<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended July 29, 2000
Commission File Number 000-26207
BELK, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 56-2058574
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2801 WEST TYVOLA ROAD
CHARLOTTE, NORTH CAROLINA 28217-4500
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(704) 357-1000
----------------------------------------------------
(Registrant's telephone number, including area code)
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.
[X] Yes [ ] No
At September 1, 2000, the registrant had issued and outstanding 53,718,278
shares of class A common stock and 1,014,236 shares of class B common stock.
<PAGE> 2
BELK, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited, except where otherwise noted)
Condensed Consolidated Statements of Income for the Three Months
and Six Months Ended July 29, 2000 and July 31, 1999 4
Consolidated Balance Sheets as of July 29, 2000 and January 29, 2000 5
Consolidated Statement of Changes in Stockholders' Equity and
Comprehensive Income for the Six Months Ended July 29, 2000 6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
July 29, 2000 and July 31, 1999 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
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>
2
<PAGE> 3
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS
Certain statements made in this report, and other written or oral
statements made by or on behalf of Belk, Inc. and its subsidiaries (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. These forward-looking statements are subject to certain
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 for the fiscal
year ended January 29, 2000 that we filed with the Securities and Exchange
Commission on April 28, 2000. 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
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
BELK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 495,966 $ 472,923 $ 997,499 $ 969,239
Cost of goods sold (including occupancy
and buying expenses) 341,815 318,014 692,108 652,564
Selling, general and administrative expenses 131,452 128,829 262,855 258,958
Restructuring charge -- -- -- 7,068
------------ ------------ ------------ ------------
Income from operations 22,699 26,080 42,536 50,649
Interest expense, net (9,890) (9,681) (18,407) (18,397)
Gain (loss) on sale of property, equipment
and investments 15 (63) 3,786 376
Other income, net 448 220 955 416
------------ ------------ ------------ ------------
Income from operations before income taxes 13,272 16,556 28,870 33,044
Income taxes 4,860 6,290 10,570 12,560
------------ ------------ ------------ ------------
Net income $ 8,412 $ 10,266 $ 18,300 $ 20,484
============ ============ ============ ============
Basic and diluted net income per share $ 0.15 $ 0.19 $ 0.33 $ 0.37
============ ============ ============ ============
Dividends per share $ -- $ -- $ 0.25 $ 0.235
============ ============ ============ ============
Weighted average shares outstanding 54,732,514 55,226,783 54,792,212 55,676,696
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
BELK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
July 29, January 29,
2000 2000
----------- -----------
(audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,953 $ 23,009
Accounts receivable, net 312,319 340,061
Merchandise inventory 519,774 499,285
Prepaid income taxes 3,502 5,972
Deferred income taxes 1,702 1,610
Prepaid expenses and other current assets 14,478 11,795
----------- -----------
Total current assets 880,728 881,732
Investment securities 20,425 21,809
Property and equipment, net 617,844 598,945
Prepaid pension costs 99,542 99,542
Other assets 32,962 27,473
----------- -----------
Total assets $ 1,651,501 $ 1,629,501
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 149,808 $ 163,083
Accrued expenses 88,196 85,296
Accrued income taxes 5,316 24,296
Lines of credit and notes payable 259,412 7,854
Current installments of long-term debt
and capital lease obligations 9,759 9,474
----------- -----------
Total current liabilities 512,491 290,003
Deferred income taxes 50,471 47,734
Long-term debt and capital lease obligations,
excluding current installments 188,951 395,883
Deferred compensation and other noncurrent liabilities 75,332 73,113
----------- -----------
Total liabilities 827,245 806,733
----------- -----------
Stockholders' equity:
Preferred stock -- --
Common stock, 54.7 million and 54.9 million shares
issued and outstanding at July 29, 2000
and January 29, 2000, respectively 547 549
Paid-in capital 562,355 565,031
Retained earnings 263,015 258,388
Accumulated other comprehensive loss (1,661) (1,200)
----------- -----------
Total stockholders' equity 824,256 822,768
----------- -----------
Total liabilities and stockholders' equity $ 1,651,501 $ 1,629,501
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
BELK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Loss Total
--------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 29, 2000 $ 549 $ 565,031 $ 258,388 $ (1,200) $ 822,768
Comprehensive income:
Net income - - 18,300 - 18,300
Unrealized loss on investments, net of
income tax benefit of $266 - - - (461) (461)
-----------
Total comprehensive income 17,839
-----------
Cash dividends - - (13,673) - (13,673)
Common stock issued - 370 - - 370
Repurchase and retirement of stock (2) (3,046) - - (3,048)
--------- ----------- ----------- ---------- -----------
Balance at July 29, 2000 $ 547 $ 562,355 $ 263,015 $ (1,661) $ 824,256
========= =========== =========== ========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
BELK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
July 29, July 31,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 18,300 $ 20,484
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 35,407 31,768
Restructuring charge -- 7,068
Gain on sale of property and equipment and investments (3,786) (376)
(Increase) decrease in:
Accounts receivable, net 27,742 47,757
Merchandise inventory (20,489) (23,580)
Prepaid expenses and other assets (4,744) 8,964
Increase (decrease) in:
Accounts payable and accrued expenses (29,075) (23,251)
Deferred compensation and other liabilities 5,129 (11,031)
-------- --------
Net cash provided by operating activities 28,484 57,803
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (65,287) (45,608)
Proceeds from the sale of property and equipment 17,242 3,589
Other 735 5,201
-------- --------
Net cash used by investing activities (47,310) (36,818)
-------- --------
Cash flows from financing activities:
Proceeds from notes payable 26,710 11,979
Proceeds from issuance of long-term debt -- 42,000
Principal payments on long-term debt and capital lease obligations (16,135) (52,345)
Net proceeds from lines of credit 30,916 9,297
Dividends paid (13,673) (12,978)
Repurchase of common stock (3,048) (17,310)
-------- --------
Net cash provided (used) by financing activities 24,770 (19,357)
-------- --------
Net increase in cash and cash equivalents 5,944 1,628
Cash and cash equivalents at beginning of period 23,009 18,313
-------- --------
Cash and cash equivalents at end of period $ 28,953 $ 19,941
======== ========
Supplemental schedule of noncash investing and financing activities:
Increase in property and equipment through assumption of capital leases $ 3,419 $ 5,802
Increase in equity through issuance of common stock 370 --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE> 8
BELK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(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 Securities and Exchange
Commission. These financial statements should be read in conjunction with the
Notes to Consolidated Financial Statements (pages 17-29) in our Annual Report on
Form 10-K for the fiscal year ended January 29, 2000. In the opinion of
management, this information is fairly presented and all adjustments (consisting
only of normal recurring adjustments) necessary for a fair statement 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 periods excluding the Christmas season may not be
indicative of the operating results that may be expected for the full fiscal
year.
Certain prior period amounts have been reclassified to conform with the
current presentation.
(2) COMPREHENSIVE INCOME
The following table sets forth the computation of comprehensive income.
Other comprehensive loss is comprised of net unrealized losses on investments,
net of income tax benefit of $266 and $370 for the six months ended July 29,
2000 and July 31, 1999, respectively, and income tax benefit of $266 and $549
for the three months ended July 29, 2000 and July 31, 1999, respectively.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- -----------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income $ 8,412 $ 10,266 $ 18,300 $ 20,484
Other Comprehensive Loss (461) (896) (461) (603)
------- -------- -------- --------
Total Comprehensive Income $ 7,951 $ 9,370 $ 17,839 $ 19,881
======= ======== ======== ========
</TABLE>
(3) EFFECT OF NEW ACCOUNTING STANDARDS AND STATEMENTS
As of January 30, 2000, the Company has adopted EITF Issue 00-02
"Accounting for Web Site Development Costs" which establishes guidance regarding
the capitalization of web site development costs. The Company has capitalized
approximately $ 2.9 million of web site development costs during the first six
months of fiscal year 2001.
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 Ended Six Months Ended
-------------------- --------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 68.9 67.2 69.4 67.3
Selling, general and
administrative expenses 26.5 27.2 26.4 26.7
Restructuring charge -- -- -- 0.7
Income from operations 4.6 5.5 4.3 5.2
Interest expense, net 2.0 2.0 1.8 1.9
Net income 1.7 2.2 1.8 2.1
Comparable store net revenue increase 3.5 4.1 1.7 4.8
</TABLE>
COMPARISON OF THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2000 AND JULY 31, 1999
Revenues. The Company's revenues for the three months ended July 29,
2000 increased 4.9%, or $23.0 million, to $496.0 million from $472.9 million
over the same period in fiscal year 2000. The increase was due to a 3.5%
increase in revenues from comparable stores and $7.9 million of additional
revenues from new, expanded and remodeled stores.
The Company's revenues for the six months ended July 29, 2000 increased
2.9%, or $28.3 million, to $997.5 million from $969.2 million over the same
period in fiscal year 2000. The increase was due to a 1.7% increase in revenues
from comparable stores and $13.1 million of additional revenues from new,
expanded and remodeled stores.
Cost of goods sold. As a percentage of revenues, cost of goods sold
increased to 68.9% and 69.4% for the three and six months ended July 29, 2000,
respectively, compared to 67.2% and 67.3% for the same periods in fiscal year
2000. The increases were primarily the result of increased markdowns to generate
sales and reduce inventory levels in response to the soft department store sales
environment.
Selling, general and administrative expenses. As a percentage of
revenues, selling, general and administrative ("SG&A") expenses decreased to
26.5% and 26.4% for the three and six months ended July 29, 2000, respectively,
compared to 27.2% and 26.7% for the same periods in fiscal year 2000. The
reduction in SG&A expenses as a percentage of revenues resulted from increases
in finance charge income from the Company's proprietary credit card partially
offset by increases in depreciation expense related to new stores and store
expansions.
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.
9
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Net Income. Net Income for the three and six months ended July 29, 2000
decreased $1.9 million and $2.2 million, respectively, compared to the same
periods in fiscal year 2000. Excluding the incremental costs incurred during the
first six months of fiscal year 2000 to establish the Company's expended
regional divisions and the gains from the sale of property in the first quarter
of fiscal year 2001, net income for the first six months of fiscal year 2001
decreased $10.0 million from the first six months of fiscal year 2000.
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 income from operations 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 $65.3 million in the six
months ended July 29, 2000, compared to $45.6 million in the first six months of
last year. During the first six months of fiscal year 2001, the Company opened a
new store in Snellville, Georgia; relocated and expanded three stores in
existing markets to new facilities in Charleston, South Carolina, Fayetteville,
Georgia and Camden, South Carolina; and expanded its stores in Hilton Head,
South Carolina and Boone, North Carolina.
Net cash provided by financing activities was $24.8 million for the
first six months of fiscal year 2001, a result of increased short-term
borrowings to fund seasonal working capital needs.
The Company's note payable agreement expires on April 28, 2001 and,
accordingly, the outstanding balance as of July 29, 2000 of $220.6 million 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
the existing credit facilities will be sufficient to cover working capital
needs, capital expenditures and debt service requirements.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB")
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. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral
of the Effective Date of FASB Statement No. 133", which deferred the effective
date of SFAS No. 133. In June 2000, the FASB issued SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities, an amendment
of FASB Statement No. 133". These standards are effective for the Company
starting in fiscal year 2002. The impact of SFAS No. 133 and SFAS No. 138 on the
Company's financial statements has not been determined.
10
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In July 2000, the EITF reached a consensus on Issue 00-10, "Accounting
for Shipping and Handling Fees and Costs" which establishes guidance regarding
the classification of shipping and handling revenue. This Issue is applicable
for the Company beginning in the fourth quarter of fiscal year 2001. The impact
of this Issue on the Company's financial statements has not been determined, but
is not believed to be material.
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 or six months ended July
29, 2000.
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 May 24, 2000. In
accordance with the Company's Amended and Restated Certificate of Incorporation,
Mr. H. W. McKay Belk, Mr. Karl G. Hudson, Jr. and Mr. B. Frank Matthews, II were
re-elected to the office of Class II director, to hold office until the annual
meeting of stockholders in 2003. A total 518,406,288 votes were cast in favor of
the election of each of the nominees, and 39,930 were withheld. Mr. Thomas M.
Belk, Jr., Mr. J. Kirk Glenn and Mrs. Sarah Belk Gambrell continue to serve as
Class I directors, and Mr. John M. Belk, Mr. John R. Belk and Mr. John A. Kuhne
continue to serve as Class III directors. Mr. John M. Belk continues to serve as
Chairman of the Board of Directors.
At the annual meeting, stockholders also approved the Belk, Inc. 2000
Incentive Stock Plan. A total of 514,313,188 votes were cast in favor of the
plan, 2,424,510 were cast against the plan and 1,708,520 were recorded as
abstentions.
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 3.3 to the Company's
Registration Statement on Form S-4, File No. 333-42935).
10.1 Credit Agreement, dated as of May 30, 2000, by and between
Belk, Inc., as Borrower, and Wachovia Bank, N.A., as Bank.
27.1 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None.
12
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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 12, 2000 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 and Treasurer
(Principal Accounting Officer)
13
