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EXCEL - IDEA: XBRL DOCUMENT - BELK INC | Financial_Report.xls |
EX-31.1 - EX-31.1 - BELK INC | g27639exv31w1.htm |
EX-31.2 - EX-31.2 - BELK INC | g27639exv31w2.htm |
EX-32.2 - EX-32.2 - BELK INC | g27639exv32w2.htm |
EX-32.1 - EX-32.1 - BELK INC | g27639exv32w1.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 July 30, 2011
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. þ Yes 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).
þ Yes 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
August 30, 2011, the registrant had issued and outstanding
44,053,210 shares of class A common
stock and 863,139 shares of class B common stock.
BELK, INC.
Index to Form 10-Q
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EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
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, the success of our re-branding, 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.
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:
| 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; |
||
| The customer response to our re-branding initiative; |
| 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 and, to a lesser degree, through on-line
sales; |
||
| Variations in the amount of vendor allowances; |
| Our ability to expand our eCommerce business through our updated and redesigned
belk.com website, including our ability to meet the systems challenges of operating the
website consistently and our ability to efficiently operate our eCommerce fulfillment
facility; |
| 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; |
||
| Increases in the price of merchandise, raw materials, fuel and labor or their reduced
availability; |
| 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 manage our expense structure; |
| Our ability to continue 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 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; |
||
| The effectiveness of third parties in managing our outsourced business; |
||
| Loss of qualified employees or an inability to attract, retain and motivate additional
highly skilled employees; |
||
| Changes in federal, state or local laws and regulations; |
||
| Our ability to comply with debt covenants, which could adversely affect our capital
resources, financial condition and liquidity; 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 29,
2011 that we filed with the SEC on April 12, 2011. 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
(in thousands, except share and per share amounts)
(unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
July 30, | July 31, | July 30, | July 31, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues |
$ | 831,777 | $ | 787,697 | $ | 1,680,364 | $ | 1,591,610 | ||||||||
Cost of goods sold (including occupancy,
distribution and buying expenses) |
555,111 | 532,066 | 1,117,497 | 1,068,617 | ||||||||||||
Selling, general and administrative expenses |
227,905 | 225,337 | 457,467 | 443,356 | ||||||||||||
Gain on sale of property and equipment |
599 | 985 | 1,263 | 1,793 | ||||||||||||
Asset impairment and exit costs |
(853 | ) | 1,059 | (737 | ) | 1,277 | ||||||||||
Operating income |
50,213 | 30,220 | 107,400 | 80,153 | ||||||||||||
Interest expense, net |
(12,396 | ) | (12,571 | ) | (24,921 | ) | (25,504 | ) | ||||||||
Income before income taxes |
37,817 | 17,649 | 82,479 | 54,649 | ||||||||||||
Income tax expense |
12,802 | 5,200 | 25,595 | 17,857 | ||||||||||||
Net income |
$ | 25,015 | $ | 12,449 | $ | 56,884 | $ | 36,792 | ||||||||
Basic and diluted net income per share |
$ | 0.55 | $ | 0.27 | $ | 1.24 | $ | 0.77 | ||||||||
Weighted average shares outstanding: |
||||||||||||||||
Basic |
45,179,482 | 46,704,496 | 45,795,534 | 47,499,816 | ||||||||||||
Diluted |
45,349,274 | 46,706,537 | 46,016,363 | 47,500,837 |
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)
July 30, | January 29, | |||||||
2011 | 2011 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 377,434 | $ | 453,403 | ||||
Short-term investments |
| 6,150 | ||||||
Accounts receivable, net |
48,036 | 31,119 | ||||||
Merchandise inventory |
857,721 | 808,503 | ||||||
Prepaid income taxes, expenses and other current assets |
26,667 | 18,869 | ||||||
Total current assets |
1,309,858 | 1,318,044 | ||||||
Property and equipment, net of accumulated depreciation and amortization of $1,412,341
and $1,354,425 as of July 30, 2011 and January 29, 2011, respectively. |
970,122 | 951,120 | ||||||
Deferred income taxes |
71,139 | 83,698 | ||||||
Other assets |
41,192 | 36,769 | ||||||
Total assets |
$ | 2,392,311 | $ | 2,389,631 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 242,144 | $ | 196,622 | ||||
Accrued liabilities |
181,305 | 161,844 | ||||||
Accrued income taxes |
2,796 | 10,926 | ||||||
Deferred income taxes |
19,927 | 19,776 | ||||||
Current installments of long-term debt and capital lease obligations |
105,199 | 4,426 | ||||||
Total current liabilities |
551,371 | 393,594 | ||||||
Long-term debt and capital lease obligations, excluding current installments |
435,408 | 534,813 | ||||||
Interest rate swap liability |
| 5,388 | ||||||
Retirement obligations and other noncurrent liabilities |
264,975 | 299,564 | ||||||
Total liabilities |
1,251,754 | 1,233,359 | ||||||
Stockholders equity: |
||||||||
Preferred stock |
| | ||||||
Common stock, 400 million shares authorized and 44.9 and 46.3 million
shares issued and outstanding as of July 30, 2011 and January 29, 2011, respectively. |
449 | 463 | ||||||
Paid-in capital |
358,513 | 409,201 | ||||||
Retained earnings |
919,245 | 887,953 | ||||||
Accumulated other comprehensive loss |
(137,650 | ) | (141,345 | ) | ||||
Total stockholders equity |
1,140,557 | 1,156,272 | ||||||
Total liabilities and stockholders equity |
$ | 2,392,311 | $ | 2,389,631 | ||||
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)
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Common Stock | Paid-in | Retained | Comprehensive | |||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income (Loss) | Total | |||||||||||||||||||
Balance at January 29, 2011 |
46,344 | $ | 463 | $ | 409,201 | $ | 887,953 | $ | (141,345 | ) | $ | 1,156,272 | ||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net income |
| | | 56,884 | | 56,884 | ||||||||||||||||||
Unrealized gain on interest rate swaps,
net of $658 income taxes |
| | | | 1,108 | 1,108 | ||||||||||||||||||
Defined benefit plan adjustments, net of
$1,536 income taxes |
| | | | 2,587 | 2,587 | ||||||||||||||||||
Total comprehensive income |
60,579 | |||||||||||||||||||||||
Cash dividends |
| | | (25,592 | ) | | (25,592 | ) | ||||||||||||||||
Issuance of stock-based compensation |
| | (2,212 | ) | | | (2,212 | ) | ||||||||||||||||
Stock-based compensation expense |
| | 5,904 | | | 5,904 | ||||||||||||||||||
Common stock issued |
204 | 2 | 600 | | | 602 | ||||||||||||||||||
Repurchase and retirement of common stock |
(1,632 | ) | (16 | ) | (54,980 | ) | | | (54,996 | ) | ||||||||||||||
Balance at July 30, 2011 |
44,916 | $ | 449 | $ | 358,513 | $ | 919,245 | $ | (137,650 | ) | $ | 1,140,557 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
Table of Contents
BELK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended | ||||||||
July 30, | July 31, | |||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 56,884 | $ | 36,792 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Asset impairment and exit costs |
(737 | ) | 1,277 | |||||
Deferred income tax expense |
11,407 | 1,299 | ||||||
Depreciation and amortization expense |
60,766 | 72,708 | ||||||
Stock-based compensation expense |
8,350 | 3,670 | ||||||
Loss (gain) on sale of property and equipment |
52 | (478 | ) | |||||
Amortization of deferred gain on sale and leaseback |
(1,315 | ) | (1,315 | ) | ||||
Amortization of deferred debt issuance costs |
512 | | ||||||
Increase in: |
||||||||
Accounts receivable, net |
(16,917 | ) | (15,091 | ) | ||||
Merchandise inventory |
(49,218 | ) | (21,563 | ) | ||||
Prepaid income taxes, expenses and other assets |
(13,960 | ) | (10,934 | ) | ||||
Increase (decrease) in: |
||||||||
Accounts payable and accrued liabilities |
51,221 | 10,787 | ||||||
Accrued income taxes |
(8,130 | ) | (35,775 | ) | ||||
Retirement obligations and other liabilities |
(36,769 | ) | (26,494 | ) | ||||
Net cash provided by operating activities |
62,146 | 14,883 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(59,782 | ) | (29,787 | ) | ||||
Proceeds from sales of property and equipment |
995 | 434 | ||||||
Proceeds from sales of short-term investments |
6,150 | 2,500 | ||||||
Net cash used by investing activities |
(52,637 | ) | (26,853 | ) | ||||
Cash flows from financing activities: |
||||||||
Principal payments on long-term debt and capital lease obligations |
(2,405 | ) | (77,315 | ) | ||||
Repurchase and retirement of common stock |
(54,996 | ) | (51,416 | ) | ||||
Dividends paid |
(25,592 | ) | (38,638 | ) | ||||
Stock compensation tax benefit |
816 | 41 | ||||||
Cash paid for withholding taxes in lieu of stock-based compensation shares |
(3,301 | ) | (84 | ) | ||||
Net cash used by financing activities |
(85,478 | ) | (167,412 | ) | ||||
Net decrease in cash and cash equivalents |
(75,969 | ) | (179,382 | ) | ||||
Cash and cash equivalents at beginning of period |
453,403 | 585,930 | ||||||
Cash and cash equivalents at end of period |
$ | 377,434 | $ | 406,548 | ||||
Supplemental schedule of noncash investing activities: |
||||||||
Increase in property and equipment through accrued purchases |
$ | 17,958 | $ | 9,530 | ||||
Increase in property and equipment through assumption of capital leases |
2,837 | 4,045 |
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 29, 2011. 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 six months ended July 30,
2011 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 gift card liability amounts within accounts payable as presented
on the consolidated balance sheet. In the current year, the Company has presented the gift card
liability in accrued liabilities, and revised amounts presented for the six months ended July 31,
2010 on the condensed consolidated statements of cash flows for comparability purposes. The revision had no impact on net
income, total current liabilities, cash flows from operating activities, or stockholders equity
for the six months ended July 31, 2010.
(2) Comprehensive Income
The following table sets forth the computation of comprehensive income:
Three Months Ended | Six Months Ended | |||||||||||||||
July 30, | July 31, | July 30, | July 31, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||
Net income |
$ | 25,015 | $ | 12,449 | $ | 56,884 | $ | 36,792 | ||||||||
Other comprehensive income: |
||||||||||||||||
Unrealized gain (loss) on interest rate swaps, net of $355 and $658 income taxes for the three and six
months ended July 30, 2011, respectively and $47 and $156 income taxes for the three and
six months ended July 31, 2010, respectively. |
598 | (79 | ) | 1,108 | 262 | |||||||||||
Defined benefit plan adjustments, net of $768 and $1,536 income taxes for the three and six months ended
July 30, 2011, respectively and $688 and $1,376 income taxes for the three and six months
ended July 31, 2010, respectively. |
1,294 | 1,159 | 2,587 | 2,317 | ||||||||||||
Other comprehensive income |
1,892 | 1,080 | 3,695 | 2,579 | ||||||||||||
Total comprehensive income |
$ | 26,907 | $ | 13,529 | $ | 60,579 | $ | 39,371 | ||||||||
(3) Accumulated Other Comprehensive Loss
The following table sets forth the components of accumulated other comprehensive loss:
July 30, | January 29, | |||||||
2011 | 2011 | |||||||
(dollars in thousands) | ||||||||
Unrealized loss on interest rate swap, net of $1,461
and $2,119 income taxes
as of July 30, 2011 and
January 29, 2011,
respectively. |
$ | (2,160 | ) | $ | (3,268 | ) | ||
Defined benefit plans, net of $81,812 and $83,348
income taxes as of July
30, 2011 and January 29,
2011,
respectively. |
(135,490 | ) | (138,077 | ) | ||||
Accumulated other comprehensive loss |
$ | (137,650 | ) | $ | (141,345 | ) | ||
8
Table of Contents
BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 July 30, 2011, 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.
The Companys interest rate swap, measured at fair value on a recurring basis, was $3.6
million and $5.4 million at July 30, 2011 and
January 29, 2011, respectively. As of July 30, 2011, the
underlying $80.0 million floating rate senior note became current. Therefore, the interest rate
swap liability was reclassified to accrued liabilities in the current liabilities section as presented in the condensed consolidated balance sheet. The Company classifies these measurements
as Level 2.
Certain long-lived 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 significant
impairments of long-lived assets for the three and six months ended July 30, 2011 and July 31,
2010.
The following table presents the carrying amounts and estimated fair values of financial
instruments not recorded at fair value in the consolidated balance sheets. These included the
Companys auction rate security (ARS) and fixed rate long-term debt.
July 30, 2011 | January 29, 2011 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Value | Value | Value | Value | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Financial assets |
||||||||||||||||
Auction rate security |
$ | | $ | | $ | 6,150 | $ | 6,150 | ||||||||
Financial liabilities |
||||||||||||||||
Short-term debt (excluding capitalized leases) |
$ | 100,000 | $ | 100,365 | $ | | $ | | ||||||||
Long-term debt (excluding capitalized leases) |
417,780 | 436,577 | 517,780 | 520,036 | ||||||||||||
Total |
$ | 517,780 | $ | 536,942 | $ | 517,780 | $ | 520,036 | ||||||||
As of January 29, 2011, the par value of the ARS was $6.2 million and the estimated fair value
was $6.2 million based on the amount received in the first quarter of fiscal year 2012. 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.
9
Table of Contents
BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(5) Asset Impairment and Exit Costs
During the three and six months ended July 30, 2011, the Company recorded a $0.9 million
revision to a previously estimated lease termination reserve. During the three and six months
ended July 31, 2010, the Company recorded $0.9 million in impairment charges to adjust two retail
locations net book values to fair value.
(6) Income Taxes
Income tax expense for the three months ended July 30, 2011 was $12.8 million, or 33.9%,
compared to $5.2 million, or 29.5%, for the three months ended July 31, 2010. The increase in the
rate was due primarily to the impact of changes in state income tax law that went into effect
during the second quarter of fiscal year 2011.
Income tax expense for the six months ended July 30, 2011 was $25.6 million, or 31.0%,
compared to $17.9 million, or 32.7%, for the six months ended July 31, 2010. The decrease in the
rate was due primarily to a $2.3 million reduction in the accrual for uncertain tax reserves during
the first quarter of fiscal year 2012, which was the result of expired state related statutes of
limitations.
(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 | ||||||||||||||||||||||
July 30, | July 31, | July 30, | July 31, | July 30, | July 31, | |||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Service cost |
$ | | $ | | $ | 26 | $ | 18 | $ | 27 | $ | 37 | ||||||||||||
Interest cost |
6,373 | 6,517 | 155 | 155 | 300 | 340 | ||||||||||||||||||
Expected return on plan assets |
(7,017 | ) | (6,550 | ) | | | | | ||||||||||||||||
Amortization of transition obligation |
| | | | 65 | 66 | ||||||||||||||||||
Amortization of net loss |
1,967 | 1,753 | 64 | 36 | (34 | ) | (8 | ) | ||||||||||||||||
Net periodic benefit expense |
$ | 1,323 | $ | 1,720 | $ | 245 | $ | 209 | $ | 358 | $ | 435 | ||||||||||||
Six Months Ended | ||||||||||||||||||||||||
Pension Plan | Old SERP Plan | Postretirement Plan | ||||||||||||||||||||||
July 30, | July 31, | July 30, | July 31, | July 30, | July 31, | |||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Service cost |
$ | | $ | | $ | 51 | $ | 36 | $ | 54 | $ | 75 | ||||||||||||
Interest cost |
12,746 | 13,035 | 310 | 309 | 600 | 680 | ||||||||||||||||||
Expected return on plan assets |
(14,033 | ) | (13,100 | ) | | | | | ||||||||||||||||
Amortization of transition obligation |
| | | | 131 | 131 | ||||||||||||||||||
Amortization of net loss |
3,933 | 3,505 | 128 | 72 | (69 | ) | (15 | ) | ||||||||||||||||
Net periodic benefit expense |
$ | 2,646 | $ | 3,440 | $ | 489 | $ | 417 | $ | 716 | $ | 871 | ||||||||||||
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BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During the three months and six months ended July 30, 2011, the Company made discretionary
contributions to its Pension Plan of $16.2 million and $32.4 million, respectively. The Company
expects to make additional contributions totaling approximately $25.0 million to the Pension Plan
before fiscal year end.
(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.
If all necessary conditions have not been satisfied by the end of the period, the contingently
issuable shares included in diluted EPS are based on the number of dilutive shares that would be
issuable if the end of the reporting period were the end of the contingency period.
Contingently-issuable non-vested share awards are included in the diluted EPS calculation as of the
beginning of the period (or as of the date of the contingent share agreement, if later).
The reconciliation of basic and diluted shares for the three and six months ended July 30,
2011 and July 31, 2010, are as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
July 30, | July 31, | July 30, | July 31, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Basic Shares |
45,179,482 | 46,704,496 | 45,795,534 | 47,499,816 | ||||||||||||
Dilutive contingently-issuable non-vested share awards |
162,893 | 2,041 | 214,928 | 1,021 | ||||||||||||
Dilutive contingently-issuable vested share awards |
6,899 | | 5,901 | | ||||||||||||
Diluted Shares |
45,349,274 | 46,706,537 | 46,016,363 | 47,500,837 | ||||||||||||
(9) Repurchase of Common Stock
On March 30, 2011, the Companys Board of Directors approved a self-tender offer to purchase
up to 2,200,000 shares of common stock at a price of $33.70 per share. The tender offer was
initiated on April 18, 2011 and completed
on May 16, 2011 when the Company accepted for purchase 1,353,607 shares of Class A and 278,335
shares of Class B common stock for $55.0 million.
11
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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 July 30,
2011, the Company had 304 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 29, 2011, 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 29, 2011, 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 29, 2011.
The Companys fiscal year ends on the Saturday closest to each January 31. All references to
fiscal year 2011 refer to the fiscal year ended January 29, 2011, all references to fiscal year
2012 refer to the fiscal year that will end January 28, 2012, and all references to fiscal year
2013 refer to the fiscal year that will end February 2, 2013.
The Companys revenues increased 5.6% in the second quarter of fiscal year 2012 to $831.8
million due primarily to a continuation of improved sales trends in both store and eCommerce sales.
Comparable store revenues increased 5.2%. The Company calculates comparable store revenue as
sales from 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. Stores undergoing
remodeling, expansion or relocation remain in the comparable store revenue calculation. Definitions
and calculations of comparable store revenue differ among companies in the retail industry.
Operating income increased to $50.2 million in the second quarter of fiscal year 2012 compared to
$30.2 million during the same period in fiscal year 2011. Net income increased to $25.0 million or
$0.55 per basic and diluted share in the second quarter of fiscal year 2012 compared to $12.4
million or $0.27 per basic and diluted share during the same period in fiscal year 2011. The
increase in net income was due primarily to increased sales and margin resulting from contributions
from a number of key strategic initiatives focused on branding, marketing, eCommerce, store
improvements and information technology.
The Companys revenues increased 5.6% in the first six months of fiscal year 2012 to $1,680.4
million. Comparable store sales increased 5.5%. Operating income increased to $107.4 million in the
first six months of fiscal year 2012 compared to $80.2 million during the same period in fiscal
year 2011. Net income increased to $56.9 million or $1.24 per basic and diluted share compared to
$36.8 million or $0.77 per basic and diluted share during the same period in fiscal year 2011. The
increase in net income was due primarily to continued positive results from initiatives focused on
sales and margin performance.
Management believes that consumers will remain focused on value in fiscal year 2012. The
Company intends to continue to be flexible in sales and inventory planning and in expense
management in order to react to changes in consumer demand. Additionally, merchandise costs in some
apparel categories are expected to have low double-digit increases in the second half of fiscal
year 2012 due to inflation in the cost of raw materials, labor and energy prices. Specific
increases are dependent on the category and the related fabric content. The Company has been
preparing for these cost increases, and has undertaken strategies to minimize the impact of
inflation on merchandise costs and selling prices.
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
12
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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 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.
In response to recent economic conditions and the significant decline in the number of new
retail centers being developed over the last several years, the Company has focused its growth
strategy on remodeling and expanding existing stores, developing new merchandising concepts in
targeted demand centers and enhancing the eCommerce business and website. The Company will,
however, continue to explore new store opportunities in markets where the Belk name and reputation
are well known and where Belk can distinguish its stores from the competition. The Company will
also consider closing stores in markets where more attractive locations 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 Companys unaudited condensed consolidated statements of income,
as well as a period comparison of changes in comparable store net revenue.
Three Months Ended | Six Months Ended | |||||||||||||||
July 30, | July 31, | July 30, | July 31, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
SELECTED FINANCIAL DATA |
||||||||||||||||
Revenues |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of goods sold (including occupancy,
distribution and buying expenses) |
66.7 | 67.5 | 66.5 | 67.1 | ||||||||||||
Selling, general and administrative expenses |
27.4 | 28.6 | 27.2 | 27.9 | ||||||||||||
Gain on sale of property and equipment |
0.1 | 0.1 | 0.1 | 0.1 | ||||||||||||
Asset impairment and exit costs |
(0.1 | ) | 0.1 | | 0.1 | |||||||||||
Operating income |
6.0 | 3.8 | 6.4 | 5.0 | ||||||||||||
Interest expense, net |
1.5 | 1.6 | 1.5 | 1.6 | ||||||||||||
Income before income taxes |
4.5 | 2.2 | 4.9 | 3.4 | ||||||||||||
Income tax expense |
1.5 | 0.7 | 1.5 | 1.1 | ||||||||||||
Net income |
3.0 | 1.6 | 3.4 | 2.3 | ||||||||||||
Comparable store net revenue increase |
5.2 | 4.1 | 5.5 | 5.3 |
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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 | Six Months Ended | |||||||||||||||
July 30, | July 31, | July 30, | July 31, | |||||||||||||
Merchandise Areas | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Womens |
39 | % | 40 | % | 38 | % | 39 | % | ||||||||
Cosmetics, Shoes and Accessories |
31 | 30 | 32 | 32 | ||||||||||||
Mens |
17 | 17 | 16 | 16 | ||||||||||||
Home |
8 | 8 | 8 | 7 | ||||||||||||
Childrens |
5 | 5 | 6 | 6 | ||||||||||||
Total |
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Comparison of the Three and Six Months Ended July 30, 2011 and July 31, 2010
Revenues. The Companys revenues for the three months ended July 30, 2011 increased 5.6%, or
$44.1 million, to $831.8 million from $787.7 million during the same period in fiscal year 2011.
The increase is primarily attributable to a 5.2% increase in revenues from comparable stores,
partially offset by a decrease in revenues from closed stores of $2.0 million.
The Companys revenues for the six months ended July 30, 2011 increased 5.6%, or $88.8
million, to $1,680.4 million from $1,591.6 million during the same period in fiscal year 2011. The
increase is primarily attributable to a 5.5% increase in revenues from comparable stores, partially
offset by a decrease in revenues from closed stores of $2.2 million.
Cost of goods sold. Cost of goods sold was $555.1 million, or 66.7% of revenues, for the
three months ended July 30, 2011 compared to $532.1 million, or 67.5% of revenues, for the same
period in fiscal year 2011. The decrease in cost of goods sold as a percentage of revenues was
primarily attributable to reduced markdown
activity for the three months ended July 30, 2011.
Cost of goods sold was $1,117.5 million, or 66.5% of revenues, for the six months ended July
30, 2011 compared to $1,068.6 million, or 67.1% of revenues, for the same period in fiscal year
2011. The decrease in cost of goods sold as a percentage of revenues was primarily attributable to
reduced markdown activity for the six months ended July 30, 2011.
Selling, general and administrative expenses. Selling, general and administrative (SG&A)
expenses were $227.9 million, or 27.4% of revenues for the three months ended July 30, 2011,
compared to $225.3 million, or 28.6% of revenues for the same period in fiscal year 2011. The
increase in SG&A expenses was primarily due to an increase in payroll and employee benefits,
partially offset by a reduction in depreciation expense for the three months ended July 30, 2011.
The decrease in the SG&A expense rate is primarily the result of the 5.2% increase in comparable
store revenues combined with a decrease in depreciation expense.
SG&A expenses were $457.5 million, or 27.2% of revenues for the six months ended July 30,
2011, compared to $443.4 million, or 27.9% of revenues for the same period in fiscal year 2011.
The increase in SG&A expenses was primarily due to an increase in advertising expenses, payroll,
and employee benefits, partially offset by a reduction in depreciation expense for the six months
ended July 30, 2011. The SG&A expense rate decreased due to the 5.5% increase in comparable store
revenues combined with a decrease in depreciation expense, partially offset by an incremental
increase in payroll and employee benefits expense and an increase in advertising expense as a
percentage of revenues.
Asset Impairment and Exit Costs. During the three and six months ended July 30, 2011, the
Company recorded a $0.9 million revision to a previously estimated lease termination reserve.
During the three and six months ended July 31, 2010, the Company recorded $0.9 million in
impairment charges to adjust two retail locations net book values to fair value.
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Income tax expense. Income tax expense for the three months ended July 30, 2011 was $12.8
million, or 33.9%, compared to $5.2 million, or 29.5%, for the three months ended July 31, 2010.
The increase in the rate was due primarily to the impact of changes in state income tax law that
went into effect during the second quarter of fiscal year 2011.
Income tax expense for the six months ended July 30, 2011 was $25.6 million, or 31.0%,
compared to $17.9 million, or 32.7%, for the six months ended July 31, 2010. The decrease in the
rate was due primarily to a $2.3 million reduction in the accrual for uncertain tax reserves during
the first quarter of fiscal year 2012, which was the result of expired state related statutes of
limitations.
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 of $377.4 million as of July 30,
2011, cash flows from operations, and borrowings under debt facilities, which consist of a $475.0
million credit facility, $375.0 million in senior notes, and a $17.8 million state bond facility.
As of July 30, 2011, the credit facility was comprised of an outstanding $125.0 million term loan
and a $350.0 million revolving line of credit.
The credit facility, which matures in November 2015, allows for up to $250.0 million of
outstanding letters of credit. The credit facility charges interest based upon certain Company
financial ratios and the interest spread was calculated at July 30, 2011 using LIBOR plus 150 basis
points, or 1.69%. 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, by pre-tax income plus net interest expense and non-cash
items, such as depreciation, amortization, and impairment expense. At July 30, 2011, the maximum
leverage ratio allowed under the credit facility was 4.0, and the calculated leverage ratio was
2.28. The Company was in compliance with all covenants as of July 30, 2011 and expects to remain
in compliance with all debt covenants for the next twelve months. As of July 30, 2011, the Company
had $36.6 million of standby letters of credit outstanding under the credit facility, and
availability under the credit facility was $313.4 million.
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The senior notes have restrictive covenants that are similar to the Companys credit facility,
and had the following terms as of July 30, 2011:
Amount | |||||||||
(in millions) | Type of Rate | Rate | Maturity Date | ||||||
$ | 80.0
|
(a) | Variable | 1.05 | % (b) | July 2012 | |||
20.0
|
Fixed | 5.05 | % | July 2012 | |||||
100.0
|
Fixed | 5.31 | % | July 2015 | |||||
125.0
|
Fixed | 6.20 | % | August 2017 | |||||
50.0
|
Fixed | 5.70 | % | November 2020 | |||||
$ | 375.0 |
||||||||
(a) | The Companys exposure to derivative instruments was limited to one interest rate swap as of July 30, 2011, 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. | |
(b) | Stated variable interest rate is based on three-month LIBOR plus 80.0 basis points. |
Additionally, the Company has a $17.8 million, 20-year variable rate, 0.18% at July 30, 2011,
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.
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.
Management believes that cash on hand of $377.4 million as of July 30, 2011, cash flows from
operations and existing credit facilities will be sufficient to cover working capital needs, stock
repurchases, dividends, capital expenditures, pension contributions and debt service requirements
for the next twelve months and foreseeable future.
Net cash provided by operating activities was $62.1 million for the six months ended July 30,
2011 compared to $14.9 million for the same period in fiscal year 2011. The increase in cash flows
from operating activities for the six months ended July 30, 2011 was principally due to a $33.3
million decrease in income taxes paid in fiscal year 2012 primarily as a result of higher estimated
tax payments made during fiscal year 2011, and a $20.1 million increase in net income for the
current period.
Net cash used by investing activities was $52.6 million for the six months ended July 30, 2011
compared to $26.9 million for the same period in fiscal year 2011. The increase in cash used by
investing activities primarily resulted from increased purchases of property and equipment, mainly
for store remodeling and expansion projects, as well as eCommerce and information technology
enhancements, for the six months ended July 30, 2011.
Net cash used by financing activities was $85.5 million for the six months ended July 30, 2011
compared to $167.4 million for the same period in fiscal year 2011. The decrease in cash used by
financing activities was primarily due to the $75.0 million discretionary payment on the credit
facility term loan made in the prior year and a $13.0 million decrease in dividends paid due to a
special one-time additional dividend of $0.40 per share in fiscal year 2011.
16
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Contractual Obligations and Commercial Commitments
A table representing the scheduled maturities of the Companys contractual obligations and
commercial commitments as of January 29, 2011 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 29, 2011. 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.
New Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board issued Accounting Standards Update
2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and IFRS, which amends current fair value measurement and
disclosure guidance to include increased transparency around valuation inputs and investment
categorization. This guidance will be effective at the beginning of fiscal year 2013. The Company
does not expect the adoption to have a material impact on the consolidated financial statements.
In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update
2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which eliminates
the option to report other comprehensive income and its components in the statement of changes in
stockholders equity. The total of comprehensive income, the components of net income, and the
components of other comprehensive income must be presented either in a single continuous statement
of comprehensive income or in two separate but consecutive statements. The guidance will be
effective at the beginning of fiscal year 2013. The Company does not expect the adoption to have a
material impact on the consolidated financial statements.
Impact of Inflation or Deflation
Although the Company expects that operations will be influenced by general economic
conditions, including rising raw materials, labor and energy prices, management does not believe
that inflation has had a material effect on the Companys results of operations. However, there can
be no assurance that our business will not be affected by such factors in the future.
The
Company began to experience inflation in merchandise cost in some
apparel categories due to increases in raw
material, labor and energy costs in fiscal year 2011. The Company has experienced low to mid
single-digit cost increases in the first half of fiscal year 2012 and expects low double-digit
increases in these apparel categories in the second half of fiscal year 2012. In private and exclusive
brands, where the Company has more control over the production and manufacture of the merchandise,
the Company has historically been able to minimize inflationary pressures through measures such as
committing earlier for merchandise and shifting sourcing to lower cost markets. Belks third-party
brand vendors are also facing the same inflationary pressures. Management intends to continue to
work with its vendors and undertake strategies to minimize the impact of inflation on merchandise
costs and selling prices.
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 three and six months ended July 30, 2011 from the disclosures contained in
the Companys Annual Report on Form 10-K for the fiscal year ended January 29, 2011.
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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.
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 12, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table contains information about purchases of our equity securities during the
second quarter of fiscal year 2012.
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of | Approximate Dollar | |||||||||||||
Shares Purchased | Value of Shares | |||||||||||||
as Part of | that May Yet Be | |||||||||||||
Publicly | Purchased Under | |||||||||||||
Total Number of | Average Price Paid | Announced | the | |||||||||||
Period | Shares Purchased | per Share | Plans or Programs | Plans or Programs | ||||||||||
May 1 May 28, 2011
|
1,631,942 (1) | $ | 33.70 | 1,631,942 | | |||||||||
May 29 July 2, 2011
|
| | | | ||||||||||
July 3 July 30, 2011
|
| | | | ||||||||||
Total
|
1,631,942 | $ | 33.70 | 1,631,942 | |
(1) | On March 30, 2011, the Companys Board of Directors approved a self-tender
offer to purchase up to 2,200,000 shares of common stock at a price of $33.70 per share. The
tender offer was initiated on April 18, 2011 and completed on May 16, 2011 when the Company
accepted for purchase 1,353,607 shares of Class A and 278,335 shares of Class B common stock for
$55.0 million. |
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Reserved
Item 5. Other Information
Not applicable.
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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. |
||
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. |
20
Table of Contents
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: September 7, 2011 | 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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