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Table of Contents

 
 
UNITED STATES
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 May 1, 2010
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)
Registrant’s 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 May 31, 2010, the registrant had issued and outstanding 45,422,012 shares of class A common stock and 897,773 shares of class B common stock.
 
 

 


 

BELK, INC.
Index to Form 10-Q
         
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 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

 


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 Company’s 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 growth strategies, anticipated benefits from our strategic initiative to strengthen our merchandising and planning organizations, anticipated benefits from the redesign of our belk.com website and our eCommerce fulfillment center, the expected benefit of new systems and technology, anticipated benefits from our acquisitions and the anticipated benefit under our Program Agreement with GE. 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. Any such forward-looking statements are qualified by the following important risk factors and other risks which may be disclosed from time to time in our filings that could cause actual results to differ materially from those predicted by the forward-looking statements. Forward-looking statements relate to the date initially made, and we undertake no obligation to update them.
     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 GE’s 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 identify opportunities to open new stores, or to remodel or expand existing stores, including the availability of existing retail stores or store sites on acceptable terms and our ability to successfully execute the Company’s 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;
 
 
Our ability to realize the planned efficiencies from our acquisitions and effectively integrate and operate the acquired stores and businesses; and
 
 
The effectiveness of third parties in managing our outsourced business processes.
     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 30, 2010 that we filed with the SEC on April 14, 2010. 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)
                 
    Three Months Ended  
    May 1,     May 2,  
    2010     2009  
Revenues
    803,913       760,894  
Cost of goods sold (including occupancy, distribution and buying expenses)
    536,551       532,093  
Selling, general and administrative expenses
    218,018       215,276  
Gain on sale of property and equipment
    808       277  
Asset impairment and exit costs
    219       411  
 
           
Operating income
    49,933       13,391  
Interest expense, net
    (12,934 )     (12,559 )
 
           
Income before income taxes
    36,999       832  
Income tax expense
    12,656       288  
 
           
Net income
  $ 24,343     $ 544  
 
           
 
               
Basic and diluted net income per share
  $ 0.50     $ 0.01  
 
           
 
               
Weighted average shares outstanding — basic and diluted
    48,295,137       48,758,349  
See accompanying notes to unaudited condensed consolidated financial statements.

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BELK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
                 
    May 1,     January 30,  
    2010     2010  
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 437,293     $ 585,930  
Short-term investments
          2,500  
Accounts receivable, net
    43,196       22,427  
Merchandise inventory
    874,855       775,342  
Prepaid income taxes, expenses and other current assets
    28,421       24,902  
 
           
Total current assets
    1,383,765       1,411,101  
Investment securities
    6,850       6,850  
Property and equipment, net of accumulated depreciation and amortization of $1,271,620 and $1,245,816 as of May 1, 2010 and January 30, 2010, respectively
    987,553       1,009,250  
Deferred income taxes
    116,592       117,827  
Other assets
    38,743       37,547  
 
           
Total assets
  $ 2,533,503     $ 2,582,575  
 
           
 
               
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable
  $ 292,640     $ 243,995  
Accrued liabilities
    151,380       125,599  
Accrued income taxes
    11,454       35,775  
Deferred income taxes
    16,470       16,079  
Current installments of long-term debt and capital lease obligations
    4,468       3,419  
 
           
Total current liabilities
    476,412       424,867  
Long-term debt and capital lease obligations, excluding current installments
    612,276       685,437  
Interest rate swap liability
    6,859       7,403  
Retirement obligations and other noncurrent liabilities
    355,765       370,573  
 
           
Total liabilities
    1,451,312       1,488,280  
 
           
 
               
Stockholders’ equity:
               
Preferred stock
           
Common stock, 400 million shares authorized and 48.3 million shares issued and outstanding as of May 1, 2010 and January 30, 2010.
    483       483  
Paid-in capital
    451,969       451,278  
Retained earnings
    784,668       798,963  
Accumulated other comprehensive loss
    (154,929 )     (156,429 )
 
           
Total stockholders’ equity
    1,082,191       1,094,295  
 
           
Total liabilities and stockholders’ equity
  $ 2,533,503     $ 2,582,575  
 
           
See accompanying notes to unaudited condensed consolidated financial statements.

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Table of Contents

BELK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(in thousands)
(unaudited)
                                                 
                                    Accumulated        
                                    Other        
    Common Stock     Paid-in     Retained     Comprehensive        
    Shares     Amount     Capital     Earnings     Income (Loss)     Total  
Balance at January 30, 2010
    48,286     $ 483     $ 451,278     $ 798,963     $ (156,429 )   $ 1,094,295  
Comprehensive income:
                                               
Net income
                      24,343             24,343  
Unrealized gain on interest rate swaps, net of $203 income taxes
                            341       341  
Defined benefit expense, net of $688 income taxes
                            1,159       1,159  
 
                                             
Total comprehensive income
                                            25,843  
 
                                             
Cash dividends
                      (38,638 )           (38,638 )
Issuance of stock-based compensation
                (1 )                 (1 )
Stock-based compensation expense
                692                   692  
Common stock issued
    12                                
 
                                   
Balance at May 1, 2010
    48,298     $ 483     $ 451,969     $ 784,668     $ (154,929 )   $ 1,082,191  
 
                                   
See accompanying notes to unaudited condensed consolidated financial statements.

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Table of Contents

BELK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
                 
    Three Months Ended  
    May 1,     May 2,  
    2010     2009  
Cash flows from operating activities:
               
Net income
  $ 24,343       544  
Adjustments to reconcile net income to net cash (used) provided by operating activities:
               
Asset impairment and exit costs
    219       411  
Deferred income tax expense (benefit)
    1,093       (248 )
Depreciation and amortization expense
    36,803       41,060  
Stock-based compensation expense
    692       45  
(Gain) loss on sale of property and equipment
    (151 )     380  
Amortization of deferred gain on sale and leaseback
    (657 )     (657 )
Increase in:
               
Accounts receivable, net
    (20,769 )     (13,850 )
Merchandise inventory
    (99,513 )     (53,496 )
Prepaid income taxes, expenses and other assets
    (6,308 )     (23,998 )
Increase (decrease) in:
               
Accounts payable and accrued liabilities
    74,435       69,786  
Accrued income taxes
    (24,321 )     (593 )
Retirement obligations and other liabilities
    (12,236 )     5,795  
 
           
Net cash (used) provided by operating activities
    (26,370 )     25,179  
 
           
Cash flows from investing activities:
               
Purchases of property and equipment
    (9,980 )     (20,361 )
Proceeds from sales of property and equipment
    8       5  
Proceeds from sales of short-term investments
    2,500        
 
           
Net cash used by investing activities
    (7,472 )     (20,356 )
 
           
Cash flows from financing activities:
               
Principal payments on long-term debt and capital lease obligations
    (76,156 )     (1,137 )
Dividends paid
    (38,638 )     (9,752 )
Stock compensation tax benefit (expense)
    41       (64 )
Cash paid for withholding taxes in lieu of stock-based compensation shares
    (42 )     (51 )
 
           
Net cash used by financing activities
    (114,795 )     (11,004 )
 
           
Net decrease in cash and cash equivalents
    (148,637 )     (6,181 )
Cash and cash equivalents at beginning of period
    585,930       260,134  
 
           
Cash and cash equivalents at end of period
  $ 437,293     $ 253,953  
 
           
 
               
Supplemental schedule of noncash investing activities:
               
Increase (decrease) in property and equipment through accrued purchases
  $ 51     $ (7,087 )
Increase in property and equipment through assumption of capital leases
    4,045        
See accompanying notes to unaudited condensed consolidated financial statements.

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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 30, 2010. 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 months ended May 1, 2010 may not be indicative of the operating results that may be expected for the full fiscal year.
     Certain prior period amounts have been reclassified to conform with current year presentation. Previously, the Company presented amounts due from vendors on a gross basis due to systems constraints and the lack of available information. In the current year, the Company has presented amounts due from vendors on a net basis, and revised amounts presented for the three months ended May 2, 2009 on the cash flow statement for comparability purposes. The revision had no impact on net income, working capital, cash flows from operating activities, or stockholders’ equity for the three months ended May 2, 2009.
(2) Comprehensive Income
     The following table sets forth the computation of comprehensive income:
                 
    Three Months Ended  
    May 1,     May 2,  
    2010     2009  
    (dollars in thousands)  
Net income
  $ 24,343     $ 544  
Other comprehensive income:
               
Unrealized gain on investments, net of $92 income taxes for the three months ended May 2, 2009.
          154  
Unrealized gain on interest rate swaps, net of $203 and $86 income taxes for the three months ended May 1, 2010 and May 2, 2009, respectively.
    341       145  
Defined benefit expense, net of $688 and $1,279 income taxes for the three months ended May 1, 2010 and May 2, 2009, respectively.
    1,159       2,154  
 
           
Other comprehensive income
    1,500       2,453  
 
           
Total comprehensive income
  $ 25,843     $ 2,997  
 
           
(3) Accumulated Other Comprehensive Loss
     The following table sets forth the components of accumulated other comprehensive loss:
                 
    May 1,     January 30,  
    2010     2010  
    (dollars in thousands)  
Unrealized loss on interest rate swap, net of $2,586 and $2,789 income taxes as of May 1, 2010 and January 30, 2010, respectively.
    (4,273 )     (4,614 )
Defined benefit plans, net of $90,033 and $90,721 income taxes as of May 1, 2010 and January 30, 2010, respectively.
    (150,656 )     (151,815 )
 
           
Accumulated other comprehensive loss
  $ (154,929 )   $ (156,429 )
 
           

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Table of Contents

BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(4) Fair Value Measurements
     Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. 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.
     As of May 1, 2010, the Company held an interest rate swap that is required to be measured at fair value on a recurring basis. 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 creditworthiness 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. The Company has consistently applied these valuation techniques in all periods presented. 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).
     The Company’s interest rate swap measured at fair value on a recurring basis was $6.9 million and $7.4 million at May 1, 2010 and January 30, 2010, respectively. The Company classifies these measurements as Level 2.
     Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). The fair value measurements related to long-lived assets are determined using expected future cash flow analyses. The Company classifies these measurements as Level 3. There were no material impairments of property and equipment for the three months ended May 1, 2010 and May 2, 2009.
     The following table presents the carrying amounts and estimated fair values of financial instruments not measured at fair value in the consolidated balance sheets. These included the Company’s auction rate security (“ARS”) and fixed rate long-term debt.
                                 
    May 1, 2010   January 30, 2010
    Carrying   Fair   Carrying   Fair
    Value   Value   Value   Value
            (dollars in thousands)        
Financial assets
                               
Auction rate security (a)
  $ 6,850     $ 6,850     $ 9,350     $ 9,350  
 
                               
Financial liabilities
                               
Long-term debt (excluding capitalized leases) (b)
  $ 592,780     $ 581,327     $ 667,780     $ 647,287  
 
(a)  
Amounts represent held-to-maturity ARS backed by student loans, which are 97% guaranteed under the Federal Family Education Loan Program, and carries the highest credit ratings of AAA.
 
(b)  
Represents the sum of fixed rate and variable rate long-term debt excluding capitalized leases.
     As of May 1, 2010, the par value of the ARS was $6.9 million and the estimated fair value was $6.9 million. The fair value of the ARS is estimated using Level 3 inputs 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.

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Table of Contents

BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     The fair value of the Company’s fixed rate long-term debt is estimated based on the current rates offered to the Company for debt of the same remaining maturities.
(5) Asset Impairment and Exit Costs
     During the three months ended May 1, 2010, the Company recorded $0.2 million related to real estate holding costs and the impairment of certain assets. During the three months ended May 2, 2009, the Company recorded $0.2 million in exit costs comprised primarily of severance costs associated with the planned outsourcing of certain information technology and support functions along with $0.2 million for the impairment of certain assets.
(6) Borrowings
     During the three months ended May 1, 2010, the Company made a $75.0 million discretionary payment toward the principal value of the $325.0 million term loan under the credit facility that was outstanding at the end of fiscal year 2010.
(7) Pension and Postretirement Benefits
     The Company has a defined benefit pension plan, the Belk Pension Plan, which prior to fiscal year 2010 had been partially frozen and closed to new participants. Pension benefits were suspended for fiscal year 2010, and effective December 31, 2009, the Pension Plan was frozen for those remaining participants whose benefits were not previously frozen in fiscal year 2006.
     The Company has a non-qualified defined benefit Supplemental Executive Retirement Plan, (“Old SERP”), which provides retirement and death benefits to certain qualified executives. Old SERP has been closed to new executives and has been replaced by the 2004 Supplemental Executive Retirement Plan (“2004 SERP”), a non-qualified defined contribution plan.
     The Company also provides postretirement medical and life insurance benefits to certain retired full-time employees.
     The components of net periodic benefit expense for these plans are as follows:
                                                 
    Three Months Ended  
    Pension Plan     Old SERP Plan     Postretirement Plan  
    May 1,     May 2,     May 1,     May 2,     May 1,     May 2,  
    2010     2009     2010     2009     2010     2009  
                    (dollars in thousands)                  
Service cost
  $     $     $ 18     $ 32     $ 37     $ 33  
Interest cost
    6,517       6,649       155       157       340       406  
Expected return on plan assets
    (6,550 )     (5,527 )                        
Amortization of transition obligation
                            66       65  
Amortization of prior service cost
          124                          
Amortization of net loss
    1,753       3,234       36             (8 )     10  
 
                                   
Net periodic benefit expense
  $ 1,720     $ 4,480     $ 209     $ 189     $ 435     $ 514  
 
                                   
     The Company made a $14.3 million discretionary contribution to its Pension Plan on April 22, 2010, and expects to make additional discretionary contributions totaling approximately $40.0 million to the Pension Plan before January 29, 2011.
(8) 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 months ended May 1, 2010, and for the three months ended May 2, 2009, therefore basic and diluted EPS are the same.

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BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(9) Repurchase of Common Stock
     On April 1, 2010, the Company’s Board of Directors approved a self-tender offer to purchase up to 2,880,000 shares of common stock at a price of $26.00 per share. The tender offer was initiated on April 21, 2010, and on May 19, 2010, the Company accepted for purchase 1,482,822 shares of Class A and 494,719 shares of Class B common stock for $51.4 million.

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Item 2. Management’s 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 May 1, 2010, the Company had 306 stores in 16 states, located primarily in the southern United States. The Company generated revenues of $3.3 billion for the fiscal year ended January 30, 2010, 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 Company’s consolidated financial statements as of January 30, 2010, and for the year then ended, and related Notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, all contained in the Company’s Annual Report on Form 10-K for the year ended January 30, 2010.
     The Company’s fiscal year ends on the Saturday closest to each January 31. All references to “fiscal year 2011” refer to the fiscal year that will end January 29, 2011 and all references to “fiscal year 2010” refer to the fiscal year ended January 30, 2010.
     The Company’s revenues increased 5.7% in the first quarter of fiscal year 2011 to $803.9 million due primarily to an increase in overall consumer spending and enhanced merchandising and marketing programs. Comparable store revenues increased 6.4%. 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 $49.9 million in the first quarter of fiscal year 2011 compared to $13.4 million during the same period in fiscal year 2010. Net income increased to $24.3 million or $0.50 per basic and diluted share in the first quarter of fiscal year 2011 compared to $0.5 million or $0.01 per basic and diluted share during the same period in fiscal year 2010. The increase in net income was due primarily to continued positive results from strategic initiatives focused on sales and margin performance.
     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, Belk’s 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 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 Company’s 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., Dillard’s, Inc., Kohl’s Corporation, Macy’s, Inc., Sears Holding Corporation, Target Corporation and Wal-Mart Stores, Inc.
     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 and the significant decline in the number of new retail centers being developed, 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. The Company will also consider closing stores in markets where more attractive locations

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become available or where the Company does not believe there is potential for long term growth and success. In addition, the Company periodically reviews and adjusts its space requirements to create greater operating efficiencies and convenience for the customer.
Results of Operations
     The following table sets forth, for the periods indicated, the percentage relationship to revenues of certain items in the Company’s unaudited condensed consolidated statements of income, as well as a period comparison of changes in comparable store net revenue.
                 
    Three Months Ended
    May 1,   May 2,
    2010   2009
SELECTED FINANCIAL DATA
               
Revenues
    100.0 %     100.0 %
Cost of goods sold (including occupancy, distribution and buying expenses)
    66.7       69.9  
Selling, general and administrative expenses
    27.1       28.3  
Gain on sale of property and equipment
    0.1        
Asset impairment and exit costs
          0.1  
Operating income
    6.2       1.8  
Interest expense, net
    1.6       1.7  
Income before income taxes
    4.6       0.1  
Income tax expense
    1.6        
Net income
    3.0       0.1  
 
               
Comparable store net revenue increase (decrease)
    6.4       (7.7 )
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
    May 1,   May 2,
Merchandise Areas   2010   2009
Women’s
    38 %     39 %
Cosmetics, Shoes and Accessories
    33       33  
Men’s
    15       14  
Home
    7       8  
Children’s
    7       6  
 
               
Total
    100 %     100 %
 
               
Comparison of the Three Months Ended May 1, 2010 and May 2, 2009
     Revenues. The Company’s revenues for the three months ended May 1, 2010 increased 5.7%, or $43.0 million, to $803.9 million from $760.9 million during the same period in fiscal year 2010. The increase is primarily attributable to a 6.4% increase in revenues from comparable stores and a $1.9 million increase in revenues due to new stores, partially offset by a decrease in revenues from closed stores of $3.9 million.
     Cost of goods sold. Cost of goods sold was $536.6 million, or 66.7% of revenues, for the three months ended May 1, 2010 compared to $532.1 million, or 69.9% of revenues, for the same period in fiscal year 2010. The decrease in cost

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of goods sold as a percentage of revenues was primarily attributable to reduced markdown activity for the three months ended May 1, 2010.
     Selling, general and administrative expenses. Selling, general and administrative (“SG&A”) expenses were $218.0 million, or 27.1% of revenues for the three months ended May 1, 2010, compared to $215.3 million, or 28.3% of revenues for the same period in fiscal year 2010. The increase in SG&A expenses was primarily due to an increase in advertising expenses, partially offset by reductions in depreciation, payroll and employee benefits for the three months ended May 1, 2010. The improvement in SG&A expenses as a percentage of revenues is the result of the 6.4% increase in comparable store revenues, while SG&A expense only slightly increased.
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 Company’s revenues and a substantial amount of the Company’s operating and net income are realized during the fourth quarter. If for any reason the Company’s revenues were below seasonal norms during the fourth quarter, the Company’s annual results of operations could be adversely affected. The Company’s inventory levels generally reach their highest levels in anticipation of increased revenues during these months. The Company’s 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 Company’s primary sources of liquidity are cash on hand, cash flows from operations, and borrowings under debt facilities, which consist of a $600.0 million credit facility that matures in October 2011 and $325.0 million in senior notes. During the first quarter of fiscal year 2011, the Company made a $75.0 million discretionary payment toward the principal value of the $325.0 million term loan under the credit facility that was outstanding at the end of fiscal year 2010. As of May 1, 2010, the credit facility was comprised of an outstanding $250.0 million term loan and a $350.0 million revolving line of credit.
     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 May 1, 2010 using LIBOR plus 200 basis points. The credit facility contains restrictive financial covenants including leverage and fixed charge coverage ratios. The Company’s 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 Company’s 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 May 1, 2010, the maximum leverage allowed under the credit facility was 4.25, and the calculated leverage ratio was 2.68. The Company was in compliance with all covenants as of May 1, 2010 and expects to remain in compliance with all debt covenants for the next twelve months. As of May 1, 2010, the Company had $35.4 million of standby letters of credit outstanding under the credit facility, and availability under the credit facility was $314.6 million.
     The senior notes are comprised of an $80.0 million floating rate senior note that has a stated variable interest rate based on three-month LIBOR plus 80.0 basis points, or 1.09% at May 1, 2010, that matures in July 2012. This $80.0 million notional amount has an associated interest rate swap with a fixed interest rate of 5.2%. Additionally, a $20.0 million fixed rate senior note that bears interest of 5.05% matures in July 2012, a $100.0 million fixed rate senior note that bears interest of 5.31% matures in July 2015, and a $125.0 million fixed rate senior note that bears interest of 6.2% matures in August 2017. The senior notes have restrictive covenants that are similar to the Company’s credit facility. Additionally, the Company has a $17.8 million, 20-year variable rate, 0.3% at May 1, 2010, state bond facility which matures in October 2025.
     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.

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     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. These 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).
     The Company’s exposure to derivative instruments was limited to one interest rate swap as of May 1, 2010, an $80.0 million notional amount swap, 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.
     Management believes that cash flows from operations and existing credit facilities will be sufficient to cover working capital needs, common stock repurchases, dividends, capital expenditures, pension contributions and debt service requirements for the next twelve months and foreseeable future.
     Net cash used by operating activities was $26.4 million for the three months ended May 1, 2010 compared to $25.2 million provided for the same period in fiscal year 2010. The decrease in cash flows from operating activities for the three months ended May 1, 2010 was principally due to the incremental increase in inventory resulting from a larger year over year seasonal build of inventory to support current sales trends, a $24.6 million increase in income taxes paid in fiscal year 2011 primarily as a result of the fiscal year 2010 net income, and a $14.3 million discretionary defined benefit plan contribution in fiscal year 2011, partially offset by a $23.8 million increase in net income for the current year period.
     Net cash used by investing activities was $7.5 million for the three months ended May 1, 2010 compared to $20.4 million for the same period in fiscal year 2010. The decrease in cash used by investing activities primarily resulted from reduced purchases of property and equipment for the three months ended May 1, 2010.
     Net cash used by financing activities was $114.8 million for the three months ended May 1, 2010 compared to $11.0 million for the same period in fiscal year 2010. The increase in cash used by financing activities was primarily due to the $75.0 million discretionary payment on the credit facility term loan and a $28.9 million increase in dividends paid in the first quarter of fiscal year 2011 compared to the same period in fiscal year 2010.
Contractual Obligations and Commercial Commitments
     A table representing the scheduled maturities of the Company’s contractual obligations and commercial commitments as of January 30, 2010 was included under the heading “Contractual Obligations and Commercial Commitments” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2010. 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 Company’s 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 Company’s liquidity or the availability of capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
     There have been no material changes to the Company’s quantitative and qualitative market risk disclosures during the three months ended May 1, 2010 from the disclosures contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2010.

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Item 4. Controls and Procedures
     The Company’s 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 Company’s disclosure controls and procedures as of the end of the period covered by this report. The Company’s 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 Company’s 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 Company’s disclosure controls and procedures were effective.
     During the period covered by this report, there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s 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 Company’s Annual Report on Form 10-K filed on April 14, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
     Not applicable.
Item 3. Defaults Upon Senior Securities
     Not applicable.
Item 4. Reserved
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 Company’s 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 Company’s 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 Company’s 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 Company’s 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.
 
  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: June 8, 2010  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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