The Buckle, Inc. and management's report on the effectiveness of internal control over financial reporting dated April 18, 2005, appearing in this Annual Report on Form 10-K of The Buckle, Inc. for the year ended January 29, 2005. DELOITTE & TOUCHE LLP Omaha, Nebraska April 18, 2005 EX-31.(A) 9 c94487exv31wxay.txt SECTION 302 CERTIFICATION EXHIBIT 31a CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, Dennis H. Nelson, certify that: 1. I have reviewed this annual report of The Buckle, Inc. on Form 10-K for the fiscal year ended January 29, 2005; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting Date: April 18, 2005 /s/ DENNIS H. NELSON -------------------------- Dennis H. Nelson Chief Executive Officer EX-31.(B) 10 c94487exv31wxby.txt SECTION 302 CERTIFICATION EXHIBIT 31b CERTIFICATIONS I, Karen B. Rhoads, certify that: 1. I have reviewed this annual report of The Buckle, Inc. on Form 10-K for the fiscal year ended January 29, 2005; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting Date: April 18, 2005 /s/ KAREN B. RHOADS ----------------------- Karen B. Rhoads Chief Financial Officer EX-32 11 c94487exv32.txt SECTION 906 CERTIFICATION EXHIBIT 32 CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of The Buckle, Inc. (the "Company") on Form 10-K for the period ended January 29, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dennis H. Nelson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ DENNIS H. NELSON ------------------------- Dennis H. Nelson Chief Executive Officer April 18, 2005 In connection with the Annual Report of The Buckle, Inc. (the "Company") on Form 10-K for the period ended January 29, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Karen B. Rhoads, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ KAREN B. RHOADS ------------------- Karen B. Rhoads Chief Financial Officer April 18, 2005 -----END PRIVACY-ENHANCED MESSAGE-----