<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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 AUGUST 1, 1998
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[ ] 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 333-42935
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BELK, INC.
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(Exact Name of Registrant as Specified In Its Charter)
Delaware 56-2058574
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2801 West Tyvola Road, Charlotte, North Carolina 28217-4500
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (704) 357-1000
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Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.
Indicate by check [X] 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
----- -----
Number of shares of Class A common stock outstanding as of the close of business
on September 1, 1998: 55,073,339
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BELK, INC.
<TABLE>
<CAPTION>
Page
Number
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited, except where otherwise noted)
Statements of Income for the 2
Three and six months ended
August 1, 1998 and August 2, 1997
Balance Sheets as of 3
August 1, 1998 and January 31, 1998
Statement of Changes in Stockholders' Equity for the 4
Six months ended
August 1, 1998
Statements of Cash Flows for the 5
Six months ended
August 1, 1998 and August 2, 1997
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
BELK, INC.
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor Predecessor
Belk, Inc. Companies Belk, Inc. Companies
-------------------------- --------------------------
Three Months Ended Six Months Ended
-------------------------- --------------------------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Revenues $ 452,932 $ 433,558 $ 903,208 $ 882,401
Cost of goods sold (including occupancy
and buying expenses) 305,004 294,799 609,786 600,553
Selling, general and administrative expenses 127,459 123,395 249,457 244,694
--------- --------- --------- ---------
Income from operations 20,469 15,364 43,965 37,154
Interest expense, net (9,522) (8,437) (18,001) (16,390)
Gain on sale of property and equipment 603 14 606 143
Gain (loss) on sale of investment securities (1,029) 114 (900) 290
Other income, net 425 198 380 349
--------- --------- --------- ---------
Income from continuing operations before income
taxes and equity in earnings of unconsolidated
entities 10,946 7,253 26,050 21,546
Income taxes 4,550 2,910 10,420 8,410
--------- --------- --------- ---------
Income from continuing operations before equity in
earnings of unconsolidated entities 6,396 4,343 15,630 13,136
Equity in earnings of unconsolidated entities, net of
income tax expense of $168 for the three months ended
August 2, 1997 and $120 and $214 for the six months
ended August 1, 1998 and August 2, 1997, respectively -- 335 188 407
--------- --------- --------- ---------
Income from continuing operations 6,396 4,678 15,818 13,543
Loss from discontinued operations, net of
income tax benefit of $310 and $630 for the three and
six months ended August 2, 1997, respectively -- (479) -- (980)
--------- --------- --------- ---------
Net income before extraordinary item 6,396 4,199 15,818 12,563
Extraordinary item - loan prepayment penalty,
net of income tax benefit of $670 -- -- (1,004) --
--------- --------- --------- ---------
Net income $ 6,396 $ 4,199 $ 14,814 $ 12,563
========= ========= ========= =========
Basic earnings per share $ 0.12 N/A N/A N/A
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
Page 2
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BELK, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
Belk, Inc. Companies
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August 1, January 31,
1998 1998
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ASSETS (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 28,970 $ 16,263
Accounts receivable, net 316,677 353,509
Merchandise inventory 484,166 431,169
Prepaid expenses and other current assets 27,980 39,117
---------- ----------
Total current assets 857,793 840,058
Investments in unconsolidated entities -- 38,846
Investment securities 26,463 37,223
Property and equipment, net 502,603 395,771
Prepaid pension costs 102,600 2,250
Intangible assets, net -- 17,620
Other assets 22,320 16,734
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Total assets $1,511,779 $1,348,502
========== ==========
LIABILITIES, DEFERRED INCOME AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 198,125 $ 191,093
Lines of credit and notes payable 252,897 59,323
Current installments of long-term
debt and capital lease obligations 2,153 89,133
Accrued income taxes -- 3,363
Other current liabilities 50,000 --
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Total current liabilities 503,175 342,912
Long-term debt and capital lease obligations,
excluding current installments 144,374 210,449
Deferred compensation and other noncurrent liabilities 107,560 79,374
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Total liabilities 755,109 632,735
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Deferred income 12,011 11,982
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Stockholders' equity:
Common stock 551 70,629
Paid-in capital 585,004 470
Retained earnings 158,086 618,834
Accumulated other comprehensive income 1,018 13,852
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Total stockholders' equity 744,659 703,785
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Total liabilities, deferred income and stockholders' equity $1,511,779 $1,348,502
========== ==========
</TABLE>
See accompanying notes to financial statements.
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BELK, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
other
Comprehensive Common Paid-in Retained comprehensive
income Stock capital earnings income Total
------------- --------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1998,
Predecessor companies $ 70,629 $ 470 $ 618,834 $ 13,852 $ 703,785
Comprehensive income:
Net income $ 14,814 -- -- 14,814 -- 14,814
Unrealized gains on investments,
net of income taxes (403) -- -- -- (403) (403)
---------
Comprehensive income $ 14,411
=========
Cash dividends -- -- (8,854) -- (8,854)
Repurchase of stock (50) -- (3,959) -- (4,009)
Acquisition of Belk companies (70,028) 584,534 (462,749) (12,431) 39,326
--------- --------- --------- --------- ---------
Balance at August 1, 1998, Belk, Inc. $ 551 $ 585,004 $ 158,086 $ 1,018 $ 744,659
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
Page 4
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BELK, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
August 1, August 2,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,814 $ 12,563
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 26,425 26,197
(Gain) loss on sale of property and equipment and investments 319 (432)
Equity in earnings of unconsolidated
entities, net of income taxes (188) (407)
Change in:
Accounts receivable, net 49,276 18,165
Merchandise inventory (36,905) (42,278)
Prepaid expenses and other assets (12,075) 10,930
Accounts payable and accrued expenses 2,098 17,834
Other assets and liabilities (8,078) (15,938)
--------- ---------
Net cash provided by operating activities 35,686 26,634
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment and investments (69,419) (42,328)
Proceeds from sale of property and equipment 1,022 45
Proceeds from sale of investments 17,746 2,225
Acquisition of business, net of cash acquired 11,861 --
--------- ---------
Net cash used by investing activities (38,790) (40,058)
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable 246,671 23,895
Proceeds from issuance of long-term debt 125,000 56,547
Principal payments on long-term debt and
capital lease obligations (289,856) (50,212)
Other (53,097) (36,952)
Dividends paid (8,854) (8,936)
Repurchase of common stock (4,053) (1,717)
--------- ---------
Net cash provided (used) by financing activities 15,811 (17,375)
--------- ---------
Net increase (decrease) in cash and cash equivalents 12,707 (30,799)
Cash and cash equivalents at beginning of year 16,263 56,115
--------- ---------
Cash and cash equivalents at end of period $ 28,970 $ 25,316
========= =========
Supplemental schedule of noncash investing
and financing activities:
Increase in property and equipment and debt
from new capital leases $ 10,001 $ --
Acquisition of net assets of retail companies 39,369 --
</TABLE>
See accompanying notes to financial statements.
Page 5
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BELK, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ACQUISITION AND BASIS OF PRESENTATION
On April 15 and 16, 1998, the shareholders of the 112 companies
previously comprising the Belk Companies (the "Predecessor Companies") voted to
approve the reorganization (the "Reorganization") of the Predecessor Companies
into a single operating entity, Belk, Inc. (the "Company"), pursuant to a Plan
and Agreement of Reorganization, dated November 25, 1997, as amended, among
Belk, Inc., Belk Acquisition Co. and the Predecessor Companies (the
"Reorganization Agreement"). The accompanying balance sheet at August 1, 1998
and the statements of income for the three and six month periods ended August 1,
1998 reflect the adjustments to merge the companies pursuant to the
Reorganization. The statement of income for the six month period ended August 1,
1998 includes three months of pre-Reorganization historical combined results of
operations and three months of post-Reorganization consolidated results of
operations of the Company. The balance sheet at January 31, 1998, along with the
statements of income for the three and six month periods ended August 2, 1997,
have been prepared for purposes of depicting the combined financial position and
results of operations of the Predecessor Companies, on a historical cost basis.
Because of the purchase price allocation, the accompanying consolidated
financial statements of the Company are not directly comparable to those of the
Predecessor Companies.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
As discussed in note 1 above, on April 15 and 16, 1998, the
shareholders of the Predecessor Companies voted to approve the Reorganization.
The following unaudited pro forma condensed statements of operations are based
upon the combined statements of operations of the Predecessor Companies,
adjusted to give effect to the Reorganization as if it had occurred at the
beginning of each period. The unaudited pro forma condensed statements of
operations reflect the preliminary allocation of the purchase price as the
purchase price allocation has not been finalized.
The Reorganization is reflected in the following unaudited pro forma
condensed statements of operations as a purchase business combination in
accordance with the provisions of Accounting Principles Board Opinion Number 16,
and the Securities and Exchange Commission's Staff Accounting Bulletin Number
97. Belk Enterprises, Inc. was deemed to be the acquiring corporation in the
Reorganization because its shareholders received a larger portion of the voting
rights in the Company than any other Predecessor Company. Pro forma basic
earnings per share are computed based on the 55,073,339 common shares of the
Company that will be issued in connection with the Reorganization.
Shareholders' equity has been adjusted to reflect the shares dissented,
although the actual number of shares to be purchased by the Company will not be
finalized until resolution of the dissents.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
August 1, 1998 August 2, 1997
------------------------------------------------------------------
Reported Pro Forma Reported Pro Forma
-------- --------- -------- ---------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues......................................... $903,208 $919,511 $882,401 $911,801
Income before discontinued operations and
extraordinary item............................... 15,818 15,928 13,543 13,850
Net income....................................... 14,814 14,924 12,563 12,870
Basic earnings per share:
Income before discontinued operations and
extraordinary item............................. N/A 0.29 N/A 0.25
Discontinued operations........................ N/A 0.00 N/A (0.02)
Extraordinary item............................. N/A (0.02) N/A 0.00
Net income..................................... N/A 0.27 N/A 0.23
</TABLE>
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BELK, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(3) ACCOUNTING POLICIES
The condensed financial statements included herein as of August 1, 1998
and for the three and six months ended August 1, 1998 and August 2, 1997 have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission with respect to Form 10-Q.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
accompanying financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Special
Financial Report on Form 10-K for the fiscal year ended January 31, 1998. In the
opinion of management, all adjustments necessary for a fair presentation of
quarterly operating results are reflected herein and are of a normal, recurring
nature.
Due to the seasonal nature of the retail industry, earnings for periods
which exclude the holiday season are not necessarily indicative of the results
that may be expected for the full fiscal year.
(4) INCOME TAXES
The Company determines its deferred tax provision under the liability
method, whereby deferred tax assets and liabilities are recognized for the
expected tax consequences of temporary differences between the tax bases of
assets and liabilities and their reported amounts using presently enacted tax
rates. As a result of the Reorganization, deferred taxes were revalued and the
resulting change to the underlying assets and liabilities was recorded as a
purchase accounting adjustment.
(5) OTHER CURRENT LIABILITIES
The Company has recorded a liability in the amount of $50,000
representing the amount necessary to repurchase stock from dissenting
shareholders in the Reorganization. This liability was paid on August 12, 1998
with proceeds from a variable rate bond facility. Stockholders' equity has been
adjusted to reflect the total number of shares dissented.
(6) EFFECT OF NEW ACCOUNTING STANDARDS AND STATEMENTS
As of February 1, 1998, the Company has adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which
establishes standards for the reporting and display of comprehensive income and
its components. Adoption of this standard had no material effect on the
Company's financial position, results of operations or cash flows.
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes reporting and disclosure standards for an enterprise's operating
segments and SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," which revises employers' disclosures about pension and
other postretirement benefit plans. Both statements are effective for the
Company's fiscal year ending January 31, 1999. Adoption of these standards will
not impact the Company's financial position, results of operations or cash
flows, and any effect will be limited to the form and content of its
disclosures.
(7) BORROWINGS
In April 1998, the Company repaid a $30.4 million mortgage note with
proceeds from a bridge facility. The loss on extinguishment of the mortgage,
including a $1.0 million, net of tax prepayment penalty is reported as an
extraordinary loss.
On June 12, 1998, the Company finalized a $300 million accounts
receivable securitization, borrowed $257 million and used the proceeds to repay
the majority of existing debt. On July 23, 1998, the Company closed on a $125
million ten year variable rate bond facility and used the proceeds to retire the
majority of all remaining debt, to repurchase stock from the dissenting
shareholders, and to purchase six leased Belk properties (See notes 5 and 8).
The debt facilities place certain restrictions on mergers, consolidations and
the sales of the Company's assets and require the maintenance of minimum
financial ratios. The accounts receivable securitization limits borrowings to
approximately 80% of the Company's customer accounts receivable.
Page 7
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BELK, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
The Company has entered into interest rate swap agreements with various
financial institutions to manage the exposure to changes in interest rates on
its LIBOR based indebtedness. The amount of indebtedness covered by the interest
rate swaps is $350 million for 1999, $325 million for 2000, $300 million for
2001 through 2007, and $250 million for 2008.
(8) ACQUISITIONS
In July 1998, the Company signed a letter of intent to exchange nine
Belk stores located in Virginia and Tennessee for seven Mercantile, Inc. stores
located in Jacksonville, Florida and Columbia, South Carolina. The Company plans
to close the deal by the end of September, 1998.
In July, 1998, the Company agreed to purchase three Stone & Thomas
department stores in Charlottesville, Virginia and Bluefield and Beckley, West
Virginia from Elder-Beerman Stores Corp. The transaction is scheduled to close
in the fall of 1998.
In July, 1998, the Company purchased the land and buildings of six Belk
stores located in Virginia and West Virginia. The properties were formerly
leased from various real estate partnerships. The purchase price of $32.7
million was funded from proceeds of a variable rate bond facility.
Page 8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage relationship to revenues of certain items in the Company's statements
of income.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
-------------------------- -------------------------
August 1, August 2, August 1, August 2,
1998 1997 1998(1) 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold....................... 67.3% 68.0% 67.5% 68.1%
Selling, general and administrative
expenses................................. 28.1% 28.5% 27.6% 27.7%
Income from operations................... 4.5% 3.5% 4.9% 4.2%
Interest expense, net.................... 2.1% 1.9% 2.0% 1.9%
Income from continuing operations........ 1.4% 1.1% 1.8% 1.5%
Comparable stores revenues increase...... 1.7% 2.9% 1.8% 1.9%
</TABLE>
(1) The six month period ended August 1, 1998 includes three months of
pre-Reorganization historical combined results of operations and three months of
post-Reorganization results of operations. Prior to the Reorganization,
Belk-Simpson Company, Greenville, South Carolina ("Belk-Simpson") was accounted
for under the equity method of accounting.
COMPARISON OF THE 13 WEEKS AND 26 WEEKS ENDED AUGUST 1, 1998 AND AUGUST 2, 1997
Revenues. The Company's revenues for the second quarter of fiscal year
1999 increased 4.5%, or $19.4 million, to $452.9 million from $433.6 million for
the same period of fiscal year 1998. The increase resulted primarily from
including the Belk-Simpson revenues in the consolidated operating results
subsequent to the Reorganization which contributed $14.9 million, or 3.4% in
revenues during the second quarter of fiscal year 1999. Excluding the impact of
the Reorganization, revenues for the second quarter of fiscal year 1999
increased 1.0%, or $4.5 million, over fiscal year 1998. On a comparable stores
basis, revenues increased 1.7% for the quarter.
For the six months ended August 1, 1998, the Company's revenues were
$903.2 million, a 2.4% increase from $882.4 million for the same period of the
prior year. The increase resulted primarily from including the Belk-Simpson
revenues of $14.9 million, or 1.7% in revenues during the six month period. On a
comparable stores basis, revenues increased 1.8% for the six months ended August
1, 1998.
Cost of Goods Sold. As a percentage of revenues, cost of goods sold
decreased to 67.3% and 67.5% for the three and six months ended August 1, 1998,
respectively. This compares to 68.0% and 68.1% for the same periods last year,
respectively. This reduction was primarily due to a decrease in buying costs due
to increased efficiencies in the buying organization and additional vendor
markdown allowances, partially off-set by an increase in markdowns.
Selling, General and Administrative Expenses. As a percentage of
revenues, SG&A decreased to 28.1% and 27.6% for the three and six months ended
August 1, 1998, respectively. This compares to 28.5% and 27.7% for the same
periods last fiscal year, respectively. This reduction was primarily due to
decreases in payroll and administrative support expenses.
Interest Expense, Net. Interest expense, net increased $1.1 million, or
12.9%, in the second quarter of fiscal year 1999 and $1.6 million, or 9.8%, for
the six month period ended August 1, 1998 when compared with the same periods in
fiscal year 1998. The increase was primarily due to higher average outstanding
borrowings off-set by reduced effective interest rates due to the refinancing of
higher rate debt facilities. The borrowings were utilized to fund the Company's
capital expenditures and to repurchase stock from shareholders exercising their
appraisal rights in connection with the Reorganization.
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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. The highest revenue period for the Company is the fourth quarter, which
includes the Christmas 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 are 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 in anticipation of increased
revenues during these months.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash on hand, cash flow
from operations, and borrowings under debt facilities. Effective on May 2, 1998,
the numerous debt facilities utilized by the Predecessor Companies were assumed
by the Company. The Company consolidated the existing debt facilities with the
combination of a $300 million variable rate accounts receivable securitization,
a $125 million ten year variable rate bond facility and a $164 million seasonal
line of credit agreement. The Company finalized the $300 million accounts
receivable securitization on June 12, 1998, borrowed $257 million and used the
proceeds to repay the majority of existing debt. On July 23, 1998, the Company
closed on a $125 million ten year variable rate bond facility and used the
proceeds to retire the majority of all remaining debt. The debt facilities place
certain restrictions on mergers, consolidations and the sales of the Company's
assets and require maintenance of minimum financial ratios. The accounts
receivable securitization limits borrowings under the facility to approximately
80% of the Company's customer accounts receivable.
Although the interest rates on all of the Company's debt agreements
vary with LIBOR or commercial paper rates, the Company has entered into interest
rate swap agreements with various financial institutions to manage the exposure
to changes in interest rates. The amount of indebtedness covered by the interest
rate swaps is $350 million through 1999, $325 million for 2000, $300 million for
2001 through 2007 and $250 million for 2008.
Operating activities provided cash of $35.7 million during the first
six months of fiscal year 1999 as compared to $26.6 million for the same period
of fiscal year 1998. The increase in cash provided by operating activities
compared to the prior period was due to decreases in accounts receivable from
customers, decreases in the seasonal build-up of merchandise inventory levels
and an increase in net income, partially offset by decreases in the level of
accounts payable and increases in prepaid expenses.
Cash flows from investing activities used cash of $38.8 million during
the first six months of fiscal year 1999 as compared to $40.1 million for the
same period of fiscal year 1998. The decrease in cash used for investing
activities was primarily due to increases in proceeds from the sale of
investments and cash acquired from the acquisition of the Belk-Simpson retail
operations in the Reorganization, which was previously accounted for on the
equity method. These proceeds were partially offset by an increase in capital
expenditures.
Expenditures for property and equipment were $64.7 million during the
first six months of fiscal year 1999, compared to $39.3 million in last year's
first six months. During the second quarter of 1999, the Company purchased, for
$32.7 million, land and buildings of six Belk stores located in Virginia and
West Virginia. The properties were formerly leased by the Company from various
real estate partnerships. During the first six months of 1999, the Company
opened four new stores and plans to open four additional new stores, complete
significant renovations to and/or expansions of five existing stores and update
its point-of-sale register systems during the current fiscal year. The Company
has also signed a letter of intent to exchange nine Belk stores located in
Virginia and Tennessee for seven Mercantile stores located in Jacksonville,
Florida and Columbia, South Carolina and to purchase three Stone & Thomas
department stores in Virginia and West Virginia. Total capital expenditures for
fiscal year 1999 are expected to be approximately $130 million.
Net cash provided by financing activities amounted to $15.8 million
during the first six months of fiscal year 1999, a result of increased
borrowings, compared to net cash used of $17.4 million for the same period of
fiscal year 1998. During the second quarter of fiscal year 1999, the Company
entered into a $300 million accounts receivable securitization, borrowed $257
million and used the proceeds to repay the majority of higher rate debt. The
Company also closed on a $125 million ten year variable rate bond facility and
used the proceeds to retire all remaining higher rate debt and to fund capital
expenditures.
Management of the Company believes that cash flows from operations and
their planned credit facilities will be sufficient to cover working capital
needs, capital expenditures and debt service agreements.
Page 10
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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Advisory Board issued
Statement of Position (SOP) No. 98-1, "Accounting for Internal Use Software,"
which establishes standards for the costs of computer software developed or
obtained for internal use. The Company will implement the standard in fiscal
year 2000. The impact of SOP No. 98-1 on the Company's financial statements has
not been determined.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" which
establishes standards for accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The standard is effective for the Company starting in fiscal
year 2001. The impact of SFAS No. 133 on the Company's financial statements has
not been determined.
YEAR 2000 ISSUES
In January 1996, the Company began converting its computer systems to
be Year 2000 compliant (e.g. to recognize the difference between '99 and '00 as
one year instead of negative 99 years). At August 1, 1998, approximately 75% of
the Company's systems were compliant, with substantially all systems expected to
be compliant by January 31, 1999. The total cost of the project is estimated to
be $5.5 million and is being funded through operating cash flows. The Company is
expensing all costs associated with these system changes. As of August 1, 1998
$3.9 million had been expensed.
The Company is in the process of determining the Year 2000 status of
its principal business partners. Although management believes that the Company
will successfully complete the conversion of its computer systems to be Year
2000 compliant, any problems with such conversion or any problems with its
principal business partners' conversion could have a material impact on the
Company's future results of operations.
Page 11
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PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of stockholders on August 26, 1998.
The only action taken by the stockholders at the meeting was the election of
directors. In accordance with the Company's Amended and Restated Certificate of
Incorporation, all of the Company's existing directors were reelected and
divided into three classes serving staggered terms. Mr. Thomas M. Belk, Jr., Mr.
J. Kirk Glenn and Mrs. Sarah Belk Gambrell were elected to the office of Class I
director to hold office until the annual meeting of stockholders in 1999. Mr.
H.W. McKay Belk, Mr. Karl G. Hudson, Jr. and Mr. B. Frank Matthews, II were
elected to the office of Class II director to hold office until the annual
meeting of stockholders in 2000. Mr. John M. Belk, Mr. John R. Belk and Mr. John
A. Kuhne were elected to the office of Class III director to hold office until
the annual meeting of stockholders in 2001. A total of 531,175,890 votes were
cast in favor of the election of each nominee, and no votes were cast against or
withheld. Mr. John M. Belk continues to serve as Chairman of the Board of
Directors.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
Page 12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BELK, INC.
Dated: September 11, 1998 By: /s/ Ralph A. Pitts
---------------------------------------------
Ralph A. Pitts
Executive Vice President, General Counsel and
Corporate Secretary
(Authorized Officer of the Registrant)
By: /s/ Bill R. Walton
---------------------------------------------
Bill R. Walton
Senior Vice President, Treasurer
and Controller
(Chief Accounting Officer)
Page 13
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
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0
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