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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended October 29, 2011

OR

 

¨

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.    Yes  x    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).     Yes  x    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

 

¨

  

Accelerated filer

 

x

Non-accelerated filer

 

¨ (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x

At November 29, 2011, the registrant had issued and outstanding 44,051,939 shares of class A common stock and 864,410 shares of class B common stock.

 

 

 


Table of Contents

BELK, INC.

Index to Form 10-Q

 

         Page
Number
 

PART I.     FINANCIAL INFORMATION

  

Item 1.     Condensed Consolidated Financial Statements (unaudited)

  

Condensed Consolidated Statements of Income for the Three and Nine Months Ended October 29, 2011 and October 30, 2010

     4   

Condensed Consolidated Balance Sheets as of October 29, 2011 and January 29, 2011

     5   

Condensed Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income for the Nine Months Ended October 29, 2011

     6   

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 29, 2011 and October 30, 2010

     7   

Notes to Unaudited Condensed Consolidated Financial Statements

     8   

Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

     12   

Item 3.     Quantitative and Qualitative Disclosures about Market Risk

     17   

Item 4.     Controls and Procedures

     17   

PART II.     OTHER INFORMATION

  

Item 1.     Legal Proceedings

     19   

Item 1A. Risk Factors

     19   

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds

     19   

Item 3.     Defaults upon Senior Securities

     19   

Item 4.     Reserved

     19   

Item 5.     Other Information

     19   

Item 6.     Exhibits

     19   

 

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, 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 GE’s 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 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;

 

   

The impact of any security breaches that result in the theft, transfer or unauthorized disclosure of customer, employee or company information or our compliance with the applicable laws and regulations in the event of such an incident;

 

   

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.

 

3


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     Nine Months Ended  
     October 29,
2011
    October 30,
2010
    October 29,
2011
    October 30,
2010
 
        

Revenues

   $ 790,690      $ 746,556      $ 2,471,054      $ 2,338,165   

Cost of goods sold (including occupancy, distribution and buying expenses)

     545,573        515,807        1,663,071        1,584,425   

Selling, general and administrative expenses

     231,051        227,115        688,518        670,470   

Gain on sale of property and equipment

     542        2,687        1,805        4,480   

Asset impairment and exit costs

     1,563        59        826        1,337   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     13,045        6,262        120,444        86,413   

Interest expense, net

     (12,248     (12,149     (37,168     (37,652
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     797        (5,887     83,276        48,761   

Income tax expense (benefit)

     202        (1,648     25,797        16,208   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 595      $ (4,239   $ 57,479      $ 32,553   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net income (loss) per share

   $ 0.01      $ (0.09   $ 1.26      $ 0.69   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

        

Basic

     44,916,349        46,343,934        45,502,472        47,114,522   

Diluted

     45,086,141        46,343,934        45,706,289        47,116,328   

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)

 

     October  29,
2011
    January  29,
2011
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 267,612      $ 453,403   

Short-term investments

     —          6,150   

Accounts receivable, net

     31,687        31,119   

Merchandise inventory

     1,164,384        808,503   

Prepaid income taxes, expenses and other current assets

     28,680        18,869   
  

 

 

   

 

 

 

Total current assets

     1,492,363        1,318,044   

Property and equipment, net of accumulated depreciation and amortization of $1,439,056 and $1,354,425 as of October 29, 2011 and January 29, 2011, respectively.

     1,005,973        951,120   

Deferred income taxes

     67,501        83,698   

Other assets

     43,235        36,769   
  

 

 

   

 

 

 

Total assets

   $ 2,609,072      $ 2,389,631   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities:

    

Accounts payable

   $ 423,975      $ 196,622   

Accrued liabilities

     228,651        161,844   

Accrued income taxes

     922        10,926   

Deferred income taxes

     20,092        19,776   

Current installments of long-term debt and capital lease obligations

     107,374        4,426   
  

 

 

   

 

 

 

Total current liabilities

     781,014        393,594   

Long-term debt and capital lease obligations, excluding current installments

     440,477        534,813   

Interest rate swap liability

     —          5,388   

Retirement obligations and other noncurrent liabilities

     241,072        299,564   
  

 

 

   

 

 

 

Total liabilities

     1,462,563        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 October 29, 2011 and January 29, 2011, respectively.

     449        463   

Paid-in capital

     361,958        409,201   

Retained earnings

     919,840        887,953   

Accumulated other comprehensive loss

     (135,738     (141,345
  

 

 

   

 

 

 

Total stockholders’ equity

     1,146,509        1,156,272   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,609,072      $ 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)

 

     Common Stock     Paid-in
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Total  
   Shares     Amount          

Balance at January 29, 2011

     46,344      $ 463      $ 409,201      $ 887,953      $ (141,345   $ 1,156,272   

Comprehensive income:

            

Net income

     —          —          —          57,479        —          57,479   

Unrealized gain on interest rate swap, net of $1,025 income taxes

     —          —          —          —          1,726        1,726   

Defined benefit plan adjustments, net of $2,304 income taxes

     —          —          —          —          3,881        3,881   
            

 

 

 

Total comprehensive income

               63,086   
            

 

 

 

Cash dividends

     —          —          —          (25,592     —          (25,592

Issuance of stock-based compensation

     —          —          (2,212     —          —          (2,212

Stock-based compensation expense

     —          —          9,349        —          —          9,349   

Common stock issued

     204        2        600        —          —          602   

Repurchase and retirement of common stock

     (1,632     (16     (54,980     —          —          (54,996
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at October 29, 2011

     44,916      $ 449      $ 361,958      $ 919,840      $ (135,738   $ 1,146,509   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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)

 

     Nine Months Ended  
     October 29,
2011
    October 30,
2010
 
    

Cash flows from operating activities:

    

Net income

   $ 57,479      $ 32,553   

Adjustments to reconcile net income to net cash provided (used) by operating activities:

    

Asset impairment and exit costs

     826        1,337   

Deferred income tax expense

     13,888        4,125   

Depreciation and amortization expense

     92,265        106,399   

Stock-based compensation expense

     12,986        6,181   

Loss (gain) on sale of property and equipment

     167        (2,508

Amortization of deferred gain on sale and leaseback

     (1,972     (1,972

Amortization of deferred debt issuance costs

     769        —     

Increase in:

    

Accounts receivable, net

     (568     (7,464

Merchandise inventory

     (355,881     (303,510

Prepaid income taxes, expenses and other assets

     (18,883     (22,712

Increase (decrease) in:

    

Accounts payable and accrued liabilities

     268,727        237,783   

Accrued income taxes

     (10,004     (35,775

Retirement obligations and other liabilities

     (58,468     (41,731
  

 

 

   

 

 

 

Net cash provided (used) by operating activities

     1,331        (27,294
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property and equipment

     (107,394     (63,705

Proceeds from sales of property and equipment

     1,036        434   

Proceeds from sales of short-term investments

     6,150        2,500   
  

 

 

   

 

 

 

Net cash used by investing activities

     (100,208     (60,771
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Principal payments on long-term debt and capital lease obligations

     (3,841     (78,504

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

     (86,914     (168,601
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (185,791     (256,666

Cash and cash equivalents at beginning of period

     453,403        585,930   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 267,612      $ 329,264   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Income taxes paid

   $ 26,220      $ 60,027   

Interest paid, net of capitalized interest

     15,129        17,794   

Supplemental schedule of noncash investing activities:

    

Increase in property and equipment through accrued purchases

     28,962        9,089   

Increase in property and equipment through assumption of capital leases

     11,518        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 nine months ended October 29, 2011 may not be indicative of the operating results that may be expected for the full fiscal year.

A prior period amount has 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. The revision had no impact on net income, total current liabilities, cash flows from operating activities, or stockholders’ equity for the nine months ended October 30, 2010.

 

(2) Comprehensive Income (Loss)

The following table sets forth the computation of comprehensive income (loss):

 

     Three Months Ended     Nine Months Ended  
     October 29,
2011
     October 30,
2010
    October 29,
2011
     October 30,
2010
 
     (in thousands)     (in thousands)  

Net income (loss)

   $ 595       $ (4,239   $ 57,479       $ 32,553   

Other comprehensive income:

          

Unrealized gain on interest rate swap, net of $367 and $1,025 income taxes for the three and nine months ended October 29, 2011, respectively and $198 and $354 income taxes for the three and nine months ended October 30, 2010, respectively.

     618         333        1,726         595   

Defined benefit plan adjustments, net of $768 and $2,304 income taxes for the three and nine months ended October 29, 2011, respectively and $688 and $2,063 income taxes for the three and nine months ended October 30, 2010, respectively.

     1,294         1,159        3,881         3,476   
  

 

 

    

 

 

   

 

 

    

 

 

 

Other comprehensive income

     1,912         1,492        5,607         4,071   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total comprehensive income (loss)

   $ 2,507       $ (2,747   $ 63,086       $ 36,624   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(3) Accumulated Other Comprehensive Loss

The following table sets forth the components of accumulated other comprehensive loss:

 

     October 29,
2011
    January 29,
2011
 
     (in thousands)  

Unrealized loss on interest rate swap, net of $1,094 and $2,119 income taxes as of October 29, 2011 and January 29, 2011, respectively.

   $ (1,541   $ (3,268

Defined benefit plans, net of $81,044 and $83,348 income taxes as of October 29, 2011 and January 29, 2011, respectively.

     (134,197     (138,077
  

 

 

   

 

 

 

Accumulated other comprehensive loss

   $ (135,738   $ (141,345
  

 

 

   

 

 

 

 

(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

 

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Table of Contents

BELK, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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 October 29, 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 Company’s interest rate swap, measured at fair value on a recurring basis, was $2.6 million and $5.4 million at October 29, 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 nine months ended October 29, 2011 and October 30, 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 Company’s auction rate security (“ARS”) and fixed rate long-term debt.

 

     October 29, 2011      January 29, 2011  
     Carrying
Value
     Fair
Value
     Carrying
Value
     Fair
Value
 
     (in thousands)  

Financial assets

           

Auction rate security

   $ —         $ —         $ 6,150       $ 6,150   

Financial liabilities

           

Short-term debt (excluding capitalized leases)

   $ 100,000       $ 100,185       $ —         $ —     

Long-term debt (excluding capitalized leases)

     417,780         430,235         517,780         520,036   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 517,780       $ 530,420       $ 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 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 October 29, 2011, the Company recorded a $3.5 million net charge for exit costs associated with the closing of one store, partially offset by a $2.0 million reversal of a previously estimated exit cost reserve due to the termination of the lease. In addition, during the nine months ended October 29, 2011, the Company recorded a $0.9 million reduction to a previously estimated lease termination reserve due to lease settlement.

 

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BELK, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

During the three and nine months ended October 30, 2010, the Company recorded a $3.5 million charge for real estate holding costs, offset by a $3.5 million revision to a previously estimated lease buyout reserve. In addition, during the nine months ended October 30, 2010, the Company recorded $0.9 million in impairment charges to adjust two retail locations’ net book values to fair value.

 

(6) Sale of Properties

During the third quarter of fiscal year 2011, the Company revised the carrying value and then sold a store location it was holding for sale, which resulted in an adjustment of $1.4 million.

 

(7) Income Taxes

Income tax expense for the three months ended October 29, 2011 was $0.2 million, or 25.3%, compared to an income tax benefit of $1.6 million, or 28.0%, for the three months ended October 30, 2010. The decrease in the rate was due primarily to a $0.2 million reduction in the accrual for uncertain tax positions during the third quarter of fiscal year 2012, which was the result of expired state statutes of limitations.

Income tax expense for the nine months ended October 29, 2011 was $25.8 million, or 31.0%, compared to $16.2 million, or 33.2%, for the nine months ended October 30, 2010. The decrease in the rate was due primarily to a $2.5 million reduction in the accrual for uncertain tax positions during the first and third quarters of fiscal year 2012, both of which were the result of expired state statutes of limitations.

 

(8) 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  
     October 29,     October 30,     October 29,      October 30,      October 29,     October 30,  
     2011     2010     2011      2010      2011     2010  
                 (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 (income)

     1,967        1,753        64         36         (34     (8
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net periodic benefit expense

   $ 1,323      $ 1,720      $ 245       $ 209       $ 358      $ 435   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

     Nine Months Ended  
     Pension Plan     Old SERP Plan      Postretirement Plan  
     October 29,     October 30,     October 29,      October 30,      October 29,     October 30,  
     2011     2010     2011      2010      2011     2010  
                 (in thousands)               

Service cost

   $ —        $ —        $ 77       $ 55       $ 81      $ 112   

Interest cost

     19,119        19,552        465         463         901        1,020   

Expected return on plan assets

     (21,050     (19,651     —           —           —          —     

Amortization of transition obligation

     —          —          —           —           196        196   

Amortization of net loss (income)

     5,900        5,257        192         108         (103     (23
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net periodic benefit expense

   $ 3,969      $ 5,158      $ 734       $ 626       $ 1,075      $ 1,305   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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BELK, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

During the three months and nine months ended October 29, 2011, the Company made discretionary contributions to its Pension Plan of $19.2 million and $51.5 million, respectively. The Company expects to make additional contributions totaling approximately $7.5 million to the Pension Plan before fiscal year end. During the three months and nine months ended October 30, 2010, the Company made discretionary contributions to its Pension Plan of $22.3 million and $50.9 million, respectively.

 

(9) 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 at 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 nine months ended October 29, 2011 and October 30, 2010, are as follows:

 

     Three Months Ended      Nine Months Ended  
     October 29,      October 30,      October 29,      October 30,  
     2011      2010      2011      2010  

Basic Shares

     44,916,349         46,343,934         45,502,472         47,114,522   

Dilutive contingently-issuable non-vested share awards

     162,893         —           197,583         1,806   

Dilutive contingently-issuable vested share awards

     6,899         —           6,234         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted Shares

     45,086,141         46,343,934         45,706,289         47,116,328   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the three months ended October 30, 2010, the Company had a net loss; therefore, the inclusion of contingently-issuable non-vested and vested share awards would have an anti-dilutive effect on the Company’s calculation of diluted loss per share. Accordingly, the diluted loss per share equals basic loss per share for this period.

 

(10) Repurchase of Common Stock

On March 30, 2011, the Company’s 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.

 

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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 October 29, 2011, the Company had 303 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 Company’s consolidated financial statements as of January 29, 2011 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 29, 2011.

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 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 Company’s revenues increased 5.9% in the third quarter of fiscal year 2012 to $790.7 million due primarily to a continuation of improved sales trends in both store and eCommerce sales. Comparable store revenues increased 6.6%. 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 $13.0 million in the third quarter of fiscal year 2012 compared to $6.3 million during the same period in fiscal year 2011. Net income increased to $0.6 million or $0.01 per basic and diluted share in the third quarter of fiscal year 2012 compared to a net loss of $4.2 million or $0.09 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 Company’s revenues increased 5.7% in the first nine months of fiscal year 2012 to $2,471.1 million. Comparable store sales increased 5.8%. Operating income increased to $120.4 million in the first nine months of fiscal year 2012 compared to $86.4 million during the same period in fiscal year 2011. Net income increased to $57.5 million or $1.26 per basic and diluted share compared to $32.6 million or $0.69 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 continue to remain focused on value for the remainder of 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 certain merchandise categories have experienced mid single-digit cost increases during the first nine months due to inflation in the cost of raw materials, labor and energy prices. Specific increases are dependent on the category. 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, 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.

 

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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 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 Company’s unaudited condensed consolidated statements of income, as well as a period comparison of changes in comparable store net revenue.

 

     Three Months Ended     Nine Months Ended  
     October 29,     October 30,     October 29,     October 30,  
     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)

     69.0        69.1        67.3        67.8   

Selling, general and administrative expenses

     29.2        30.4        27.9        28.7   

Gain on sale of property and equipment

     0.1        0.4        0.1        0.2   

Asset impairment and exit costs

     0.2        —          —          0.1   

Operating income

     1.6        0.8        4.9        3.7   

Interest expense, net

     1.5        1.6        1.5        1.6   

Income (loss) before income taxes

     0.1        (0.8     3.4        2.1   

Income tax expense (benefit)

     —          (0.2     1.0        0.7   

Net income (loss)

     0.1        (0.6     2.3        1.4   

Comparable store net revenue increase

     6.6        2.5        5.8        4.4   

 

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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     Nine Months Ended  
     October 29,
2011
    October 30,
2010
    October 29,
2011
    October 30,
2010
 

Merchandise Areas

        

Women’s

     34     36     37     38

Cosmetics, Shoes and Accessories

     34        34        33        32   

Men’s

     15        15        16        15   

Home

     9        8        8        8   

Children’s

     8        7        6        7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of the Three and Nine Months Ended October 29, 2011 and October 30, 2010

Revenues. The Company’s revenues for the three months ended October 29, 2011 increased 5.9%, or $44.1 million, to $790.7 million from $746.6 million during the same period in fiscal year 2011. The increase is primarily attributable to a 6.6% increase in revenues from comparable stores, partially offset by a decrease in revenues from closed stores of $3.6 million.

The Company’s revenues for the nine months ended October 29, 2011 increased 5.7%, or $132.9 million, to $2,471.1 million from $2,338.2 million during the same period in fiscal year 2011. The increase is primarily attributable to a 5.8% increase in revenues from comparable stores, partially offset by a decrease in revenues from closed stores of $3.5 million.

Cost of goods sold. Cost of goods sold was $545.6 million, or 69.0% of revenues, for the three months ended October 29, 2011 compared to $515.8 million, or 69.1% 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 three months ended October 29, 2011.

Cost of goods sold was $1,663.1 million, or 67.3% of revenues, for the nine months ended October 29, 2011 compared to $1,584.4 million, or 67.8% 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 nine months ended October 29, 2011.

Selling, general and administrative expenses. Selling, general and administrative (“SG&A”) expenses were $231.1 million, or 29.2% of revenues for the three months ended October 29, 2011, compared to $227.1 million, or 30.4% 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 benefits, partially offset by a reduction in advertising, supplies, and depreciation expense for the three months ended October 29, 2011. The decrease in the SG&A expense rate is primarily the result of the 6.6% increase in comparable store revenues combined with a decrease in advertising, supplies, and depreciation expense, partially offset by an incremental increase in payroll and benefits expense as a percentage of revenues.

SG&A expenses were $688.5 million, or 27.9% of revenues for the nine months ended October 29, 2011, compared to $670.5 million, or 28.7% of revenues for the same period in fiscal year 2011. The increase in SG&A expenses was primarily due to an increase in payroll, benefits and advertising expense, partially offset by a reduction in depreciation expense for the nine months ended October 29, 2011. The SG&A expense rate decreased due to the 5.8% increase in comparable store revenues combined with a decrease in depreciation expense, partially offset by an incremental increase in payroll and benefits expense as a percentage of revenues.

Gain on sale of property and equipment. During the third quarter of fiscal year 2011, the Company revised the carrying value and then sold a store location it was holding for sale, which resulted in an adjustment of $1.4 million.

 

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Asset Impairment and Exit Costs. During the three months ended October 29, 2011, the Company recorded a $3.5 million net charge for exit costs associated with the closing of one store, partially offset by a $2.0 million reversal of a previously estimated exit cost reserve due to the termination of the lease. In addition, during the nine months ended October 29, 2011, the Company recorded a $0.9 million reduction to a previously estimated lease termination reserve due to lease settlement.

During the three and nine months ended October 30, 2010, the Company recorded a $3.5 million charge for real estate holding costs, offset by a $3.5 million revision to a previously estimated lease buyout reserve. In addition, during the nine months ended October 30, 2010, the Company recorded $0.9 million in impairment charges to adjust two retail locations’ net book values to fair value.

Income tax expense. Income tax expense for the three months ended October 29, 2011 was $0.2 million, or 25.3%, compared to an income tax benefit of $1.6 million, or 28.0%, for the three months ended October 30, 2010. The decrease in the rate was due primarily to a $0.2 million reduction in the accrual for uncertain tax positions during the third quarter of fiscal year 2012, which was the result of expired state statutes of limitations.

Income tax expense for the nine months ended October 29, 2011 was $25.8 million, or 31.0%, compared to $16.2 million, or 33.2%, for the nine months ended October 30, 2010. The decrease in the rate was due primarily to a $2.5 million reduction in the accrual for uncertain tax positions during the first and third quarters of fiscal year 2012, both of which were the result of expired state 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 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 of $267.6 million as of October 29, 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 October 29, 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 October 29, 2011 using LIBOR plus 150 basis points, or 1.74%. 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, by pre-tax income plus net interest expense and non-cash items, such as depreciation, amortization, and impairment expense. At October 29, 2011, the maximum leverage ratio allowed under the credit facility was 4.0, and the calculated leverage ratio was 2.25. The Company was in compliance with all covenants as of October 29, 2011 and expects to remain in compliance with all debt covenants for the next twelve months and foreseeable future. As of October 29, 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 Company’s credit facility, and had the following terms as of October 29, 2011:

 

Amount
(in millions)
   

Type of Rate

  Rate    

Maturity Date

$ 80.0 (a)    Variable     1.19% (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 Company’s exposure to derivative instruments was limited to one interest rate swap as of October 29, 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, 0.22% at October 29, 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 $267.6 million as of October 29, 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 $1.3 million for the nine months ended October 29, 2011 compared to net cash used of $27.3 million for the same period in fiscal year 2011. The increase in cash flows from operating activities for the nine months ended October 29, 2011 was principally due to a $33.8 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 $24.9 million increase in net income for the current period, offset by the increase in inventory to support current sales trends.

Net cash used by investing activities was $100.2 million for the nine months ended October 29, 2011 compared to $60.8 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 nine months ended October 29, 2011.

Net cash used by financing activities was $86.9 million for the nine months ended October 29, 2011 compared to $168.6 million for the same period in fiscal year 2011. The decrease in cash used by financing activities in the current year 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 in the current year due to a special one-time additional dividend of $0.40 per share in fiscal year 2011.

 

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Contractual Obligations and Commercial Commitments

A table representing the scheduled maturities of the Company’s contractual obligations and commercial commitments as of January 29, 2011 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 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 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.

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.

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 Company’s 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 costs in certain merchandise categories due to increases in raw material, labor and energy costs in fiscal year 2011. The Company has experienced mid single-digit cost increases during the first nine months in these categories. The Company has historically been able to minimize the impact of inflationary pressures through measures such as shifting sourcing to lower cost markets, committing earlier for merchandise, adjusting the composition and design of products, and making adjustments to merchandise pricing strategies. 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 Company’s quantitative and qualitative market risk disclosures during the three and nine months ended October 29, 2011 from the disclosures contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2011.

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

 

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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 12, 2011.

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: December 6, 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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