##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
   FORM 10-Q (Mark One) x
 For the quarterly period ended October 30, 2004 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934. For the transition period from
to Commission file number 000-26207 BELK, INC. 
  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    Indicate by check ü 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 þ No o Indicate by check ü whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act).
Yes þ No o At December 1, 2004, the registrant had issued and outstanding 50,288,381
shares of class A common stock and 1,283,280 shares of class B common stock. 1




---



##### 



BELK, INC. Index to Form 10-Q
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Statements of Income for the Three and Nine Months Ended October 30, 2004 and November 1, 2003
    
    
    4Consolidated Balance Sheets as of October 30, 2004 and January 31, 2004
    
    
    5Consolidated Statement of Changes in Stockholders Equity and Comprehensive Income for the Nine Months Ended October 30, 2004
    
    
    6Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 30, 2004 and November 1, 2003
    
    
    7Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    17Item 3. Defaults upon Senior Securities
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17Item 5. Other Information
    
    
    17Item 6. Exhibits
    
    
    17
 2




---



##### 



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, our ability to be competitive in the retail industry, our ability to
execute profitability and efficiency strategies, our ability to execute our
growth strategies and achieve anticipated results in our new and expanded
stores, the expected benefit of our new systems and technology, the expected
increase in our sales and revenues generated through our proprietary charge
card program and anticipated benefits from the consolidation of our
merchandising, marketing and merchandise planning and allocation function.
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. 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 This Report Contains Forward-Looking
Statements in our Annual Report on Form 10-K for the fiscal year ended January
31, 2004 that we filed with the Securities and Exchange Commission (SEC) on
April 15, 2004. 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




---



##### 



BELK, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (dollars in thousands, except per share amounts)
 Three Months Ended
    
    Nine Months EndedOctober 30,
    
    November 1,
    
    October 30,
    
    November 1,2004
    
    2003
    
    2004
    
    2003Revenues
    
    $
    540,266
    
    
    $
    508,544
    
    
    $
    1,626,756
    
    
    $
    1,503,346Cost of goods sold (including occupancy and
buying expenses)
    
    
    364,428
    
    
    
    345,721
    
    
    
    1,087,628
    
    
    
    1,017,671Selling, general and administrative expenses
    
    
    150,398
    
    
    
    139,394
    
    
    
    434,924
    
    
    
    407,437Store closing costs
    
    
    
    
    
    
    
    
    
    
    373
    
    
    
    Operating income
    
    
    25,440
    
    
    
    23,429
    
    
    
    103,831
    
    
    
    78,238Interest expense, net
    
    
    (7,879
    )
    
    
    (8,435
    )
    
    
    (25,619
    )
    
    
    (27,700
    )Gain (loss) on property, equipment and investments
    
    
    (41
    )
    
    
    12,914
    
    
    
    (312
    )
    
    
    13,774Other income, net
    
    
    73
    
    
    
    76
    
    
    
    437
    
    
    
    241Income before income taxes
    
    
    17,593
    
    
    
    27,984
    
    
    
    78,337
    
    
    
    64,553Income taxes
    
    
    6,400
    
    
    
    10,410
    
    
    
    28,510
    
    
    
    23,960Net Income
    
    $
    11,193
    
    
    $
    17,574
    
    
    $
    49,827
    
    
    $
    40,593Basic and diluted net income per share
    
    $
    0.22
    
    
    $
    0.34
    
    
    $
    0.96
    
    
    $
    0.77Weighted average shares outstanding
    
    
    51,569,971
    
    
    
    52,022,015
    
    
    
    51,743,116
    
    
    
    53,009,038
 See accompanying notes to consolidated financial statements. 4




---



##### 



BELK, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
 (dollars in thousands)
 October 30,
    
    January 31,2004
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    77,670
    
    
    $
    166,071Accounts receivable, net
    
    
    279,916
    
    
    
    311,141Merchandise inventory
    
    
    714,916
    
    
    
    496,242Prepaid income taxes
    
    
    5,906
    
    
    
    98Prepaid expenses and other current assets
    
    
    20,103
    
    
    
    17,188Total current assets
    
    
    1,098,511
    
    
    
    990,740Investment securities
    
    
    7,482
    
    
    
    6,975Property and equipment, net
    
    
    727,936
    
    
    
    702,682Pension assets
    
    
    4,280
    
    
    
    4,487Other assets
    
    
    30,825
    
    
    
    25,379Total assets
    
    $
    1,869,034
    
    
    $
    1,730,263Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    292,628
    
    
    $
    160,013Accrued liabilities
    
    
    107,758
    
    
    
    100,801Accrued income taxes
    
    
    
    
    
    
    36,499Deferred income taxes
    
    
    1,329
    
    
    
    785Note payable
    
    
    125,019
    
    
    
    Current installments of long-term debt and capital lease obligations
    
    
    8,074
    
    
    
    7,848Total current liabilities
    
    
    534,808
    
    
    
    305,946Deferred income taxes
    
    
    31,405
    
    
    
    18,540Long-term debt and capital lease obligations, excluding current installments
    
    
    170,225
    
    
    
    300,640Interest rate swap liability
    
    
    25,973
    
    
    
    35,367Deferred compensation and other noncurrent liabilities
    
    
    106,605
    
    
    
    100,271Total liabilities
    
    
    869,016
    
    
    
    760,764Stockholders equity:Preferred stock
    
    
    
    
    
    
    Common stock, 51.6 and 51.9 million shares issued and outstanding
as of October 30, 2004 and January 31, 2004, respectively
    
    
    516
    
    
    
    519Paid-in capital
    
    
    527,161
    
    
    
    530,612Retained earnings
    
    
    542,849
    
    
    
    517,721Accumulated other comprehensive loss
    
    
    (70,508
    )
    
    
    (79,353
    )Total stockholders equity
    
    
    1,000,018
    
    
    
    969,499Total liabilities and stockholders equity
    
    $
    1,869,034
    
    
    $
    1,730,263
 See accompanying notes to consolidated financial statements. 5




---



##### 



BELK, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME
(dollars in thousands)
 AccumulatedOtherCommon
    
    Paid-in
    
    Retained
    
    ComprehensiveStock
    
    Capital
    
    Earnings
    
    Loss
    
    TotalBalance at January 31, 2004
    
    $
    519
    
    
    $
    530,612
    
    
    $
    517,721
    
    
    $
    (79,353
    )
    
    $
    969,499Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    49,827
    
    
    
    
    
    
    
    49,827Unrealized loss on investments,
net of $156 income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    266
    
    
    
    266Unrealized gain on interest rate swaps,
net of $1,218 income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,073
    
    
    
    2,073Amortization of pension asset adjustment,
net of $3,821 income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,506
    
    
    
    6,506Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,672Cash dividends
    
    
    
    
    
    
    
    
    
    
    (24,699
    )
    
    
    
    
    
    
    (24,699
    )Common stock issued
    
    
    3
    
    
    
    3,714
    
    
    
    
    
    
    
    
    
    
    
    3,717Repurchase and retirement of common stock
    
    
    (6
    )
    
    
    (7,165
    )
    
    
    
    
    
    
    
    
    
    
    (7,171
    )Balance at October 30, 2004
    
    $
    516
    
    
    $
    527,161
    
    
    $
    542,849
    
    
    $
    (70,508
    )
    
    $
    1,000,018
 See accompanying notes to consolidated financial statements. 6




---



##### 



BELK, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (dollars in thousands)
 Nine Months EndedOctober 30,
    
    November 1,2004
    
    2003Cash flows from operating activities:Net income
    
    $
    49,827
    
    
    $
    40,593Adjustments to reconcile net income to net cash provided by operating activities:Store closing costs
    
    
    373
    
    
    
    Deferred income taxes
    
    
    14,470
    
    
    
    8,160Depreciation and amortization
    
    
    70,409
    
    
    
    68,621(Gain) loss on sale of property, equipment & investments
    
    
    312
    
    
    
    (13,774
    )(Increase) decrease in:Accounts receivable, net
    
    
    31,225
    
    
    
    33,968Merchandise inventory
    
    
    (218,674
    )
    
    
    (173,956
    )Prepaid expenses and other assets
    
    
    (7,322
    )
    
    
    (12,128
    )Increase (decrease) in:Accounts payable and accrued liabilities
    
    
    139,200
    
    
    
    160,495Accrued income taxes
    
    
    (36,499
    )
    
    
    (19,104
    )Deferred compensation and other liabilities
    
    
    193
    
    
    
    2,138Net cash provided by operating activities
    
    
    43,514
    
    
    
    95,013Cash flows from investing activities:Purchases of investments
    
    
    (167
    )
    
    
    Proceeds from sales of investments
    
    
    80
    
    
    
    2,450Purchases of property and equipment
    
    
    (95,337
    )
    
    
    (59,100
    )Proceeds from sales of property and equipment
    
    
    1,508
    
    
    
    3,951Net cash used by investing activities
    
    
    (93,916
    )
    
    
    (52,699
    )Cash flows from financing activities:Principal payments on notes payable and capital lease obligations
    
    
    (6,129
    )
    
    
    (57,760
    )Dividends paid
    
    
    (24,699
    )
    
    
    (15,029
    )Repurchase of common stock
    
    
    (7,171
    )
    
    
    (26,685
    )Net cash used by financing activities
    
    
    (37,999
    )
    
    
    (99,474
    )Net decrease in cash and cash equivalents
    
    
    (88,401
    )
    
    
    (57,160
    )Cash and cash equivalents at beginning of period
    
    
    166,071
    
    
    
    91,286Cash and cash equivalents at end of period
    
    $
    77,670
    
    
    $
    34,126Supplemental schedule of noncash investing and financing activities:Increase in property and equipment through assumption of capital leases
    
    $
    1,019
    
    
    $
    
 See accompanying notes to consolidated financial statements. 7




---



##### 



BELK, INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 (1) Basis of Presentation The accompanying unaudited 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
and should be read in conjunction with the Notes to Consolidated Financial
Statements (pages 28-44) in our Annual Report on Form 10-K for the fiscal year
ended January 31, 2004. 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 in
periods which exclude 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
current year presentation. (2) Comprehensive Income (Loss) The following table sets forth the computation of comprehensive income: Three Months Ended
    
    Nine Months EndedOctober 30,
    
    November 1,
    
    October 30,
    
    November 1,2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    11,193
    
    
    $
    17,574
    
    
    $
    49,827
    
    
    $
    40,593Other comprehensive income (loss):Net change in fair value of interest rate swaps, net of $2,062
income tax benefit and $1,084
income tax expense for the three
months and nine months ended
October 30, 2004, respectively
and $1,903 income tax benefit
and $2,543 income tax expense
for the three and nine months
ended November 1, 2003,
respectively
    
    
    (3,511
    )
    
    
    (3,239
    )
    
    
    1,845
    
    
    
    4,331Interest rate swap losses reclassified into interest expense from
other comprehensive income, net
of $45 and $134 income tax
benefit for the three and nine
months ended October 30, 2004,
respectively and $56 and $168
income tax benefit for the three
and nine months ended November
1, 2003, respectively
    
    
    76
    
    
    
    96
    
    
    
    228
    
    
    
    288Reclassification adjustment for interest rate swap dedesignation
loss included in gain (loss) on
property, equipment and
investments, net of $2,398
income tax benefit for the three
and nine months ended November
1, 2003, respectively
    
    
    
    
    
    
    4,083
    
    
    
    
    
    
    
    4,083Unrealized gain (loss) on investments, net of $168 and $156
income tax expense for the three
and nine months ended October
30, 2004, respectively and $175
and $454 income tax expense for
the three and nine months ended
November 1, 2003, respectively
    
    
    286
    
    
    
    297
    
    
    
    266
    
    
    
    774Reclassification adjustment for investment gains included in
net income, net of $77 income
tax expense for the nine months
ended November 1, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (131
    )Amortization of pension asset adjustment, net of $1,143 and
$3,821 income tax expense for
the three and nine months ended
October 30, 2004, respectively
    
    
    1,947
    
    
    
    
    
    
    
    6,506
    
    
    
    Other comprehensive income
    
    
    (1,202
    )
    
    
    1,237
    
    
    
    8,845
    
    
    
    9,345Total comprehensive income
    
    $
    9,991
    
    
    $
    18,811
    
    
    $
    58,672
    
    
    $
    49,938
 8




---



##### 



BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands) (3) Accumulated Other Comprehensive Loss The following table sets forth the components of accumulated other
comprehensive loss: October 30,
    
    January 31,2004
    
    2004Unrealized loss on interest rate swaps, net of $8,080
and $9,296 income tax
benefit as of October 30,
2004 and January 31, 2004, respectively
    
    $
    (13,757
    )
    
    $
    (15,831
    )Unrealized gains on investments, net of $1,105 and $948
income tax expense as of
October 30, 2004 and
January 31, 2004,
respectively
    
    
    1,905
    
    
    
    1,640Pension asset adjustment, net of $34,449 and $38,269
income tax expense as of
October 30, 2004 and
January 31, 2004,
respectively
    
    
    (58,656
    )
    
    
    (65,162
    )Accumulated other comprehensive loss
    
    $
    (70,508
    )
    
    $
    (79,353
    )
 (4) Accounts Receivable, Net Customer receivables arise primarily under open-end revolving credit
accounts used to finance purchases of merchandise from the Company. These
accounts have various billing and payment structures, including varying minimum
payment levels. Installments of deferred payment accounts receivable maturing
after one year are included in current assets in accordance with industry
practice. Accounts receivable, net consists of: October 30,
    
    January 31,2004
    
    2004Customer receivables
    
    $
    282,416
    
    
    $
    309,058Other receivables
    
    
    7,518
    
    
    
    15,119Less allowance for doubtful accounts
    
    
    (10,018
    )
    
    
    (13,036
    )Accounts receivable, net
    
    $
    279,916
    
    
    $
    311,141
 (5) Note Payable The note purchase agreement among the Company, The Belk Center, Inc.,
Enterprise Funding Corporation and Bank of America, as amended (the Note
Payable), expires on April 5, 2005 and, accordingly, the outstanding balance
as of October 30, 2004 of $125 million has been included in current
liabilities. However, the Note Payable 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. (6) Credit Agreement During the quarter ended October 30, 2004, the Company replaced its
combined $200 million revolving credit and $127 million standby letter of
credit facility that was to expire in July 2005 with a combined $330 million
credit facility that expires in October 2009. Up until October 2007, the
facility may be increased to $380 million at the Companys request. The new
facility allows for up to $225 million of outstanding letters of credit. The
current interest rate payable under the credit facility is based on LIBOR or
prime plus approximately 63 basis points. The credit facility contains
restrictive covenants consistent with the Companys existing debt agreements
and financial covenants including leverage and fixed charge coverage ratios.
The Company has $127 million of standby letters of credit and no borrowings
outstanding under the credit facility at October 30, 2004. 9




---



##### 



BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands) (7) Implementation of New Accounting Standards In December 2003, the Financial Accounting Standards Board (FASB)
revised Statement of Financial Accounting Standards No. 132, Employers
Disclosures about Pensions and Other Postretirement Benefits (Revised
Statement 132). Revised Statement 132 revises employers required disclosures
about pension plans and other postretirement benefit plans. It does not change
the measurement or recognition of those plans required by FASB Statements No.
87, Employers Accounting for Pensions, No. 88, Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits and No. 106, Employers Accounting for Postretirement
Benefits Other Than Pensions (Statement 106). Revised Statement 132 requires
disclosures in addition to those in the original FASB Statement No. 132. The
interim-period disclosures required by Revised Statement 132 are effective for
interim periods beginning after December 15, 2003. The Company adopted the
interim disclosure requirements set forth in Revised Statement 132 for the
first quarter of fiscal year 2005. In May 2004, the FASB issued Staff Position FAS 106-2, Accounting and
Disclosure Requirements Relating to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003. The Company offers an access-only prescription
drug plan to retirees and therefore the adoption of the provisions under Staff
Position FAS 106-2 did not have an impact on the Companys consolidated
financial position or results of operations. (8) Pension and Postretirement Benefits The Company has a defined benefit pension plan covering substantially all
of its employees. The benefits are based on years of service and the
employees compensation. The Company also has a defined benefit health care
plan that provides postretirement medical and life insurance benefits to
certain retired full-time employees. The components of net periodic benefit expense are as follows: Three Months EndedPension Plan
    
    Postretirement PlanOctober 30,
    
    November 1,
    
    October 30,
    
    November 1,2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    2,234
    
    
    $
    2,880
    
    
    $
    53
    
    
    $
    73Interest cost
    
    
    5,319
    
    
    
    5,158
    
    
    
    384
    
    
    
    483Expected return on plan assets
    
    
    (6,558
    )
    
    
    (6,634
    )
    
    
    
    
    
    
    Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    65Amortization of prior service cost
    
    
    69
    
    
    
    69
    
    
    
    
    
    
    
    Amortization of the net (gain) loss
    
    
    2,095
    
    
    
    918
    
    
    
    (124
    )
    
    
    (69
    )Net periodic benefit expense
    
    $
    3,159
    
    
    $
    2,391
    
    
    $
    378
    
    
    $
    552
 Nine Months EndedPension Plan
    
    Postretirement PlanOctober 30,
    
    November 1,
    
    October 30,
    
    November 1,2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    7,760
    
    
    $
    8,640
    
    
    $
    160
    
    
    $
    218Interest cost
    
    
    15,956
    
    
    
    15,474
    
    
    
    1,152
    
    
    
    1,448Expected return on plan assets
    
    
    (19,675
    )
    
    
    (19,902
    )
    
    
    
    
    
    
    Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    196
    
    
    
    196Amortization of prior service cost
    
    
    207
    
    
    
    207
    
    
    
    
    
    
    
    Amortization of the net (gain) loss
    
    
    6,286
    
    
    
    2,754
    
    
    
    (373
    )
    
    
    (207
    )Net periodic benefit expense
    
    $
    10,534
    
    
    $
    7,173
    
    
    $
    1,135
    
    
    $
    1,655
 The Company previously disclosed in its financial statements for the
fiscal year ended January 31, 2004 included in its Form 10-K, that it did not
expect to contribute to its pension plan in fiscal year 2005. 10




---



##### 



BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands) As of October
30, 2004, there have been no contributions to the pension plan, and the Company
does not anticipate any contributions for the remainder of the current fiscal
year. (9) Curtailment and Settlement of Defined Benefit Supplemental Executive
Retirement Plan On April 1, 2004, certain participants elected to waive their benefits in
the Companys non-qualified defined benefit supplemental executive retirement
plan in exchange for participation in the Companys new non-qualified defined
contribution 2004 Supplemental Executive Retirement Plan. This election
resulted in the curtailment and settlement of their benefits in the defined
benefit plan. The Company recognized a net charge of $1.9 million in selling,
general and administrative expenses in the first quarter of fiscal year 2005
related to the curtailment and settlement. (10) Derivative Financial Instruments During the first quarter of fiscal year 2005, the Company terminated two
interest rate swaps with a total notional value of $50 million. The interest
rate swaps had previously been dedesignated as cash flow hedges during the
third quarter of fiscal year 2004. (11) Stock Repurchase On June 14, 2004, the Company repurchased 643,071 shares of outstanding
Class A common stock at a cost of $7.2 million. 11




---



##### 



BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands) Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations Overview Belk, together with its subsidiaries, is the largest privately owned
department store business in the United States, with total revenues of
approximately $2.26 billion for the fiscal year ended January 31, 2004. The
Company and its predecessors have 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 Companys fiscal year ends on the Saturday closest to each January 31.
All references to fiscal year 2005 refer to the fiscal year ending January
29, 2005 and all references to fiscal year 2004 refer to the period ended
January 31, 2004. As of the end of its third quarter of fiscal year 2005, the Company
operated 229 retail department stores in 14 states primarily in the
southeastern United States. 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, gifts and
other types of quality merchandise. The Company also sells exclusive private
label brands, which offer customers differentiated merchandise selections at
better values. Larger Belk stores may include hair salons, spas, restaurants,
optical centers and other amenities. Belks mission is to be the dominant department store in its markets by
selling merchandise to customers that meets their needs for fashion, selection,
value, quality and service. To achieve this mission, Belks business strategy
includes five key elements: (1) a target customer focus; (2) focused
merchandise assortments; (3) compelling sales promotions; (4) distinctive
customer service; and (5) a winning store and market strategy. The Company operates retail department stores in the highly competitive
retail apparel industry. The Companys primary competitors are traditional
department stores, mass merchandisers, national apparel chains, individual
specialty apparel stores and direct merchant firms. In addition to intense
competition, the retail industry has experienced downward sales pressure in
recent years due primarily to national, regional and local economic conditions. Management believes that significant opportunities for growth exist in
Belk markets where the Belk name and reputation are well known and in
contiguous markets where Belk can distinguish its stores from the competition.
Although the Company will continue to take advantage of prudent opportunities
to expand into large markets, the Company will focus its expansion in
medium-sized markets with store units in the 50,000 to 80,000 square-foot size
range. One of the more significant challenges currently facing the Companys
management is to continue to identify new Belk markets and to effectively
increase the Companys net store selling square footage. In fiscal year 2004,
the Company increased net store selling square footage by 343,700 square feet,
or 2.4%, and plans to expand by an additional 629,600 square feet, or 4.3% in
fiscal year 2005. The Company focuses on four key indicators to assess performance and
growth. These key indicators are: (1) comparable store sales, (2) gross profit
rate, (3) expense rate, and (4) net square footage growth. Results of Operations The following table sets forth, for the periods indicated, the percentage
relationship to revenues of certain items in the Companys condensed
consolidated statements of income, as well as a period comparison of changes in
comparable store net revenue. 12




---



##### 



Three Months Ended
    
    Nine Months EndedOctober 30,
    
    November 1,
    
    October 30,
    
    November 1,2004
    
    2003
    
    2004
    
    2003SELECTED FINANCIAL DATARevenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    67.5
    
    
    
    68.0
    
    
    
    66.9
    
    
    
    67.7Selling, general and administrative expenses
    
    
    27.8
    
    
    
    27.4
    
    
    
    26.7
    
    
    
    27.1Operating income
    
    
    4.7
    
    
    
    4.6
    
    
    
    6.4
    
    
    
    5.2Interest expense, net
    
    
    1.5
    
    
    
    1.7
    
    
    
    1.6
    
    
    
    1.8Income taxes
    
    
    1.2
    
    
    
    2.1
    
    
    
    1.8
    
    
    
    1.6Net income
    
    
    2.1
    
    
    
    3.5
    
    
    
    3.1
    
    
    
    2.7Comparable store net revenue increase (decrease)
    
    
    2.3
    
    
    
    1.5
    
    
    
    4.3
    
    
    
    (2.6
    )
 Comparison of the Three and Nine Months Ended October 30, 2004 and November 1,
2003 Revenues. The Companys revenues for the three months ended October 30,
2004 increased 6.2%, or $31.7 million, to $540.3 million from $508.5 million
over the same period in fiscal year 2004. The increase is attributable to a
2.3% increase in revenues from comparable stores and $20.6 million of
additional sales from new stores. The Companys revenues for the nine months ended October 30, 2004
increased 8.2%, or $123.4 million, to $1,626.8 million from $1,503.3 million
over the same period in fiscal year 2004. The increase is attributable to a
4.3% increase in revenues from comparable stores and $60.9 million of
additional sales from new stores. Effective with the Companys first quarter fiscal year 2005 10-Q,
comparable store sales include replacement and expansion stores.
Non-comparable stores include only closing stores and new stores that have not
reached the one-year anniversary of their opening prior to the beginning of the
fiscal year. The Company believes this revised measure is a more accurate
indicator of existing store performance and is a common basis used by other
retailers in the reporting of their results. The Company has revised the
previous years change in comparable store net revenue to conform with this new
definition. Cost of goods sold.As a percentage of revenues, cost of goods sold
decreased to 67.5% and 66.9% for the three months and nine months ended October
30, 2004, respectively, compared to 68.0% and 67.7% for the same periods in
fiscal year 2004. The decrease is primarily attributable to improved margin on
inventory purchases and a 0.08% and 0.14% reduction in buying expenses as a
percentage of revenues for the three and nine months ended October 30, 2004,
respectively, over the same time period in fiscal year 2004. Although the
majority of expenses included in cost of goods sold are variable with sales,
increasing sales volumes, improved expense leverage and certain non-variable
costs, primarily the buying expenses noted above, did not increase to the same
extent as revenues. Selling, general and administrative expenses.As a percentage of
revenues, selling, general and administrative (SG&A) expenses increased to
27.8% for the three months ended October 30, 2004 compared to 27.4% for the
same period in fiscal year 2004. The increase resulted primarily from an
increase in advertising expense as a percentage of revenues of 0.47%, an
increase in deferred compensation expense as a percentage of revenues of 0.25%,
an increase in payroll costs as a percentage of revenues of 0.20% and an
increase in pension expense as a percentage of revenues of 0.11%. These
increases were partially offset by an increase in credit income as a percentage
of revenues of 0.36%, a decrease in bad debt expense as a percentage of
revenues of 0.14% and a decrease in medical expense as a percentage of revenues
of 0.10%. As a percentage of revenues, selling, general and administrative (SG&A)
expenses decreased to 26.7% for the nine months ended October 30, 2004 compared
to 27.1% for the same period in fiscal year 2004. The decrease resulted
primarily from a decrease in depreciation expense as a percentage of revenues
of 0.23%, a decrease in bad debt expense as a percentage of revenues of 0.20%,
an increase in credit income as a percentage of revenues of 0.18% and a
decrease in payroll as a percentage of revenues of 13




---



##### 



0.10%. These decreases were
partially offset by a $1.9 million charge recognized in the first quarter of
fiscal year 2005 for the curtailment and settlement of the Companys
defined benefit supplemental executive retirement plan, an increase in pension
expense as a percentage of revenues of 0.17% and an increase in advertising
expense as a percentage of revenues of 0.17%. Store closing costs.The Company incurred $0.4 million in store closing
costs in the first quarter of fiscal year 2005 related to the post-closing real
estate holding costs for three stores located in Lenoir, North Carolina and
Beaufort and Myrtle Beach, South Carolina. Gain (loss) on property, equipment and investments.The loss on property,
equipment and investments was $0.04 million and $0.3 million for the three and
nine months ended October 30, 2004, respectively compared to gains of $12.9
million and $13.8 million for the same periods in fiscal year 2004. The prior
year gain is primarily due to a $19.3 million gain recognized on the sale of
property located in Charlotte, North Carolina, partially offset by a $6.3
million loss on the dedesignation of two interest rate swaps. Net income.As a percentage of revenues, net income decreased to 2.1% for
the three months ended and increased to 3.1% for the nine months ended October
30, 2004, compared to 3.5% and 2.7% for the same periods in fiscal year 2004.
The changes were primarily due to the items discussed above. 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. The Companys debt
facilities consist of a $250 million variable rate note, a $125 million
ten-year variable rate bond facility and a $330 million revolving credit
facility. The $250 million variable rate note is governed by a note payable
agreement that expires on April 5, 2005 and, accordingly, the outstanding
balance as of October 30, 2004 of $125 million has been included in current
liabilities. However, the note payable agreement is renewable by mutual
consent of the parties, and the Company intends to renew the facility and
utilize it as long-term financing. During the quarter ended October 30, 2004, the Company replaced its
combined $200 million revolving credit and $127 million standby letter of
credit facility that was to expire in July 2005 with a combined $330 million
credit facility that expires in October 2009. Up until October 2007, the
facility may be increased to $380 million at the Companys request. The new
facility allows for up to $225 million of outstanding letters of credit. The
current interest rate payable under the credit facility is based on LIBOR or
prime plus approximately 63 basis points. The facility contains restrictive
covenants consistent with the Companys existing debt agreements and financial
covenants including leverage and fixed charge coverage ratios. The Company has
$127 million of standby letters of credit and no borrowings outstanding under
the credit facility at October 30, 2004. Net cash provided by operating activities decreased $51.5 million to $43.5
million for the nine months ended October 30, 2004 from $95.0 million for the
nine months ended November 1, 2003. The decrease in cash provided by operating
activities for the first nine months of fiscal year 2005 was principally due to
higher levels of inventory purchases, attributable to the addition of new
stores and higher comparable store sales during the first nine months of fiscal
year 2005. Expenditures for property and equipment increased $36.2 million to $95.3
million for the nine months ended October 30, 2004 from $59.1 million for the
same time period in fiscal year 2004. The increase was principally due to the
addition of 11 new stores, two store remodels and two store expansions in the
first nine months of fiscal year 2005, as compared to the addition of five new
stores during the same period in fiscal year 2004. 14




---



##### 



During the nine months ended October 30, 2004, the Company opened 11 new
stores in Waco, Kerrville, Sherman and McKinney, Texas; Beaufort and Myrtle
Beach, South Carolina; Covington, Louisiana; Lenoir, North Carolina; Marietta
and Cumming, Georgia; and Sevierville, Tennessee. The North Carolina, South
Carolina and Cumming, Georgia stores are replacements of stores in existing
markets, whereas the other stores are in new markets for the Company. The
Company also completed the expansion of two stores in Corinth, Mississippi and
Cullman, Alabama, as well as major remodels of two stores in Savannah, Georgia
and Charleston, South Carolina during the first nine months of fiscal year
2005. Net cash used by financing activities decreased $61.5 million to $38.0
million for the nine months ended October 30, 2004 from $99.5 million for the
nine months ended November 1, 2003. This decrease was due to the $50 million
reduction in the outstanding borrowings under the variable note payable during
the first nine months of fiscal year 2004 and a $19.5 million reduction in
common stock repurchases in the first nine months of fiscal year 2005 compared
to the same period in fiscal year 2004, partially offset by a higher dividend
per share amount attributable to a special one-time dividend paid in fiscal
2005. 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 for at least the next twelve
months. Contractual Obligations and Commercial Commitments A table representing the scheduled maturities of the Companys contractual
obligations and commercial commitments as of January 31, 2004 was included
under the heading Contractual Obligations and Commercial Commitments on page
17 of the Companys Annual Report on Form 10-K for the fiscal year ended
January 31, 2004. There have been no material changes from the information
included in the Form 10-K. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk During the first quarter of fiscal year 2005, the Company terminated two
interest rate swaps with a total notional value of $50 million. The interest
rate swaps had previously been dedesignated as cash flow hedges during the
third quarter of fiscal year 2004. There have been no other material changes to the Companys quantitative
and qualitative market risk disclosures during the nine months ended October
30, 2004 from the disclosures contained in the Companys Annual Report on Form
10-K for the fiscal year ended January 31, 2004. 
 Item 4. Controls and Procedures Disclosure controls and procedures are the Companys controls and other
procedures that are designed to ensure that information required to be
disclosed in the reports that the Company files or submits under the Securities
Exchange Act of 1934, as amended, (the Exchange Act) is recorded, processed,
summarized and reported, within the time periods specified in SEC rules and
forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed in the reports that the Company files under the Exchange Act is
accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. As of the end of the period covered by this report, the Company has
evaluated under the supervision and with the participation of the Companys
management, including the Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), the effectiveness of the design and operation of the Companys
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act). Based on the evaluation, the CEO and CFO have
concluded that the Companys disclosure controls and procedures are effective
to ensure that information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms. 15




---



##### 



During the period covered by this report, there were no changes or
corrective actions 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. 16




---



##### 



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 effect on its financial statements. 
 Item 2.Unregistered Sales of Equity Securities and Use of Proceeds Not applicable 
 Item 3.Defaults Upon Senior Securities Not applicable 
 Item 4.Submission of Matters to a Vote of Security Holders Not applicable 
 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, 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, 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).10.1
    
    Credit Agreement, dated as of October 28, 2004, by and among
Belk, Inc., certain Belk, Inc. subsidiaries, Wachovia Bank, N.A., as
Administrative Agent, Bank of America, N.A., as Syndication Agent,
and Branch Banking and Trust Company and SunTrust Bank, as
Documentation Agents.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. 17




---



##### 



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. 18




---



##### 



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. BELK, INC.Dated: December 9, 2004
    
    By:
    
    /s/ Ralph A. PittsRalph A. PittsExecutive Vice President, General Counsel andCorporate Secretary(Authorized Officer of the Registrant)By:
    
    /s/ Brian T. MarleyBrian T. MarleyExecutive Vice President andChief Financial Officer
 19