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EX-32.2 - EX-32.2 - BELK INC | g21458exv32w2.htm |
EX-31.2 - EX-31.2 - BELK INC | g21458exv31w2.htm |
EX-31.1 - EX-31.1 - BELK INC | g21458exv31w1.htm |
EX-32.1 - EX-32.1 - BELK INC | g21458exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended October 31, 2009
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to
Commission file number 000-26207
BELK, INC.
(Exact Name of Registrant as Specified In Its Charter)
Delaware | 56-2058574 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
2801 West Tyvola Road, Charlotte, NC | 28217-4500 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants Telephone Number, including Area Code (704) 357-1000
N/A
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þYes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). oYes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o
|
Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No
At November 30, 2009, the registrant had issued and outstanding 46,907,578 shares of class A common
stock and 1,378,135 shares of class B common stock.
BELK, INC.
Index to Form 10-Q
Index to Form 10-Q
Table of Contents
This Report Contains Forward-Looking Statements
Certain statements made in this report, and other written or oral statements made by or on
behalf of the Company, may constitute forward-looking statements within the meaning of the
federal securities laws. Statements regarding future events and developments and the Companys
future performance, as well as our expectations, beliefs, plans, estimates or projections relating
to the future, are forward-looking statements within the meaning of these laws. You can identify
these forward-looking statements through our use of words such as may, will, intend,
project, expect, anticipate, believe, estimate, continue or other similar words.
Forward-looking statements include information concerning possible or assumed future results
from merchandising, marketing and advertising in our stores and through the Internet, general
economic conditions, our ability to be competitive in the retail industry, our ability to execute
profitability and efficiency strategies, our ability to execute our growth strategies, anticipated
benefits from the opening of our eCommerce fulfillment center, the expected benefit of new systems
and technology, the anticipated benefits from our acquisitions and the anticipated benefit under
our agreement with GE Money Bank. These forward-looking statements are subject to certain risks
and uncertainties that may cause our actual results to differ significantly from the results we
discuss in such forward-looking statements. We believe that these forward-looking statements are
reasonable. However, you should not place undue reliance on such statements.
Risks and uncertainties that might cause our results to differ from those we project in our
forward-looking statements include, but are not limited to:
| General economic, political and business conditions, nationally and in our market areas,
including rates of economic growth, interest rates, inflation or deflation, consumer credit
availability, levels of consumer debt and bankruptcies, tax rates and policy, unemployment
trends, potential acts of terrorism and threats of such acts and other matters that influence
consumer confidence and spending; |
|
| Our ability to comply with debt covenants which could adversely affect our capital
resources, financial condition and liquidity; |
|
| Our ability to anticipate the demands of our customers for a wide variety of merchandise
and services, including our predictions about the merchandise mix, quality, style, service,
convenience and credit availability of our customers; |
|
| Unseasonable and extreme weather conditions in our market areas; |
|
| Seasonal fluctuations in quarterly net income due to the significant portion of our
revenues generated during the holiday season in the fourth fiscal quarter and the significant
amount of inventory we carry during that time; |
|
| Competition from other department and specialty stores and other retailers, including
luxury goods retailers, general merchandise stores, Internet retailers, mail order retailers
and off-price and discount stores, in the areas of price, merchandise mix, quality, style,
service, convenience, credit availability and advertising; |
|
| Our ability to effectively use advertising, marketing and promotional campaigns to generate high customer traffic in our stores; | |
| Our ability to find qualified vendors from which to source our merchandise and our ability
to access products in a timely and efficient manner from a wide variety of domestic and
international vendors; |
|
| The income we receive from, and the timing of receipt of, payments from GE, the operator of
our private label credit card business, which depends upon the amount of purchases made
through the proprietary credit cards, the level of finance charge income generated from the
credit card portfolio, the number of new accounts generated, changes in customers credit card
use, and GEs ability to extend credit to our customers; |
|
| Our ability to correctly anticipate the appropriate levels of inventories during the year; | |
| Our ability to manage our expense structure; | |
| Our ability to continue to increase our number of stores, including the availability of
existing retail stores or store sites on acceptable terms and our ability to successfully
execute the Companys retailing concept in new markets and geographic regions; |
|
| The efficient and effective operation of our distribution network and information systems
to manage sales, distribution, merchandise planning and allocation functions; |
|
| Our ability to expand our eCommerce business through our updated and redesigned belk.com
website, including our ability to meet the systems challenges of expanding and operating the
website and our ability to efficiently operate our eCommerce fulfillment facility; and |
|
| Our ability to realize the planned efficiencies from our acquisitions and effectively
integrate and operate the acquired stores and businesses, including our fiscal year 2007
acquisition of Parisian stores and our fiscal year 2007 acquisition of the assets of Migerobe
and commencement of our owned fine jewelry business. |
For a detailed description of the risks and uncertainties that might cause our results to
differ from those we project in our forward-looking statements, we refer you to the section
captioned Risk Factors in our annual report on Form 10-K for the fiscal year ended January 31,
2009 that we filed with the SEC on April 15, 2009. Our other filings with the SEC may contain
additional information concerning the risks and uncertainties listed above, and other factors you
may wish to consider. Upon request, we will provide copies of these filings to you free of charge.
Our forward-looking statements are based on current expectations and speak only as of the date
of such statements. We undertake no obligation to publicly update or revise any forward-looking
statement, even if future events or new information may impact the validity of such statements.
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
BELK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except share and per share amounts)
(unaudited)
(dollars in thousands, except share and per share amounts)
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues |
$ | 727,988 | $ | 741,403 | $ | 2,249,142 | $ | 2,388,017 | ||||||||
Cost of goods sold (including occupancy, distribution and buying expenses) |
496,473 | 532,592 | 1,550,933 | 1,664,486 | ||||||||||||
Selling, general and administrative expenses |
215,771 | 235,397 | 642,178 | 706,526 | ||||||||||||
Gain on sale of property and equipment |
639 | 2,194 | 1,552 | 4,161 | ||||||||||||
Asset impairment and exit costs |
(117 | ) | 748 | 973 | 2,659 | |||||||||||
Pension curtailment charge |
2,719 | | 2,719 | | ||||||||||||
Operating income (loss) |
13,781 | (25,140 | ) | 53,891 | 18,507 | |||||||||||
Interest expense, net |
(12,931 | ) | (11,912 | ) | (38,256 | ) | (38,360 | ) | ||||||||
Gain (loss) on investments |
14 | (239 | ) | 14 | 1,648 | |||||||||||
Income (loss) before income taxes |
864 | (37,291 | ) | 15,649 | (18,205 | ) | ||||||||||
Income tax expense (benefit) |
418 | (13,803 | ) | 5,249 | (8,053 | ) | ||||||||||
Net income (loss) |
$ | 446 | $ | (23,488 | ) | $ | 10,400 | $ | (10,152 | ) | ||||||
Basic and diluted net income (loss) per share |
$ | 0.01 | $ | (0.48 | ) | $ | 0.21 | $ | (0.21 | ) | ||||||
Weighted average shares outstanding basic and diluted |
48,285,713 | 48,752,892 | 48,505,297 | 49,096,381 |
See accompanying notes to unaudited condensed consolidated financial statements.
4
Table of Contents
BELK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
(dollars in thousands)
(unaudited)
October 31, | January 31, | |||||||
2009 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 359,268 | $ | 260,134 | ||||
Short-term investments |
9,350 | 10,250 | ||||||
Accounts receivable, net |
24,906 | 65,702 | ||||||
Merchandise inventory |
1,016,143 | 828,497 | ||||||
Property held for sale |
750 | 750 | ||||||
Prepaid income taxes, expenses and other current assets |
40,995 | 30,705 | ||||||
Total current assets |
1,451,412 | 1,196,038 | ||||||
Investment securities |
1,687 | 1,074 | ||||||
Property and equipment, net of accumulated depreciation and amortization of $1,224,435
and $1,109,444 as of October 31, 2009 and January 31, 2009, respectively |
1,076,874 | 1,169,150 | ||||||
Deferred income taxes |
104,956 | 128,829 | ||||||
Other assets |
47,690 | 40,156 | ||||||
Total assets |
$ | 2,682,619 | $ | 2,535,247 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 406,732 | $ | 236,886 | ||||
Accrued liabilities |
142,953 | 118,045 | ||||||
Accrued income taxes |
| 593 | ||||||
Deferred income taxes |
26,467 | 27,997 | ||||||
Current installments of long-term debt and capital lease obligations |
3,660 | 4,486 | ||||||
Total current liabilities |
579,812 | 388,007 | ||||||
Long-term debt and capital lease obligations, excluding current installments |
686,049 | 688,704 | ||||||
Interest rate swap liability |
7,557 | 8,182 | ||||||
Retirement obligations and other noncurrent liabilities |
373,218 | 418,327 | ||||||
Total liabilities |
1,646,636 | 1,503,220 | ||||||
Stockholders equity: |
||||||||
Preferred stock |
| | ||||||
Common stock, 400 million shares authorized and 48.3 and 48.8 million shares
issued and outstanding as of October 31, 2009 and January 31, 2009, respectively |
483 | 488 | ||||||
Paid-in capital |
451,237 | 456,858 | ||||||
Retained earnings |
742,227 | 741,579 | ||||||
Accumulated other comprehensive loss |
(157,964 | ) | (166,898 | ) | ||||
Total stockholders equity |
1,035,983 | 1,032,027 | ||||||
Total liabilities and stockholders equity |
$ | 2,682,619 | $ | 2,535,247 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
Table of Contents
BELK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME
(in thousands)
(unaudited)
AND COMPREHENSIVE INCOME
(in thousands)
(unaudited)
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | |||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income (Loss) | Total | |||||||||||||||||||
Balance at January 31, 2009 |
48,753 | $ | 488 | $ | 456,858 | $ | 741,579 | $ | (166,898 | ) | $ | 1,032,027 | ||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net income |
| | | 10,400 | | 10,400 | ||||||||||||||||||
Unrealized gain on investments,
net of $222 income taxes |
| | | | 374 | 374 | ||||||||||||||||||
Unrealized gain on interest rate swaps,
net of $233 income taxes |
| | | | 392 | 392 | ||||||||||||||||||
Defined benefit expense, net of
$3,836 income taxes |
| | | | 6,462 | 6,462 | ||||||||||||||||||
Pension curtailment charge, net of
$1,013 income taxes |
| | | | 1,706 | 1,706 | ||||||||||||||||||
Total comprehensive income |
| | | | | 19,334 | ||||||||||||||||||
Cash dividends |
| | | (9,752 | ) | | (9,752 | ) | ||||||||||||||||
Issuance of stock-based compensation |
| | (115 | ) | | | (115 | ) | ||||||||||||||||
Stock-based compensation expense |
| | 139 | | | 139 | ||||||||||||||||||
Common stock issued |
33 | | 300 | | | 300 | ||||||||||||||||||
Repurchase and retirement of common stock |
(500 | ) | (5 | ) | (5,945 | ) | | | (5,950 | ) | ||||||||||||||
Balance at October 31, 2009 |
48,286 | $ | 483 | $ | 451,237 | $ | 742,227 | $ | (157,964 | ) | $ | 1,035,983 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
Table of Contents
BELK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Nine Months Ended | ||||||||
October 31, | November 1, | |||||||
2009 | 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 10,400 | (10,152 | ) | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Asset impairment and exit costs |
973 | 2,659 | ||||||
Deferred income tax expense |
16,051 | 9,564 | ||||||
Depreciation and amortization expense |
121,558 | 124,026 | ||||||
Stock-based compensation expense |
139 | 2,015 | ||||||
Pension curtailment charge |
2,719 | | ||||||
Loss (gain) on sale of property and equipment |
420 | (2,189 | ) | |||||
Amortization of deferred gain on sale and leaseback |
(1,972 | ) | (1,972 | ) | ||||
Gain on investments |
(14 | ) | (1,648 | ) | ||||
(Increase) decrease in: |
||||||||
Accounts receivable, net |
40,796 | 34,749 | ||||||
Merchandise inventory |
(187,646 | ) | (227,583 | ) | ||||
Prepaid income taxes, expenses and other assets |
(22,305 | ) | (33,931 | ) | ||||
Increase (decrease) in: |
||||||||
Accounts payable and accrued liabilities |
202,661 | 208,019 | ||||||
Accrued income taxes |
(681 | ) | (25,980 | ) | ||||
Retirement obligations and other liabilities |
(29,050 | ) | (5,047 | ) | ||||
Net cash provided by operating activities |
154,049 | 72,530 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of short-term investments |
| (17,750 | ) | |||||
Sales of short-term investments |
900 | 7,500 | ||||||
Purchases of property and equipment |
(36,587 | ) | (112,764 | ) | ||||
Proceeds from sales of property and equipment |
70 | 18,998 | ||||||
Net cash used by investing activities |
(35,617 | ) | (104,016 | ) | ||||
Cash flows from financing activities: |
||||||||
Principal payments on long-term debt and capital lease obligations |
(3,481 | ) | (3,559 | ) | ||||
Cash paid for withholding taxes in lieu of stock-based compensation shares |
(51 | ) | (598 | ) | ||||
Stock compensation tax (expense) benefit |
(64 | ) | 154 | |||||
Dividends paid |
(9,752 | ) | (19,846 | ) | ||||
Repurchase and retirement of common stock |
(5,950 | ) | (22,348 | ) | ||||
Net cash used by financing activities |
(19,298 | ) | (46,197 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
99,134 | (77,683 | ) | |||||
Cash and cash equivalents at beginning of period |
260,134 | 186,973 | ||||||
Cash and cash equivalents at end of period |
$ | 359,268 | $ | 109,290 | ||||
Supplemental schedule of noncash investing activities: |
||||||||
Decrease in property and equipment through accrued purchases |
$ | (8,232 | ) | $ | (8,810 | ) |
See accompanying notes to unaudited condensed consolidated financial statements.
7
Table of Contents
BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Belk, Inc. and
subsidiaries (the Company) have been prepared in accordance with the instructions to Form 10-Q
promulgated by the United States Securities and Exchange Commission and should be read in
conjunction with our Annual Report on Form 10-K for the fiscal year ended January 31, 2009. In the
opinion of management, this information is fairly presented and all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the results for the interim
periods have been included; however, certain items are included in these statements based on
estimates for the entire year. Also, operating results for the three and nine months ended October
31, 2009 may not be indicative of the operating results that may be expected for the full fiscal
year.
(2) Recently Issued Accounting Standards
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles a replacement of SFAS No. 162 (ASC
105-10). ASC 105-10 modifies the Generally Accepted Accounting Principles (GAAP) hierarchy by
establishing only two levels of GAAP, authoritative and nonauthoritative accounting literature.
Effective July 2009, the FASB Accounting Standards Codification (ASC), also known collectively as
the Codification, is considered the single source of authoritative U.S. accounting and reporting
standards, except for additional authoritative rules and interpretive releases issued by the SEC.
The Codification was developed to organize GAAP pronouncements by topic so that users can more
easily access authoritative accounting guidance. ASC 105-10 became effective for the third quarter
of fiscal year 2010. All other accounting standard references have been updated in this report
with ASC references.
In August 2009, the FASB issued Accounting Standards Update (ASU) 2009-05, Measuring
Liabilities at Fair Value, which updates ASC 820-10, Fair Value Measurements and Disclosures.
The updated guidance clarifies that the fair value of a liability can be measured in relation to
the counterpartys asset when traded in an active market, without adjusting the price for
restrictions that prevent the sale of the liability. ASU 2009-05 will be effective for the fourth
quarter of fiscal year 2010. The Company does not expect that the adoption of ASU 2009-05 will
change its valuation techniques for measuring liabilities at fair value.
For fiscal years ending after December 15, 2009, the Compensation-Retirement Benefits Topic,
ASC 715-20 will require more detailed disclosures regarding the assets of a defined benefit pension
or other postretirement plan. The Company will adopt the additional disclosure requirements of ASC
715-20 as of January 30, 2010.
Effective for the second quarter of fiscal year 2010, the Subsequent Events Topic, ASC
855-10-50-1, required disclosure of the date through which an entity has evaluated subsequent
events and the basis for that date. Refer to the notes to the unaudited condensed consolidated
financial statements for the disclosure required under ASC 855-10-50-1.
Effective for the second quarter of fiscal year 2010, the Financial Instruments Topic, ASC
825-10 required disclosure regarding the fair value of financial instruments of publicly traded
companies for interim reporting periods as well as annual reporting periods. Refer to the notes to
the unaudited condensed consolidated financial statements for the disclosures required under ASC
825-10.
Effective for the second quarter of fiscal year 2010, the Investments-Debt and Equity
Securities Topic, ASC 320-10 amended the presentation and disclosure requirements for
other-than-temporary impairment on debt and equity securities in the financial statements. Refer to
the notes to the unaudited condensed consolidated financial statements for the disclosures required
under ASC 320-10.
Effective for the second quarter of fiscal year 2010, the Fair Value Measurements and
Disclosures Topic, ASC 820-10-65-4, provided additional guidance for estimating fair value when
the volume and level of activity for the asset or liability have significantly decreased and
identifying circumstances that indicate a transaction is not orderly. Refer to the notes to the
unaudited condensed consolidated financial statements for the disclosures required under ASC
820-10-65-4.
8
Table of Contents
BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Effective for the first quarter of fiscal year 2010, the Fair Value Measurements and
Disclosures Topic, ASC 820-10-65-1, established a single definition of fair value and a framework
for measuring fair value in GAAP for nonfinancial assets and liabilities to increase consistency
and comparability in fair value measurements. The Companys adoption of the requirements under ASC
820-10-65-1 did not require other additional disclosure during the first quarter of fiscal year
2010.
(3) Comprehensive Income (Loss)
The following table sets forth the computation of comprehensive income:
Three Months Ended | Nine Months Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||
Net income (loss) |
$ | 446 | $ | (23,488 | ) | $ | 10,400 | $ | (10,152 | ) | ||||||
Other comprehensive income (loss): |
||||||||||||||||
Unrealized gain (loss) on investments, net of $17 and $222 income taxes for the three and
nine months ended October 31, 2009, respectively and $147 and $213 income taxes for the three
three and nine months ended November 1, 2008, respectively. |
29 | 247 | 374 | (360 | ) | |||||||||||
Recognized other-than-temporary impairment of investments reclassified to gain (loss) on
investments, net of $231 income taxes for the three and nine months ended November 1,
2008. |
| (388 | ) | | (388 | ) | ||||||||||
Unrealized gain (loss) on interest rate swaps, net of $83 and $233 income taxes for the three and
nine months ended October 31, 2009, respectively and $352 and $516 income taxes for the
three and nine months ended November 1, 2008, respectively. |
(141 | ) | (593 | ) | 392 | 869 | ||||||||||
Defined benefit expense, net of $1,279 and $3,836 income taxes for the three and nine months
ended October 31, 2009, respectively and $1,008 and $3,025 income taxes for the three and
nine months ended November 1, 2008, respectively. |
2,154 | 1,698 | 6,462 | 5,096 | ||||||||||||
Pension curtailment charge, net of $1,013 income taxes for the three and nine months ended
October 31, 2009. |
1,706 | | 1,706 | | ||||||||||||
Other comprehensive income |
3,748 | 964 | 8,934 | 5,217 | ||||||||||||
Total comprehensive income (loss) |
$ | 4,194 | $ | (22,524 | ) | $ | 19,334 | $ | (4,935 | ) | ||||||
(4) Accumulated Other Comprehensive Loss
The following table sets forth the components of accumulated other comprehensive loss:
October 31, | January 31, | |||||||
2009 | 2009 | |||||||
(dollars in thousands) | ||||||||
Unrealized loss on investments, net of $65 and $287
income taxes as of October 31, 2009 and January 31, 2009, respectively. |
$ | (108 | ) | $ | (482 | ) | ||
Unrealized loss on interest rate swap, net of $2,815
and $3,048 income taxes as of October 31, 2009 and January 31, 2009,
respectively. |
(4,743 | ) | (5,135 | ) | ||||
Defined benefit plans, net of $90,891 and $95,740
income taxes as of October 31, 2009 and January 31, 2009,
respectively. |
(153,113 | ) | (161,281 | ) | ||||
Accumulated other comprehensive loss |
$ | (157,964 | ) | $ | (166,898 | ) | ||
(5) Fair Value Measurements
The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted
prices in active markets for identical assets and liabilities; Level 2, defined as inputs other
than quoted prices in active markets that are either directly or indirectly observable; and Level
3, defined as unobservable inputs in which little or no market data exists, therefore requiring an
entity to develop its own assumptions.
9
Table of Contents
BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of October 31, 2009, the Company held certain assets and liabilities that are required to
be measured at fair value on a recurring basis. These included the Companys auction rate security
(ARS), available-for-sale investment securities and an interest rate swap.
The Companys ARS of $9.4 million has been classified as a Level 3 asset as the Company used
unobservable inputs to determine fair value. The type of ARS owned by the Company is backed by
student loans, which are 97% guaranteed under the Federal Family Education Loan Program, and
carries the highest credit ratings of AAA. Historically, the fair value of the Companys ARS
holdings approximated par value due to the frequent auction periods, which provided liquidity to
these investments. During the second quarter of fiscal year 2010, the Company redeemed $0.9 million
of its ARS investment at par. The Level 3 determination was used as a result of the lack of
frequent trading in these securities. The ARS fair value determination used an income-approach
considering factors that reflect assumptions market participants would use in pricing, including:
the collateralization underlying the investment; the creditworthiness of the counterparty; expected
future cash flows, including the next time the security is expected to have a successful auction;
and risks associated with the uncertainties in the current market. The Company has no reason to
believe that the underlying issuer of the ARS is presently at risk or that the underlying credit
quality of the assets backing the ARS investment has been impacted by the reduced liquidity of this
investment.
The Companys available-for-sale investment securities unrealized holding gains and losses
are included in other comprehensive income. The fair value of available-for-sale securities is
based on quoted market prices. On October 31, 2009, the Companys available-for-sale investment
securities with an unrealized loss position were, in the Companys belief, primarily due to current
economic conditions and the Company does not believe that these securities are
other-than-temporarily impaired.
The Company has entered into interest rate swap agreements with financial institutions to
manage the exposure to changes in interest rates. The fair value of interest rate swap agreements
is the estimated amount that the Company would pay or receive to terminate the swap agreement,
taking into account the current credit worthiness of the swap counterparties. The fair values of
swap contracts are determined based on inputs that are readily available in public markets or can
be derived from information available in publicly quoted markets. Additionally, the change in the
fair value of a swap designated as a cash flow hedge is marked to market through accumulated other
comprehensive income (loss). Any swap that is not designated as a hedging instrument is marked to
market through gain (loss) on investments.
The Companys assets and liabilities measured at fair value at October 31, 2009, were as
follows:
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Active Markets for | Significant Other | Unobservable | ||||||||||||||
October 31, | Identical Assets | Observable Inputs | Inputs | |||||||||||||
Description | 2009 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
(dollars in thousands) | ||||||||||||||||
Auction rate security |
$ | 9,350 | $ | | $ | | $ | 9,350 | ||||||||
Investment securities |
1,687 | 1,687 | | | ||||||||||||
Total assets measured at fair value |
$ | 11,037 | $ | 1,687 | $ | | $ | 9,350 | ||||||||
Interest rate swap liability |
$ | 7,557 | $ | | $ | 7,557 | $ | | ||||||||
Total liabilities measured at fair
value |
$ | 7,557 | $ | | $ | 7,557 | $ | | ||||||||
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BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides a reconciliation of the beginning and ending balances of the
Companys investment in ARS (Level 3):
Balance as of January 31, 2009 |
$ | 10,250 | ||
Purchases of auction rate securities |
| |||
Total losses realized/unrealized included in earnings |
| |||
Sale of auction rate securities |
(900 | ) | ||
Balance as of October 31, 2009 |
$ | 9,350 | ||
Carrying values approximate fair values for financial instruments that are short-term in
nature, such as cash and cash equivalents, short-term investments, accounts receivable, accounts
payable, accrued expenses, notes payable and lines of credit. The fair value of the Companys
long-term debt is as follows:
October 31, 2009 | ||||||||
Carrying | Fair | |||||||
Value | Value | |||||||
(dollars in thousands) | ||||||||
Long-term debt (excluding capitalized leases)
|
$ | 667,780 | $ | 649,685 |
The fair value of the Companys fixed rate long-term debt is estimated based on the
current rates offered to the Company for debt of the same remaining maturities. The carrying value
of the Companys variable rate long-term debt approximates its fair value.
(6) Asset Impairment and Exit Costs
During the three months ended October 31, 2009, the Company recorded a $0.2 million reduction
to previously estimated severance costs associated with the closing of two stores, partially offset
by $0.1 million in severance costs associated with the outsourcing of certain information
technology and support functions. During the nine months ended October 31, 2009, the Company recorded $1.0 million in exit costs comprised primarily of severance
costs associated with the outsourcing of certain information technology and support functions, as
well as the closing of two stores.
During the three months ended November 1, 2008, the Company recorded $0.7 million in exit
costs comprised primarily of severance costs associated with the outsourcing of certain information
technology and support functions. During the nine months ended November 1, 2008, the Company
recorded $2.1 million in exit costs comprised primarily of severance costs associated with the
outsourcing of certain information technology and support functions. In addition, the Company
recorded $0.6 million in impairment charges to adjust a retail locations net book value to fair
market value.
(7) Sale of Properties
Effective September 24, 2008, the Company sold for $4.0 million an acquired distribution
facility, which was classified as held for sale at August 2, 2008. This transaction resulted in a
gain on the sale of property of $0.7 million.
During the first quarter of fiscal year 2009, the Company sold an acquired corporate
headquarters facility, which was classified as held for sale at February 2, 2008, for $11.6
million. This transaction resulted in a gain on the sale of property of $0.5 million. In addition,
the Company sold two stores for net proceeds of $2.6 million, which resulted in no gain or loss.
(8) Income Taxes
During the three months ended October 31, 2009, the effective income tax rate was 48.4%
compared to 37.0% for the three months ended November 1, 2008. The rate was higher for the three
months ended October 31, 2009 due to a $0.1 million adjustment relating to work opportunity tax
credits, which had a large impact on the effective tax rate due to the relatively small amount of
pre-tax income for the period.
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BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During the nine months ended October 31, 2009, the effective income tax rate was 33.5%
compared to 44.2% for the nine months ended November 1, 2008. The rate was higher for the nine
months ended November 1, 2008 due to the settlement of certain state tax matters included in
unrecognized tax benefits, which resulted in a $3.2 million increase to income tax benefit for the
nine months ended November 1, 2008.
(9) Pension and Postretirement Benefits
The Company has a defined benefit pension plan (Pension Plan) covering a portion of its
employees. The benefits are based on years of service and the employees compensation. Effective
December 31, 2009, the Pension Plan will be frozen for those remaining participants whose benefits
were not previously frozen in fiscal year 2006. This Pension Plan freeze resulted in a one-time
curtailment charge of $2.7 million in the third quarter of fiscal year 2010.
The Company also has a non-qualified defined benefit Supplemental Executive Retirement Plan
(Old SERP), which provides retirement and death benefits to certain qualified executives and a
defined benefit health care plan that provides postretirement medical and life insurance benefits
to certain retired full-time employees (Postretirement Plan).
The components of net periodic benefit expense for these plans are as follows:
Three Months Ended | ||||||||||||||||||||||||
Pension Plan | Old SERP Plan | Postretirement Plan | ||||||||||||||||||||||
October 31, | November 1, | October 31, | November 1, | October 31, | November 1, | |||||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Service cost |
$ | | $ | 688 | $ | 17 | $ | 47 | $ | 33 | $ | 33 | ||||||||||||
Interest cost |
6,649 | 6,139 | 86 | 182 | 406 | 407 | ||||||||||||||||||
Expected return on plan assets |
(5,527 | ) | (5,896 | ) | | | | | ||||||||||||||||
Amortization of transition
obligation |
| | | | 65 | 65 | ||||||||||||||||||
Amortization of prior service cost |
124 | 124 | | | | | ||||||||||||||||||
Amortization of net loss |
3,234 | 2,459 | | 54 | 10 | 4 | ||||||||||||||||||
Net periodic benefit expense |
$ | 4,480 | $ | 3,514 | $ | 103 | $ | 283 | $ | 514 | $ | 509 | ||||||||||||
Nine Months Ended | ||||||||||||||||||||||||
Pension Plan | Old SERP Plan | Postretirement Plan | ||||||||||||||||||||||
October 31, | November 1, | October 31, | November 1, | October 31, | November 1, | |||||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Service cost |
$ | | $ | 2,407 | $ | 95 | $ | 142 | $ | 99 | $ | 100 | ||||||||||||
Interest cost |
19,947 | 18,438 | 472 | 546 | 1,218 | 1,222 | ||||||||||||||||||
Expected return on plan assets |
(16,582 | ) | (17,688 | ) | | | | | ||||||||||||||||
Amortization of transition
obligation |
| | | | 196 | 196 | ||||||||||||||||||
Amortization of prior service cost |
372 | 371 | | | | | ||||||||||||||||||
Amortization of net loss |
9,701 | 7,379 | | 163 | 29 | 12 | ||||||||||||||||||
Net periodic benefit expense |
$ | 13,438 | $ | 10,907 | $ | 567 | $ | 851 | $ | 1,542 | $ | 1,530 | ||||||||||||
The Company made a $44.0 million and $20.0 million discretionary contribution to its Pension
Plan on September 15, 2009 and September 10, 2008, respectively.
(10) Earnings per Share
Basic earnings per share (EPS) is computed by dividing net income by the weighted-average
number of shares of common stock outstanding for the period. The diluted EPS calculation includes
the effect of contingently issuable stock-based compensation awards with performance vesting
conditions as being outstanding at the beginning of the period in which all vesting conditions are
met. The Company had no dilutive securities for the three and nine months ended October 31, 2009
and November 1, 2008, therefore basic and diluted EPS are the same.
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BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(11) Repurchase of Common Stock
On April 1, 2009, the Companys Board of Directors approved a self-tender offer to purchase up
to 500,000 shares of common stock at a price of $11.90 per share. The tender offer was initiated
on April 22, 2009, and on May 20, 2009, the Company accepted for purchase 102,128 shares of Class A
and 139,536 shares of Class B common stock for $2.9 million.
Subsequently, in a separate transaction, the Company accepted for purchase 258,336 shares of
Class A common stock for $3.1 million on June 24, 2009 from Mr. H.W. McKay Belk, President and
Chief Merchandising Officer. The number of shares purchased from Mr. Belk represents the
difference between the number of shares of common stock which the Company offered to purchase in
the tender offer that was initiated on April 22, 2009 and the number of shares that were tendered
by stockholders and purchased by the Company. The purchase price was the same as the purchase
price offered by the Company in the initial tender offer.
(12) Subsequent Events
The Company has assessed subsequent events through December 7, 2009, the date of issuance of
the financial statements.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Overview
Belk, Inc., together with its subsidiaries (collectively, the Company or Belk), is the
largest privately owned mainline department store business in the United States. As of October 31,
2009, the Company had 306 stores in 16 states, located primarily in the southern United States.
The Company generated revenues of $3.5 billion for the fiscal year ended January 31, 2009, and
together with its predecessors, has been successfully operating department stores since 1888 by
seeking to provide superior service and merchandise that meets customers needs for fashion, value
and quality.
The following discussion, which presents the results of the Company, should be read in
conjunction with the Companys consolidated financial statements as of January 31, 2009, and for
the year then ended, and related Notes and Managements Discussion and Analysis of Financial
Condition and Results of Operations, all contained in the Companys Annual Report on Form 10-K for
the year ended January 31, 2009.
The Companys fiscal year ends on the Saturday closest to each January 31. All references to
fiscal year 2010 refer to the fiscal year that will end January 30, 2010 and all references to
fiscal year 2009 refer to the fiscal year ended January 31, 2009.
The Companys revenues decreased 1.8% in the third quarter of fiscal year 2010 to $728.0
million and comparable store revenues decreased 2.1%. Comparable store revenue includes stores
that have reached the one-year anniversary of their opening as of the beginning of the fiscal year
and eCommerce revenues, but excludes closed stores. Operating income increased to $13.8 million in
the third quarter of fiscal year 2010 compared to an operating loss of $25.1 million during the
same period in fiscal year 2009. Net income increased to $0.4 million or $0.01 per basic and
diluted share in the third quarter of fiscal year 2010 compared to a net loss of $23.5 million or
$0.48 per basic and diluted share during the same period in fiscal year 2009. The increase in net
income was due primarily to an improvement in gross margin as a percent of sales and lower expenses
during the third quarter of fiscal year 2010.
The Companys revenues decreased 5.8% in the first nine months of fiscal year 2010 to $2,249.1
million. Comparable store sales decreased 6.5%. Operating income increased to $53.9 million in the
first nine months of fiscal year 2010 compared to $18.5 million during the same period in fiscal
year 2009. Net income increased to $10.4 million or $0.21 per basic and diluted share compared to
a net loss of $10.2 million or $0.21 per basic and diluted share during the same period in fiscal
year 2009. The increase in net income was due primarily to an improvement in gross margin as a
percent of sales and lower expenses for the nine months ended October 31, 2009.
Belk stores seek to provide customers the convenience of one-stop shopping, with an appealing
merchandise mix and extensive offerings of brands, styles, assortments and sizes. Belk stores sell
top national brands of fashion apparel, shoes and accessories for women, men and children, as well
as cosmetics, home furnishings, housewares, fine jewelry, gifts and other types of quality
merchandise. The Company also sells exclusive private label brands, which offer customers
differentiated merchandise selections. Larger Belk stores may include hair salons, spas,
restaurants, optical centers and other amenities.
The Company seeks to be the leading department store in its markets by selling merchandise to
customers that meets their needs for fashion, selection, value, quality and service. To achieve
this goal, Belks business strategy focuses on quality merchandise assortments, effective marketing
and sales promotional strategies, attracting and retaining talented, well-qualified associates to
deliver superior customer service, and operating efficiently with investments in information
technology and process improvement.
The Company operates department stores in the highly competitive retail apparel industry.
Management believes that the principal competitive factors for retail department store operations
include merchandise selection, quality, value, customer service and convenience. The Company
believes its stores are strong competitors in all of these areas. The Companys primary competitors
are traditional department stores, mass merchandisers, national apparel chains, individual
specialty apparel stores and direct merchant firms, including J.C. Penney Company, Inc., Dillards,
Inc., Kohls Corporation, Macys, Inc., Sears Holding Corporation, Target Corporation and Wal-Mart
Stores, Inc.
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In recent years, the Company has taken advantage of prudent opportunities to expand its store
base by opening and expanding stores in new and existing markets in order to increase sales, market
share and customer loyalty. In response to recent economic conditions, the Company has scaled back
its store growth plans but will continue to explore strategic opportunities to open and expand
stores where the Belk name and reputation are well known and in contiguous markets where Belk can
distinguish its stores from the competition. During fiscal year 2009, the Company launched a
redesigned and expanded Belk.com website and began operating a 142,000 square foot eCommerce
fulfillment center in Pineville, NC to process handling and shipping of online orders. The new
website features a wide assortment of fashion apparel, accessories and shoes, plus a large
selection of cosmetics, home and gift merchandise. Many leading national brands are offered at
Belk.com along with the Companys exclusive private brands.
Results of Operations
The following table sets forth, for the periods indicated, the percentage relationship to
revenues of certain items in the Companys unaudited condensed consolidated statements of income,
as well as a period comparison of changes in comparable store net revenue.
Three Months Ended | Nine Months Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1, | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
SELECTED FINANCIAL DATA |
||||||||||||||||
Revenues |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of goods sold (including occupancy, distribution and buying expenses) |
68.2 | 71.8 | 69.0 | 69.7 | ||||||||||||
Selling, general and administrative expenses |
29.6 | 31.8 | 28.6 | 29.6 | ||||||||||||
Gain on sale of property and equipment |
0.1 | 0.3 | 0.1 | 0.2 | ||||||||||||
Asset impairment and exit costs |
| 0.1 | | 0.1 | ||||||||||||
Pension curtailment charge |
0.4 | | 0.1 | | ||||||||||||
Operating income (loss) |
1.9 | (3.4 | ) | 2.4 | 0.8 | |||||||||||
Interest expense, net |
1.8 | 1.6 | 1.7 | 1.6 | ||||||||||||
Gain (loss) on investments |
| | | 0.1 | ||||||||||||
Income (loss) before income taxes |
0.1 | (5.0 | ) | 0.7 | (0.8 | ) | ||||||||||
Income tax expense (benefit) |
0.1 | (1.9 | ) | 0.2 | (0.3 | ) | ||||||||||
Net income (loss) |
0.1 | (3.2 | ) | 0.5 | (0.4 | ) | ||||||||||
Comparable store net revenue decrease |
(2.1 | ) | (9.8 | ) | (6.5 | ) | (7.5 | ) |
Revenues
The following table gives information regarding the percentage of revenues contributed by each
merchandise area for each of the respective periods. There were no material changes for the
periods as reflected in the table below.
Three Months Ended | Nine Months Ended | |||||||||||||||
October 31, | November 1, | October 31, | November 1 | |||||||||||||
Merchandise Areas | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Womens
|
37 | % | 38 | % | 39 | % | 40 | % | ||||||||
Cosmetics, Shoes and Accessories
|
33 | 31 | 32 | 31 | ||||||||||||
Mens
|
15 | 15 | 15 | 15 | ||||||||||||
Home
|
8 | 9 | 8 | 8 | ||||||||||||
Childrens
|
7 | 7 | 6 | 6 | ||||||||||||
Total
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Comparison of the Three and Nine Months Ended October 31, 2009 and November 1, 2008
Revenues. The Companys revenues for the three months ended October 31, 2009 decreased 1.8%,
or $13.4 million, to $728.0 million from $741.4 million during the same period in fiscal year 2009.
The decrease is primarily attributable to a 2.1% decrease in revenues from comparable stores as a
result of a continued weak sales environment and a $2.8 million decrease in revenues due to closed
stores, partially offset by an increase in revenues from new stores of $4.8 million.
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Table of Contents
The Companys revenues for the nine months ended October 31, 2009 decreased 5.8%, or $138.9
million, to $2,249.1 million from $2,388.0 million over the same period in fiscal year 2009. The
decrease is primarily attributable to a 6.5% decrease in revenues from comparable stores as a
result of a continued weak sales environment and an $8.1 million decrease in revenues due to closed
stores, partially offset by an increase in revenues from new stores of $21.6 million.
Cost of goods sold. Cost of goods sold was $496.5 million, or 68.2% of revenues, for the
three months ended October 31, 2009 compared to $532.6 million, or 71.8% of revenues, for the same
period in fiscal year 2009. The decrease in cost of goods sold for the three months ended October
31, 2009 was due primarily to reduced markdown activity as well as the decline in revenues.
Cost of goods sold was $1,550.9 million, or 69.0% of revenues, for the nine months ended
October 31, 2009 compared to $1,664.5 million, or 69.7% of revenues, for the same period in fiscal
year 2009. The decrease in cost of goods sold for the nine months ended October 31, 2009 is
primarily due to the revenue decline. The decrease as a percentage of revenues is primarily
attributable to reduced markdown activity, offset by a 0.23% increase due to occupancy costs, which
are largely fixed costs, coupled with declining revenues.
Selling, general and administrative expenses. Selling, general and administrative (SG&A)
expenses were $215.8 million, or 29.6% of revenues for the three months ended October 31, 2009,
compared to $235.4 million, or 31.8% of revenues for the same period in fiscal year 2009. The
decrease in SG&A expenses was primarily due to reductions in selling payroll, benefits and
advertising expenses totaling $14.2 million in response to the declining sales environment.
SG&A expenses were $642.2 million, or 28.6% of revenues for the nine months ended October 31,
2009, compared to $706.5 million, or 29.6% of revenues, for the same period in fiscal year 2009.
The decrease in SG&A expenses was primarily due to reductions in selling and support related
payroll, benefits and advertising expenses totaling $53.2 million in response to the declining
sales environment. The effect of the decrease in payroll and benefits as a percentage of revenues
was partially offset by the decrease in revenues for fiscal year 2010.
Asset impairment and exit costs. During the three months ended October 31, 2009,
the Company recorded a $0.2 million reduction to previously estimated severance costs associated
with the closing of two stores, partially offset by $0.1 million in severance costs associated with
the outsourcing of certain information technology and support functions. During the nine months
ended October 31, 2009, the Company recorded $1.0 million in exit costs comprised primarily of
severance costs associated with the outsourcing of certain information technology and support
functions, as well as the closing of two stores.
During the three months ended November 1, 2008, the Company recorded $0.7 million in exit
costs comprised primarily of severance costs associated with the outsourcing of certain information
technology and support functions. During the nine months ended November 1, 2008, the Company
recorded $2.1 million in exit costs comprised primarily of severance costs associated with the
outsourcing of certain information technology and support functions. In addition, the Company
recorded $0.6 million in impairment charges to adjust a retail locations net book value to fair
market value.
Pension curtailment charge. A one-time pension curtailment charge of $2.7 million for the
three and nine months ended October 31, 2009 resulted from the decision to freeze the Companys
defined benefit plan, effective December 31, 2009, for those remaining participants whose benefits
were not previously frozen in fiscal year 2006.
Gain on investments. The gain on investments of $1.6 million for the nine months ended
November 1, 2008 was primarily due to a gain on the Companys undesignated interest rate swap,
offset by an other-than-temporary impairment of an available-for-sale equity security of $0.6
million.
Income tax expense. During the three months ended October 31, 2009, the effective
income tax rate was 48.4% compared to 37.0% for the three months ended November 1, 2008. The rate
was higher for the three months ended October 31, 2009 due to a $0.1 million adjustment relating to
work opportunity tax credits, which had a large impact on the effective tax rate due to the
relatively small amount of pre-tax income for the period.
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During the nine months ended October 31, 2009, the effective income tax rate was 33.5%
compared to 44.2% for the nine months ended November 1, 2008. The rate was higher for the nine
months ended November 1, 2008 due to the settlement of certain state tax matters included in
unrecognized tax benefits, which resulted in a $3.2 million increase to income tax benefit for the
nine months ended November 1, 2008.
Seasonality and Quarterly Fluctuations
The Company has historically experienced and expects to continue to experience seasonal
fluctuations in its revenues, operating income and net income due to the seasonal nature of the
retail business. The highest revenue period for the Company is the fourth quarter, which includes
the holiday selling season. A disproportionate amount of the Companys revenues and a substantial
amount of the Companys operating and net income are realized during the fourth quarter. If for any
reason the Companys revenues were below seasonal norms during the fourth quarter, the Companys
annual results of operations could be adversely affected. The Companys inventory levels generally
reach their highest levels in anticipation of increased revenues during these months. The Companys
quarterly results of operations could also fluctuate significantly as a result of a variety of
factors, including the timing of new store openings.
Liquidity and Capital Resources
The Companys primary sources of liquidity are cash on hand, cash flows from operations, and
borrowings under debt facilities, which consist of a $675.0 million credit facility that matures in
October 2011 and $325.0 million in senior notes. The credit facility is comprised of an outstanding
$325.0 million term loan and a $350.0 million revolving line of credit. The senior notes are
comprised of an $80.0 million floating rate senior note that matures in July 2012, a $20.0 million
fixed rate senior note that matures in July 2012, a $100.0 million fixed rate senior note that
matures in July 2015, and a $125.0 million fixed rate senior note that matures in August 2017.
Additionally, the Company has a $17.8 million, 20-year variable rate, state bond facility which
matures in October 2025.
The credit facility allows for up to $200.0 million of outstanding letters of credit. The
credit facility charges interest based upon certain Company financial ratios and the interest
spread was calculated at October 31, 2009 using LIBOR plus 200 basis points. The credit facility
contains restrictive financial covenants including leverage and fixed charge coverage ratios. The
Companys calculated leverage ratio dictates the LIBOR spread that will be charged on outstanding
borrowings in the subsequent quarter. The leverage ratio is calculated by dividing adjusted debt,
which is the sum of the Companys outstanding debt and rent expense multiplied by a factor of
eight, divided by pre-tax income plus net interest expense and non-cash charges, such as
depreciation, amortization, and impairment charges. At October 31, 2009, the maximum leverage
allowed under the credit facility was 4.25, and the calculated leverage ratio was 3.26. The
Company was in compliance with all covenants as of October 31, 2009 and expects to remain in
compliance with all debt covenants for the next twelve months. As of October 31, 2009, the Company
had $36.2 million of standby letters of credit and a $325.0 million term loan outstanding under the
credit facility.
The debt facilities place certain restrictions on mergers, consolidations, acquisitions, sales
of assets, indebtedness, transactions with affiliates, leases, liens, investments, dividends and
distributions, exchange and issuance of capital stock and guarantees, and require maintenance of
minimum financial ratios, which include a leverage ratio, consolidated debt to consolidated
capitalization ratio and a fixed charge coverage ratio. These ratios are calculated exclusive of
non-cash charges, such as fixed asset, goodwill and other intangible asset impairments.
The Company utilizes derivative financial instruments (interest rate swap agreements) to
manage the interest rate risk associated with its borrowings. The Company has not historically
traded, and does not anticipate prospectively trading, in derivatives. Interest rate swap
agreements are used to reduce the potential impact of increases in interest rates on variable
rate debt. The difference between the fixed rate leg and the variable rate leg of the swap, to
be paid or received, is accrued and recognized as an adjustment to interest expense. Additionally,
the change in the fair value of a swap designated as a cash flow hedge is marked to market through
accumulated other comprehensive income (loss). Any swap that is not designated as a hedging
instrument is marked to market through gain (loss) on investments.
The Companys exposure to derivative instruments is limited to one interest rate swap for an
$80.0 million notional amount, which has a fixed interest rate of 5.2% and expires in fiscal year
2013. It has been designated as a cash flow hedge against variability in future interest rate
payments on the $80.0 million floating rate senior note. The Company
17
Table of Contents
had a $125.0 million notional
amount swap, which expired in September 2008, that had previously been designated as a cash flow
hedge against variability in future interest payments on a $125.0 million variable rate bond
facility. On July 26, 2007, the $125.0 million notional amount swap was de-designated due to the
Companys decision to prepay the underlying debt. This swap was marked to market in gain (loss) on
investments through its expiration date.
Net cash provided by operating activities was $154.0 million for the nine months ended October
31, 2009 compared to $72.5 million for the same period in fiscal year 2009. The increase in cash
flows from operating activities for the nine months ended October 31, 2009 was principally due to
an increase in net income for the current fiscal year, a reduction in inventory in response to the
declining sales environment, and a decrease in income taxes paid in fiscal year 2010 primarily as a
result of the fiscal year 2009 net loss, partially offset by a $24.0 million increase in the
Companys defined benefit plan contribution.
Net cash used by investing activities was $35.6 million for the nine months ended October 31,
2009 compared to $104.0 million for the same period in fiscal year 2009. The decrease in cash
used by investing activities primarily resulted from reduced purchases of property and equipment of
$76.2 million.
Net cash used by financing activities was $19.3 million for the nine months ended October 31,
2009 compared to $46.2 million for the same period in fiscal year 2009. The decrease in cash used
by financing activities primarily relates to dividends paid in the first quarter of fiscal year
2010 of $9.8 million compared to $19.8 million in the same period in fiscal year 2009, and
repurchase and retirement of common stock of $6.0 million in the second quarter of fiscal year 2010
compared to $22.3 million in the same period in fiscal year 2009.
Management believes that cash flows from operations and existing availability under the
current credit facilities will be sufficient to cover working capital needs, stock repurchases,
dividends, capital expenditures, pension funding and debt service requirements for the next twelve
months and the foreseeable future. The Company was focused on managing inventories, capital
expenditures and expenses in the third quarter of fiscal year 2010, which resulted in an increase
in cash and cash equivalents of $250.0 million compared to the third quarter of fiscal year 2009.
Contractual Obligations and Commercial Commitments
A table representing the scheduled maturities of the Companys contractual obligations and
commercial commitments as of January 31, 2009 was included under the heading Contractual
Obligations and Commercial Commitments of the Companys Annual Report on Form 10-K for the fiscal
year ended January 31, 2009. There have been no material changes from the information included in
the Form 10-K.
Off-Balance Sheet Arrangements
The Company has not created, and is not party to, any special-purpose or off-balance sheet
entities for the purpose of raising capital, incurring debt or operating the Companys business.
The Company does not have any arrangements or relationships with entities that are not consolidated
into the financial statements that are reasonably likely to materially affect the Companys
liquidity or the availability of capital resources.
Recently Issued Accounting Standards
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles a replacement of SFAS No. 162 (ASC
105-10). ASC 105-10 modifies the Generally Accepted Accounting Principles (GAAP) hierarchy by
establishing only two levels of GAAP, authoritative and
nonauthoritative accounting literature. Effective July 2009, the FASB Accounting Standards
Codification (ASC), also known collectively as the Codification, is considered the single
source of authoritative U.S. accounting and reporting standards, except for additional
authoritative rules and interpretive releases issued by the SEC. The Codification was developed to
organize GAAP pronouncements by topic so that users can more easily access authoritative accounting
guidance. ASC 105-10 became effective for the third quarter of fiscal year 2010. All other
accounting standard references have been updated in this report with ASC references.
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In August 2009, the FASB issued Accounting Standards Update (ASU) 2009-05, Measuring
Liabilities at Fair Value, which updates ASC 820-10, Fair Value Measurements and Disclosures.
The updated guidance clarifies that the fair value of a liability can be measured in relation to
the counterpartys asset when traded in an active market, without adjusting the price for
restrictions that prevent the sale of the liability. ASU 2009-05 will be effective for the fourth
quarter of fiscal year 2010. The Company does not expect that the adoption of ASU 2009-05 will
change its valuation techniques for measuring liabilities at fair value.
For fiscal years ending after December 15, 2009, the Compensation-Retirement Benefits Topic,
ASC 715-20 will require more detailed disclosures regarding the assets of a defined benefit pension
or other postretirement plan. The Company will adopt the additional disclosure requirements of ASC
715-20 as of January 30, 2010.
Effective for the second quarter of fiscal year 2010, the Subsequent Events Topic, ASC
855-10-50-1, required disclosure of the date through which an entity has evaluated subsequent
events and the basis for that date. Refer to the notes to the unaudited condensed consolidated
financial statements for the disclosure required under ASC 855-10-50-1.
Effective for the second quarter of fiscal year 2010, the Financial Instruments Topic, ASC
825-10 required disclosure regarding the fair value of financial instruments of publicly traded
companies for interim reporting periods as well as annual reporting periods. Refer to the notes to
the unaudited condensed consolidated financial statements for the disclosures required under ASC
825-10.
Effective for the second quarter of fiscal year 2010, the Investments-Debt and Equity
Securities Topic, ASC 320-10 amended the presentation and disclosure requirements for
other-than-temporary impairment on debt and equity securities in the financial statements. Refer to
the notes to the unaudited condensed consolidated financial statements for the disclosures required
under ASC 320-10.
Effective for the second quarter of fiscal year 2010, the Fair Value Measurements and
Disclosures Topic, ASC 820-10-65-4, provided additional guidance for estimating fair value when
the volume and level of activity for the asset or liability have significantly decreased and
identifying circumstances that indicate a transaction is not orderly. Refer to the notes to the
unaudited condensed consolidated financial statements for the disclosures required under ASC
820-10-65-4.
Effective for the first quarter of fiscal year 2010, the Fair Value Measurements and
Disclosures Topic, ASC 820-10-65-1, established a single definition of fair value and a framework
for measuring fair value in GAAP for nonfinancial assets and liabilities to increase consistency
and comparability in fair value measurements. The Companys adoption of the requirements under ASC
820-10-65-1 did not require other additional disclosure during the first quarter of fiscal year
2010.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
There have been no material changes to the Companys quantitative and qualitative market risk
disclosures during the nine months ended October 31, 2009 from the disclosures contained in the
Companys Annual Report on Form 10-K for the fiscal year ended January 31, 2009.
Item 4. | Controls and Procedures |
The Companys management conducted an evaluation pursuant to Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, under the supervision and with the participation of its
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures as of the end of the period covered
by this report. The Companys disclosure controls and procedures are designed to ensure that
information required to be disclosed by the Company in the reports that it files or submits under
the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission, and that such information is accumulated and
communicated to the Companys management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures were effective.
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During the period covered by this report, there were no changes in the Companys internal
control over financial reporting that materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. | Legal Proceedings |
In the ordinary course of business, the Company is subject to various legal proceedings and
claims. The Company believes that the ultimate outcome of these matters will not have a material
adverse effect on its consolidated financial position or results of operations.
Item 1A. | Risk Factors |
There have been no material changes from the risk factors disclosed in the Companys Annual
Report on Form 10-K filed on April 15, 2009.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Not applicable.
Item 3. | Defaults Upon Senior Securities |
Not applicable.
Item 4. | Submission of Matters to a Vote of Security Holders |
Not applicable.
Item 5. | Other Information |
Not applicable.
Item 6. | Exhibits |
(a) Exhibits
3.1 | Form of Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to pages B-24 to B-33 of the Companys Registration Statement
on Form S-4/A, filed on March 5, 1998 (File No. 333-42935)). |
||
3.2 | Form of Second Amended and Restated Bylaws of the Company (incorporated by reference
to Exhibit 3.2 of the Companys Annual Report on Form 10-K for the fiscal year ended
January 31, 2004). |
||
4.1 | Articles Fourth, Fifth and Seventh of the Amended and Restated Certificate of
Incorporation of the Company (incorporated by reference to pages B-24 to B-33 of the
Companys Registration Statement on Form S-4/A, filed on March 5, 1998 (File No.
333-42935)). |
||
4.2 | Articles I and IV of the Second Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 3.2 of the Companys Annual Report on Form 10-K for
the fiscal year ended January 31, 2004). |
||
31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted under Section
302 of the Sarbanes-Oxley Act of 2002. |
||
31.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted under Section
302 of the Sarbanes-Oxley Act of 2002. |
||
32.1 | Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
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32.2 | Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BELK, INC. |
||||
Dated: December 7, 2009 | By: | /s/ Ralph A. Pitts | ||
Ralph A. Pitts | ||||
Executive Vice President, General Counsel and Corporate Secretary (Authorized Officer of the Registrant) |
||||
By: | /s/ Brian T. Marley | |||
Brian T. Marley | ||||
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
||||
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