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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 MAY 1, 1999
[ ] 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.
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(Exact Name of Registrant as Specified In Its Charter)
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<S> <C>
Delaware 56-2058574
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
2801 West Tyvola Road, Charlotte, North Carolina 28217-4500
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(Address of Principal Executive Offices) (Zip Code)
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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
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At June 14, 1999, the registrant had issued and outstanding 55,196,065 shares of
class A common stock and 30,718 shares of class B common stock.
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BELK, INC.
INDEX TO FORM 10-Q
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<CAPTION>
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited, except where otherwise noted)
Condensed Consolidated Statements of Income for the 4
Three Months Ended May 1, 1999 and May 2, 1998
Condensed Consolidated Balance Sheets as of
May 1, 1999 and January 30, 1999 5
Condensed Consolidated Statement of Changes in Stockholders' Equity
for the Three Months Ended May 1, 1999 6
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
May 1, 1999 and May 2, 1998 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
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THIS INFORMATION 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 in
this document include information concerning possible future cost savings
resulting from restructuring and consolidating thirteen of our operating
divisions and our ability to address Y2K issues. These forward-looking
statements are subject to risks and uncertainties which may cause our actual
results to differ significantly from the results we discuss in such
forward-looking statements. These forward-looking statements are reasonable;
however, you should not place undue reliance on such statements.
For a more detailed explanation 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 "This Information Contains
Forward-Looking Statements" in our Annual Report on Form 10-K that we filed with
the Securities and Exchange Commission on April 30, 1999. Our other filings with
the Securities and Exchange Commission 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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
BELK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
Belk, Inc. Companies
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Three Months Ended
-------------------------------
May 1, May 2,
1999 1998
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<S> <C> <C>
Revenues $ 503,786 $ 450,276
Cost of goods sold (including occupancy
and buying expenses) 339,928 304,783
Selling, general and administrative expenses 132,361 121,997
Restructuring charge 7,068 --
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Income from operations 24,429 23,496
Interest expense, net (8,716) (8,479)
Other income, net 774 88
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Income from operations before income taxes and
equity in earnings of unconsolidated entities 16,487 15,105
Income taxes 6,270 5,870
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Income from operations before equity in
earnings of unconsolidated entities 10,217 9,235
Equity in earnings of unconsolidated entities, net of
income taxes -- 188
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Net income before extraordinary item 10,217 9,423
Extraordinary item - loan prepayment penalty,
net of income tax benefit of $670 -- (1,004)
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Net income $ 10,217 $ 8,419
============ ============
Basic income per share
Net income before extraordinary item $ 0.18 $ 0.17
============ ============
Extraordinary item $ -- $ (0.02)
============ ============
Net income $ 0.18 $ 0.15
============ ============
Dividends per share $ 0.235 N/A
============ ============
Weighted average shares outstanding 56,126,608 56,682,252
============ ============
</TABLE>
See accompanying notes to financial statements.
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BELK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
May 1, January 30,
1999 1999
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(audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,330 $ 18,313
Accounts receivable, net 328,081 351,143
Merchandise inventory 534,746 482,247
Prepaid expenses and other current assets 20,210 29,852
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Total current assets 906,367 881,555
Investment securities 25,396 24,164
Property and equipment, net 562,767 560,949
Prepaid pension costs 101,359 101,352
Other assets 25,577 25,898
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Total assets $1,621,466 $1,593,918
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 246,982 $ 228,328
Lines of credit and notes payable 256,878 4,264
Accrued income taxes 5,825 20,993
Current installments of long-term
debt and capital lease obligations 8,939 5,001
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Total current liabilities 518,624 258,586
Long-term debt and capital lease obligations,
excluding current installments 193,514 398,712
Deferred compensation and other noncurrent liabilities 141,162 148,685
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Total liabilities 853,300 805,983
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Stockholders' equity:
Commonstock, 55.2 million and 56.7 million shares
issued and outstanding at May 1, 1999
and January 30, 1999, respectively 552 567
Paid-in capital 569,346 586,641
Retained earnings 197,452 200,203
Accumulated other comprehensive income 816 524
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Total stockholders' equity 768,166 787,935
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Total liabilities and stockholders' equity $1,621,466 $1,593,918
========== ==========
</TABLE>
See accompanying notes to financial statements.
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BELK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
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<CAPTION>
Accumulated
Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income Total
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<S> <C> <C> <C> <C> <C>
Balance at January 30, 1999 $ 567 $ 586,641 $ 200,203 $524 $ 787,935
Comprehensive income:
Net income -- -- 10,217 -- 10,217
Unrealized gains on investments,
net of income taxes of $179 -- -- -- 292 292
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Total comprehensive income 10,509
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Cash dividends -- -- (12,968) -- (12,968)
Repurchase and retirement of stock (15) (17,295) -- -- (17,310)
-------- --------- --------- ---- ---------
Balance at May 1, 1999 $ 552 $ 569,346 $ 197,452 $816 $ 768,166
======== ========= ========= ==== =========
</TABLE>
See accompanying notes to financial statements.
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BELK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
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<CAPTION>
Predecessor
Belk, Inc. Companies
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Three Months Ended
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May 1, May 2,
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,217 $ 8,419
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 15,650 13,351
Restructuring charge 7,068 --
Gains on sale of property and equipment and investments (439) (132)
Equity in earnings of unconsolidated
entities, net of income taxes -- (188)
Change in:
Accounts receivable, net 23,062 20,335
Merchandise inventory (52,499) (44,680)
Prepaid expenses and other assets 8,923 (12,651)
Accounts payable and accrued expenses (1,082) (1,905)
Other assets and liabilities (6,706) (6,273)
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Net cash provided by operating activities 4,194 (23,724)
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Cash flows from investing activities:
Purchases of property and equipment (18,510) (9,144)
Cash acquired from Belk-Simpson Reorganization -- 11,861
Other 972 56
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Net cash provided by investing activities (17,538) 2,773
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Cash flows from financing activities:
Proceeds from notes payable 2,004 --
Payments on notes payable (15) (8,821)
Proceeds from issuance of long-term debt 42,000 --
Principal payments on long-term debt and
capital lease obligations (22,114) (40,638)
Net proceeds from lines of credit 26,764 92,813
Dividends paid (12,968) (8,730)
Repurchase of common stock (17,310) (3,500)
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Net cash provided by financing activities 18,361 31,124
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Net increase (decrease) in cash and cash equivalents 5,017 10,173
Cash and cash equivalents at beginning of year 18,313 16,263
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Cash and cash equivalents at end of year $ 23,330 $ 26,436
======== ========
Supplemental schedule of noncash investing
and financing activities:
Increase in property and equipment through
assumption of capital leases $ 2,498 $ 5,016
Increase in assets and liabilities due to reorganization -- 35,196
</TABLE>
See accompanying notes to financial statements.
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BELK, INC.
NOTES TO CONDENSED CONSOLIDATED 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 the
Company., Belk Acquisition Co. and the Predecessor Companies (the
"Reorganization Agreement"). The accompanying consolidated balance sheet as of
May 1, 1999 and January 30, 1999 and the statements of income, stockholders'
equity and cash flows for the three month period ended May 1, 1999 reflect the
adjustments to merge the companies pursuant to the Reorganization. The
statements of income, stockholders' equity and cash flows for the three month
period ended May 2, 1998 have been prepared for purposes of depicting the
combined results of operations of the Predecessor Companies on a historical cost
basis. The calculation of net income per share for the three months ended May 2,
1998 assumes that the Belk, Inc. shares of common stock issued in connection
with the Reorganization have been outstanding since February 1, 1998.
On May 2, 1998, a majority of the shareholders of one of the Belk
Companies, Belk-Simpson Company, Greenville, South Carolina ("Belk-Simpson"),
redeemed their shares in Belk-Simpson (the "Belk-Simpson Reorganization"). Prior
to the Belk-Simpson Reorganization, the 37% investment in Belk-Simpson was
accounted for under the equity method of accounting. Subsequent to the
Belk-Simpson Reorganization, Belk-Simpson is included in the consolidated
financial statements as a wholly-owned subsidiary.
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) RESTRUCTURING CHARGE
During the first quarter of fiscal year 2000, the Company recorded a
$7.1 million charge in connection with the consolidation of its thirteen
operating divisions into four expanded regional divisions. The charge consisted
of $3.4 million of employee severance costs and $3.7 million related to the
disposal of excess assets in the closing division offices. Approximately 340
positions were eliminated effective June 4, 1999 as a result of streamlining
operations related to the restructuring. The Company will close the excess
facilities and sell or sublet the real estate. Property and equipment not needed
in the regional division offices will be disposed of or sold. No costs were
charged against the reserve during the first quarter. The consolidation should
be substantially completed during the second quarter of fiscal year 2000.
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BELK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(3) ACCOUNTING POLICIES
The condensed financial statements included herein as of May 1, 1999
and for the three months ended May 1, 1999 and May 2, 1998 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 Form 10-K for the fiscal year ended
January 30, 1999. 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) EFFECT OF NEW ACCOUNTING STANDARDS AND STATEMENTS
As of January 31, 1999, the Company has adopted Statement of Position
("SOP") No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," which establishes standards for the costs of
computer software developed or obtained for internal use. Adoption of the
standard is expected to result in capitalization of approximately $4 million of
fiscal year 2000 expenditures that historically would have been expensed. The
Company capitalized $701,000 of costs for internal use software during the first
quarter of fiscal year 2000.
(5) BORROWINGS
The Company's accounts receivable securitization financing agreement
expires on April 27, 2000 and, accordingly, the outstanding balance as of May 1,
1999 of $225,866 has been included in current liabilities. However, the
agreement may be renewed by mutual consent of the parties and it is the
Company's intent to renew the accounts receivable securitization agreement. The
Company utilizes this facility as long-term financing.
On April 30, 1999, the Company sold certain leasehold improvements for
$42 million and is leasing them back over the next nine years. The Company is
required to repurchase the leasehold improvements at the end of the lease. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 98,
"Accounting for Leases" and SFAS No. 66, "Accounting for Sales of Real Estate,"
the Company is accounting for the sale-leaseback as financing. The agreement
contains restrictions consistent with those of existing loan agreements. Future
minimum lease payments are as follows:
<TABLE>
<CAPTION>
Fiscal Year
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<S> <C>
2000 $ 4,776
2001 6,368
2002 6,368
2003 6,368
2004 6,368
After 2004 26,397
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Total 56,645
Less imputed interest (14,645)
--------
Present value of future minimum lease payments $ 42,000
========
</TABLE>
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BELK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
(6) COMPREHENSIVE INCOME
The following table sets forth the computation of comprehensive income.
Other comprehensive income was comprised of $292 unrealized gains on investments
(net of income tax of $179) and $1,441 unrealized gains on investments (net of
income tax of $917) for the three months ended May 1, 1999 and May 2, 1998,
respectively.
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<CAPTION>
Three Months Ended
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May 1, May 2,
1999 1998
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<S> <C> <C>
Net Income $10,217 $8,419
Other Comprehensive Income 292 1,441
------- ------
Total Comprehensive Income $10,509 $9,860
======= ======
</TABLE>
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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 ENDED
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May 1, May 2,
1999 1998
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<S> <C> <C>
Revenues 100.0% 100.0%
Cost of goods sold 67.5 67.7
Selling, general and administrative expenses 26.3 27.1
Restructuring charge 1.4 --
Income from operations 4.8 5.2
Interest expense, net 1.7 1.9
Net income 2.0 1.9
Comparable stores revenues increase 5.6 1.6
</TABLE>
COMPARISON OF THE 13 WEEKS ENDED MAY 1, 1999 AND MAY 2, 1998
Revenues. The Company's revenues for the first quarter of fiscal year
2000 increased 11.9%, or $53.5 million, to $503.8 million from $450.3 million
over the same period in 1999. The increase was primarily due to a 5.6% increase
in revenue from comparable stores and including $16.3 million of Belk-Simpson
revenues in the consolidated operating results during the current fiscal year as
a result of the Reorganization, which increased revenues for the first quarter
of fiscal year 2000 by 3.6%.
Cost of goods sold. As a percentage of revenues, cost of goods sold
decreased to 67.5% for the first quarter of fiscal year 2000 as compared to
67.7% in the first quarter of fiscal year 1999 as a result of decreases in
buying costs due to a more efficient purchasing structure.
Selling, general and administrative expenses. SG&A expenses were $132.4
million for the first quarter of fiscal year 2000, compared to $122.0 million in
fiscal year 1999. As a percentage of revenues, SG&A expenses decreased to 26.3%
in fiscal year 2000 from 27.1% in fiscal year 1999. The decrease is attributable
to reductions in personnel costs due to improved operating efficiencies and
reduced bad debt losses on the Company's proprietary credit card receivables,
partially offset by decreases in finance charge income on the proprietary credit
card receivables.
Restructuring charge. During the first quarter of fiscal year 2000, the
Company recorded a $7.1 million charge in connection with the consolidation of
its thirteen operating divisions into four expanded regional divisions. The
charge consisted of $3.4 million of employee severance costs and $3.7 million
related to the disposal of excess assets in the closing division offices. The
Company anticipates that the consolidation of operating divisions will reduce
operating expenses on an annualized basis by approximately $13 to $15 million
and permit the Company to intensify its customer focus by achieving a more
unified and consistent execution of its marketing, merchandising and advertising
strategies and by simplifying decision making processes. Due to the costs
associated with the conversion to the new division structure, the expense
savings will be realized starting in fiscal year 2001.
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Income from operations. The Company's income from operations for the
first quarter of fiscal year 2000 includes a $7.1 million restructuring charge
related to the reorganization of its operating divisions. Excluding the impact
of the restructuring charge, income from operations for the first quarter of
fiscal year 2000 increased $8.0 million, or 34%, over fiscal year 1999.
Net Income. Net income for the first quarter of fiscal year 2000
increased by $1.8 million over the first quarter of last year. However, the
first quarter of fiscal year 2000 includes a $4.4 million restructuring charge,
net of income taxes of $2.7 million and the first quarter of fiscal year 1999
includes a $1.0 million extraordinary charge, net of income taxes of $.7
million. Excluding these items, net income increased by $5.2 million, or 55%.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The retail business is highly seasonal with approximately one-third of
annual revenues being generated in the fourth quarter, which includes the
Christmas selling season. As a result, a disproportionate amount of the
Company's operating and net income is realized during the fourth quarter and
significant variations can occur when comparing the Company's financial
condition between quarters.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash on hand, cash flow
from operations, and borrowings under debt facilities.
Expenditures for property and equipment were $19.1 million for the
three months ended May 1, 1999, compared to $9.1 million in the first three
months of last year. In the first quarter of fiscal year 2000, the Company
relocated three stores in existing markets to new facilities, one in Clinton,
North Carolina; one in Morganton, North Carolina; and another in Mt. Pleasant,
South Carolina. One minor renovation was completed in the Greer, South Carolina
store. The Company plans to open two additional stores as relocations and
complete renovations and/or expansions at 14 stores during the current fiscal
year, resulting in fiscal year 2000 capital expenditures of approximately $100
million.
Net cash provided by financing activities was $18.4 million for the
first quarter of fiscal year 2000, a result of increased short-term borrowings,
compared to $31.1 million of cash provided by financing activities in last
year's first quarter. On April 30, 1999, the Company sold certain leasehold
improvements for $42 million and is leasing them back over the next nine years.
The Company is required to repurchase the leasehold improvement at the end of
the lease. In accordance with SFAS No. 98, "Accounting for Leases" and SFAS No.
66 "Accounting for Sales of Real Estate," the Company is accounting for the
sale-lease back as financing. The Company used the proceeds from the sale to
reduce borrowings under its existing debt facilities.
The Company's accounts receivable securitization financing agreement
expires on April 27, 2000 and, accordingly, the outstanding balance as of May 1,
1999 of $225,866 has been included in current liabilities. However, the
agreement may be renewed by mutual consent of the parties and it is the
Company's intent to renew the facility and utilize it as long-term financing.
Management of the Company believes that cash flows from operations and
their existing credit facilities will be sufficient to cover working capital
needs, capital expenditures and debt service requirements.
BELK NATIONAL BANK
During the first quarter of fiscal year 2000, the Company formed Belk
National Bank, a wholly-owned subsidiary, in order to standardize the interest
rate terms of Belk charge customer accounts across
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the thirteen states in which Belk operates and to set competitive interest rates
comparable to other retailers. The bank began operations in May 1999.
YEAR 2000 ISSUES
In January 1996, the Company began converting its computer systems to be
Y2K compliant. This was necessary due to the use of two digit fields to
represent the year in many computer systems, which could cause the year "00" to
be recognized as 1900 instead of 2000. Failure to obtain Y2K compliance could
result in significant disruption to the Company's operations and information
processing.
A Y2K executive steering committee was designated to oversee all aspects
of the Company's progress towards Y2K compliancy. Under direction of the
steering committee, the Company has developed a Y2K compliance plan that focuses
on 5 major areas as follows:
1. Information systems.
2. Imbedded chip devices.
3. Merchandise vendors.
4. Service providers.
5. User developed or installed software.
The plan generally covers the following 6 phases:
1. Inventory the Company's systems (including all equipment with
imbedded chips), merchandise vendors, service providers, and
user developed or installed software.
2. Assess whether Y2K compliance issues exist for each system,
device or provider identified.
3. Establish a timetable and detailed plans for obtaining
compliance.
4. Repair and replace systems and/or devices requiring
modification
5. Validate Y2K compliancy through testing of modifications.
6. Develop contingency plans
*Phases 1, 2, 3 and 6 above apply to merchandise vendors and service
providers as well as to Company systems.
The Company is 100% complete with testing of all key information
technology ("IT") systems. The Company is 99% complete with the upgrade,
replacement and testing phases of non-IT systems. These systems, such as PBX,
security and heating and air-conditioning systems, include imbedded chip
processors that may be affected by the Y2K issue.
The Company has also surveyed its merchandise vendors as to their Y2K
readiness. The Company has received responses from 100% of its branded and
private label merchandise vendors. Responses are scored and follow-up conference
calls scheduled for all vendors obtaining a low confidence score. The Company
has scored 90% of branded vendor responses and 95% of private label vendor
responses with either a moderate or high confidence factor. In addition, 94% of
the Company's EDI trading partners have successfully passed a basic Y2K purchase
order and invoice translator test, with the majority of the remaining trading
partners scheduled before the end of July 1999.
The Company has surveyed all non-merchandise providers as to their Y2K
readiness. These providers include energy and utility companies, real estate
firms, advertising and sales promotion vendors, supply vendors, transportation
and logistics companies, technology providers, credit services providers and
others. The Company has received responses from over 97% of these providers.
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The Company has completed 99% of its Y2K contingency plans for all
critical business processes. The Company plans to address internal Y2K failures,
as well as failures of key external business providers to support the
merchandise and services needs of the Company. Plans will be tested and
maintained throughout 1999, as the Company monitors the Y2K readiness progress
of key business partners.
The total cost of the Y2K project is estimated to be $5.7 million and is
being funded through operating cash flows. This cost primarily consists of
internal labor costs to repair and test IT and non-IT systems. The Company is
expensing all costs associated with the project as incurred. At May 1, 1999,
$5.4 million had been expensed. The Company has not experienced any significant
delays in other IT projects due to the implementation of the Y2K plan as of May
1, 1999.
Although the Company has substantially achieved full Y2K readiness,
there is the potential for certain of the Company's systems to experience Y2K
failures. This is due to the uncertainties inherent in the Y2K problem,
including key business partner failures, failure to identify all systems
affected, failure to successfully remediate all systems affected, and other
similar uncertainties. A worst case scenario could include disruption in the
Company's ability to advertise, purchase and sell merchandise, extend customer
credit, keep accurate accounting records, and perform customer service. Should
this occur, the Company's liquidity, future operating results and financial
position may be materially impacted.
Readers are cautioned that forward-looking statements contained in this
Y2K discussion should be read in conjunction with the cautionary statement
included in this 10-Q under "This Information Contains Forward-Looking
Statements."
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.
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PART II - OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds
In March 1999, the Company issued 6,000 shares of its Class B common
stock to Ralph A. Pitts as a part of his compensation. This transaction was
effected in reliance upon the exemption from registration set forth in Section
4(2) of the Securities Act of 1933.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of stockholders on May 26, 1999.
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, Class I directors, whose term expired at the annual meeting in
1999, were elected. Mr. Thomas M. Belk, Jr., Mr. J. Kirk Glenn, Jr. and Mrs.
Sarah Belk Gambrell were re-elected to the office of Class I director, to hold
office until the annual meeting of stockholders in 2002. A total of 528,992,129
votes were cast in favor of Mr. Thomas M. Belk, Jr., 182,900 votes were withheld
and 54,610 votes were cast against. A total of 529,047,349 votes were cast in
favor of Mr. J. Kirk Glenn, Jr. and 182,900 votes were withheld. A total of
528,184,289 votes were cast in favor of Mrs. Sarah Belk Gambrell, 182,900 votes
were withheld and 862,450 shares were cast against. Messrs. H. W. McKay Belk,
Karl G. Hudson, Jr. and B. Frank Matthews, II continue to serve as Class II
directors. Messrs. John M. Belk, John R. Belk and John A. Kuhne continue to
serve as Class III directors. 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
3.1 Form of Amended and Restated Certificate of Incorporation of
the Company (incorporated by reference to Exhibit 3.2 to the
Company's registration statement on Form S-4, File No. 333-
42935).
3.2 Form of Amended and Restated Bylaws of the Company
incorporated by reference to Exhibit 3.4 to the Company's
Registration Statement on Form S-4, File No. 333-42935.
27.1 Financial Data Schedules
(b) Reports on Form 8-K
None.
15
<PAGE> 16
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: June 15, 1999 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)
16
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