Belk (BLKIA) 10-Q 2009 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period endedNovember 1, 2008

OR

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 number000-26207

BELK, INC.

(Exact Name of Registrant as Specified In Its Charter)

Delaware	56-2058574
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
2801 West Tyvola Road, Charlotte, NC	28217-4500
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, including Area Code(704) 357-1000

N/A

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.þ Yeso No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero	Accelerated filerþ	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

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

At December 2, 2008, the registrant had issued and outstanding 47,298,802 shares of class A common stock and 1,454,090 shares of class B common stock.

BELK, INC.
Index to Form 10-Q

	Page
	Number
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Statements of Income for the Three and Nine Months Ended November 1, 2008 and November 3, 2007		4
Condensed Consolidated Balance Sheets as of November 1, 2008 and February 2, 2008		5
Condensed Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income for the Nine Months Ended November 1, 2008		6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 1, 2008 and November 3, 2007		7
Notes to Unaudited Condensed Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3. Quantitative and Qualitative Disclosures about Market Risk		21
Item 4. Controls and Procedures		21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		22
Item 1A. Risk Factors		22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		22
Item 3. Defaults upon Senior Securities		22
Item 4. Submission of Matters to a Vote of Security Holders		22
Item 5. Other Information		22
Item 6. Exhibits		23
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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, anticipated benefits from the opening of new distribution facilities, the expected benefit of our new systems and technology, and the anticipated benefits from our acquisitions and the sale of our proprietary credit card portfolio. 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.

     Risks and uncertainties that might cause our results to differ from those we project in our forward-looking statements include, but are not limited to:

• General economic, political and business conditions, nationally and in our market areas, including rates of economic growth, interest rates, inflation or deflation, consumer credit availability, levels of consumer debt and bankruptcies, tax rates and policy, unemployment trends, potential acts of terrorism and threats of such acts and other matters that influence consumer confidence and spending;

• Our ability to anticipate the demands of our customers for a wide variety of merchandise and services, including our predictions about the merchandise mix, quality, style, service, convenience and credit availability of our customers;

• Unseasonable and extreme weather conditions in our market areas;

• Seasonal fluctuations in quarterly net income due to the significant portion of our revenues generated during the holiday season in the fourth fiscal quarter and the significant amount of inventory we carry during that time;

• Competition from other department and specialty stores and other retailers, including luxury goods retailers, general merchandise stores, Internet retailers, mail order retailers and off-price and discount stores, in the areas of price, merchandise mix, quality, style, service, convenience, credit availability and advertising;

• Our ability to effectively use advertising, marketing and promotional campaigns to generate high customer traffic in our stores;

• Our ability to find qualified vendors from which to source our merchandise and our ability to access products in a timely and efficient manner from a wide variety of domestic and international vendors;

• The income we receive from, and the timing of receipt of, payments from GE, the operator of our private label credit card business, which depends upon the amount of purchases made through the proprietary credit cards, the level of finance charge income generated from the credit card portfolio, the number of new accounts generated, changes in customers’ credit card use, and GE’s ability to extend credit to our customers;

• Our ability to correctly anticipate the appropriate levels of inventories during the year;

• Our ability to manage our expense structure;

• Our ability to realize the planned efficiencies from our acquisitions and effectively integrate and operate the acquired stores and businesses, including our fiscal year 2007 acquisition of Parisian stores and our fiscal year 2007 acquisition of the assets of Migerobe and commencement of our new fine jewelry business;

• Our ability to continue to increase our number of stores, including the availability of existing retail stores or store sites on acceptable terms and our ability to successfully execute the Company’s retailing concept in new markets and geographic regions;

• The efficient and effective operation of our distribution network and information systems to manage sales, distribution, merchandise planning and allocation functions;

• Our ability to expand our eCommerce business through our updated and redesigned belk.com website, including our ability to meet the systems challenges of expanding and operating the website and our ability to efficiently operate our eCommerce fulfillment facility; and

• Our ability to comply with debt covenants which could adversely affect our capital resources, financial condition and liquidity.

     For a detailed description of the risks and uncertainties that might cause our results to differ from those we project in our forward-looking statements, we refer you to the section captioned “Risk Factors” in our annual report on Form 10-K for the fiscal year ended February 2, 2008 that we filed with the SEC on April 17, 2008 as updated in this report. 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.

BELK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands, except share and per share amounts)

	Three Months Ended						Nine Months Ended
	November 1,			November 3,			November 1,			November 3,
	2008			2007			2008			2007
Revenues	$	741,403		$	808,338		$	2,388,017		$	2,592,427
Cost of goods sold (including occupancy, distribution and buying expenses)		532,592			571,559			1,664,486			1,801,976
Selling, general and administrative expenses		235,397			233,661			706,526			724,450
Gain on sale of property and equipment		2,194			2,159			4,161			3,644
Asset impairment and exit costs		748			2,480			2,659			11,211
Operating income (loss)		(25,140	)		2,797			18,507			58,434
Interest expense, net		(11,912	)		(14,975	)		(38,360	)		(43,855	)
Gain (loss) on investments		(239	)		(299	)		1,648			(360	)
Income (loss) before income taxes		(37,291	)		(12,477	)		(18,205	)		14,219
Income tax expense (benefit)		(13,803	)		(5,552	)		(8,053	)		4,148
Net income (loss)	$	(23,488	)	$	(6,925	)	$	(10,152	)	$	10,071
Basic and diluted net income (loss) per share	$	(0.48	)	$	(0.14	)	$	(0.21	)	$	0.20
Weighted average shares outstanding:
Basic		48,752,892			49,569,155			49,096,381			49,809,867
Diluted		48,752,892			49,569,155			49,096,381			49,841,563

See accompanying notes to unaudited condensed consolidated financial statements.

4

BELK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands)

	November 1,			February 2,
	2008			2008
Assets
Current assets:
Cash and cash equivalents	$	109,290		$	186,973
Short-term investments		10,250			—
Accounts receivable, net		30,988			65,987
Merchandise inventory		1,160,360			932,777
Property held for sale		805			11,036
Prepaid income taxes, expenses and other current assets		48,730			21,594
Total current assets		1,360,423			1,218,367
Investment securities		2,489			4,299
Property and equipment, net of accumulated depreciation and amortization of $1,120,505 and $1,027,397 as of November 1, 2008 and February 2, 2008, respectively		1,223,318			1,248,030
Goodwill		326,773			326,930
Deferred income taxes		—			5,196
Other assets		51,668			48,493
Total assets	$	2,964,671		$	2,851,315
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	449,143		$	274,092
Accrued liabilities		162,003			135,974
Accrued income taxes		—			25,980
Deferred income taxes		28,595			27,293
Current installments of long-term debt and capital lease obligations		4,557			4,481
Total current liabilities		644,298			467,820
Deferred income taxes		7,207			—
Long-term debt and capital lease obligations, excluding current installments		714,657			717,660
Interest rate swap liability		4,631			8,282
Deferred compensation and other noncurrent liabilities		250,402			268,827
Total liabilities		1,621,195			1,462,589
Stockholders’ equity:
Preferred stock		—			—
Common stock, 400 million shares authorized and 48.8 and 49.6 million shares issued and outstanding as of November 1, 2008 and February 2, 2008, respectively		488			496
Paid-in capital		458,559			479,020
Retained earnings		947,208			977,206
Accumulated other comprehensive loss		(62,779	)		(67,996	)
Total stockholders’ equity		1,343,476			1,388,726
Total liabilities and stockholders’ equity	$	2,964,671		$	2,851,315

See accompanying notes to unaudited condensed consolidated financial statements.

5

BELK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME

(unaudited)

(in thousands)

													Accumulated
													Other
	Common Stock						Paid-in			Retained			Comprehensive
	Shares			Amount			Capital			Earnings			Income (Loss)			Total
Balance at February 2, 2008		49,569		$	496		$	479,020		$	977,206		$	(67,996	)	$	1,388,726
Comprehensive income (loss):
Net loss		—			—			—			(10,152	)		—			(10,152	)
Unrealized loss on investments, net of $213 income taxes		—			—			—			—			(360	)		(360	)
Reclassification to gain (loss) on investments, net of $231 income taxes		—			—			—			—			(388	)		(388	)
Unrealized gain on interest rate swaps, net of $516 income taxes		—			—			—			—			869			869
Amortization of defined benefit obligations, net of $3,025 income taxes		—			—			—			—			5,096			5,096
Total comprehensive loss																	(4,935	)
Cash dividends		—			—			—			(19,846	)		—			(19,846	)
Issuance of stock-based compensation		—			—			(444	)		—			—			(444	)
Stock-based compensation expense		—			—			2,015			—			—			2,015
Common stock issued		57			1			307			—			—			308
Repurchase and retirement of common stock		(873	)		(9	)		(22,339	)		—			—			(22,348	)
Balance at November 1, 2008		48,753		$	488		$	458,559		$	947,208		$	(62,779	)	$	1,343,476

See accompanying notes to unaudited condensed consolidated financial statements.

6

BELK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

	Nine Months Ended
	November 1,			November 3,
	2008			2007
Cash flows from operating activities:
Net income (loss)	$	(10,152	)	$	10,071
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Asset impairment and exit costs		2,659			11,211
Deferred income tax (benefit) expense		9,564			(2,161	)
Depreciation and amortization expense		124,026			119,011
Stock-based compensation expense		2,015			(1,858	)
Gain on sale of property and equipment		(2,189	)		(2,072	)
Amortization of deferred gain on sale and leaseback		(1,972	)		(1,572	)
(Gain) loss on investments		(1,648	)		360
(Increase) decrease in:
Accounts receivable, net		34,749			12,854
Merchandise inventory		(227,583	)		(310,441	)
Prepaid expenses and other assets		(33,931	)		(9,594	)
Increase (decrease) in:
Accounts payable and accrued liabilities		208,019			163,224
Accrued income taxes		(25,980	)		(20,085	)
Deferred compensation and other liabilities		(5,047	)		16,912
Net cash provided (used) by operating activities		72,530			(14,140	)
Cash flows from investing activities:
Purchases of short-term investments		(17,750	)		(453,855	)
Sales of short-term investments		7,500			453,855
Purchases of property and equipment		(112,764	)		(168,363	)
Proceeds from sales of property and equipment		18,998			56,603
Net cash used by investing activities		(104,016	)		(111,760	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		—			125,355
Principal payments on long-term debt and capital lease obligations		(3,559	)		(128,893	)
Proceeds from line of credit		—			33,695
Cash paid for withholding taxes in lieu of stock-based compensation shares		(598	)		(5,260	)
Stock compensation tax benefit		154			2,938
Dividends paid		(19,846	)		(20,097	)
Repurchase and retirement of common stock		(22,348	)		(24,226	)
Net cash used by financing activities		(46,197	)		(16,488	)
Net decrease in cash and cash equivalents		(77,683	)		(142,388	)
Cash and cash equivalents at beginning of period		186,973			171,239
Cash and cash equivalents at end of period	$	109,290		$	28,851
Supplemental schedule of noncash investing and financing activities:
Increase (decrease) in property and equipment through accrued purchases	$	(8,810	)	$	13,428
Decrease in property and equipment through adjustment of Parisian goodwill		—			14,969
Decrease in property and equipment through adjustment of Parisian capital lease obligation		—			4,315
Decrease in long term-debt through other current assets		—			3,220

See accompanying notes to unaudited condensed consolidated financial statements.

7

BELK, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements of Belk, Inc. and subsidiaries (the “Company”) have been prepared in accordance with the instructions to Form 10-Q promulgated by the United States Securities and Exchange Commission and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 2, 2008. In the opinion of management, this information is fairly presented and all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods have been included; however, certain items are included in these statements based on estimates for the entire year. Also, operating results for the three and nine months ended November 1, 2008 and November 3, 2007 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. The Company has reclassified its investment in auction rate securities and variable rate demand notes from “Cash and Cash Equivalents” to “Short-Term Investments.” The effect of the reclassification causes the purchases and sales of these investments during the nine months ended November 3, 2007 to be presented in the cash flows from investing activities line item in the condensed consolidated statement of cash flows. This reclassification has no impact on net income, cash flows from operating activities, stockholders’ equity or total assets for the nine months ended November 3, 2007.

(2) Comprehensive Income (Loss)

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

	Three Months Ended						Nine Months Ended
	November 1,			November 3,			November 1,			November 3,
	2008			2007			2008			2007
	(dollars in thousands)						(dollars in thousands)
Net income (loss)	$	(23,488	)	$	(6,925	)	$	(10,152	)	$	10,071
Other comprehensive income (loss):
Unrealized gain (loss) on investments, net of $147 and $213 income taxes for the three and nine months ended November 1, 2008, respectively and $15 and $225 income taxes for the three and nine months ended November 3, 2007, respectively.		247			(25	)		(360	)		(378	)
Recognized other-than-temporary impairment of investments reclassified to gain (loss) on investments, net of $231 income taxes for the three and nine months ended November 1, 2008.		(388	)		—			(388	)		—
Unrealized gain (loss) on interest rate swaps, net of $352 and $516 income taxes for the three and nine months ended November 1, 2008, respectively and $687 and $717 income taxes for the three and nine months ended November 3, 2007, respectively.		(593	)		(1,158	)		869			(1,209	)
Interest rate swap losses reclassified into interest expense from other comprehensive income, net of $41 income taxes for the nine months ended November 3, 2007.		—			—			—			69
Reclassification adjustment for interest rate swap dedesignation gain included in gain (loss) on investments, net of $7 income taxes for the nine months ended November 3, 2007.		—			—			—			(51	)
Amortization of defined benefit obligations, net of $1,008 and $3,025 income taxes for the three and nine months ended November 1, 2008, respectively and $1,194 and $3,583 income taxes for the three and nine months ended November 3, 2007, respectively.		1,698			2,012			5,096			6,035
Other comprehensive income		964			829			5,217			4,466
Total comprehensive income (loss)	$	(22,524	)	$	(6,096	)	$	(4,935	)	$	14,537

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BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(3) Accumulated Other Comprehensive Loss

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

	November 1,			February 2,
	2008			2008
	(dollars in thousands)
Unrealized gains on investments, net of $240 and $684 income taxes as of November 1, 2008 and February 2, 2008, respectively.	$	405		$	1,153
Unrealized loss on interest rate swap, net of $1,725 and $2,241 income taxes as of November 1, 2008 and February 2, 2008, respectively.		(2,906	)		(3,775	)
Defined benefit obligations, net of $35,782 and $38,807 income taxes as of November 1, 2008 and February 2, 2008, respectively.		(60,278	)		(65,374	)
Accumulated other comprehensive loss	$	(62,779	)	$	(67,996	)

(4) Goodwill

     Goodwill and other intangible assets are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” This statement requires that goodwill and other intangible assets with indefinite lives should not be amortized, but should be tested for impairment on an annual basis, or more often if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The goodwill impairment test involves a two-step process. The first step is a comparison of the reporting unit’s fair value to its carrying value. The Company determines fair value through various valuation techniques including discounted cash flows, previous market transactions and peer group comparisons. If the carrying value of the reporting unit exceeds its estimated fair value in the first step, a second step is performed to allocate the fair value of the reporting unit to its net assets, including any previously unrecognized identifiable intangible assets. The fair value of the goodwill resulting from this allocation process is then compared to the carrying value of the goodwill with the difference representing the amount of impairment.

     A disproportionate amount of the Company’s revenues and a substantial amount of the Company’s operating income are realized during the fourth quarter. Accordingly, the Company’s annual impairment test date is its fiscal year end. However, due to recent deterioration in the economy and the resulting impact on consumer confidence and discretionary spending, the Company performed a sensitivity analysis on the fair value of the reporting unit at November 1, 2008, and no impairment of goodwill was indicated. It is possible that changes in business conditions or in the numerous variables associated with the judgments, assumptions and estimates made by the Company in determining the fair value of the reporting unit could in the future require the Company to impair all or a portion of the goodwill balance. If the Company were required to write down its goodwill and record a related non-cash impairment charge, it would not affect the Company’s compliance with financial covenants under its various debt agreements.

(5) Investment Securities

     In evaluating the possible impairment of the Company’s available-for-sale equity investment securities in accordance with FASB Staff Position (“FSP”) No. 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial conditions and near-term prospects of the issuer and the ability and intent of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Due to the current economic environment and the financial condition of the issuer, the Company recognized an other-than-temporary impairment on a portion of its investment securities. The impaired investment security had experienced a significant decline in fair value and the Company did not anticipate recovering the security’s cost basis in

9

BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the near future. Accordingly, the Company recorded a $0.6 million other-than-temporary impairment during the three months ended November 1, 2008 in gain (loss) on investments, and reduced the cost basis of the security to the estimated fair value.

     At November 1, 2008, the Company’s other investment securities with an unrealized loss position were, in the Company’s belief, primarily due to current economic market conditions and the Company does not believe that the securities are other-than-temporarily impaired. At November 1, 2008, the Company has both the intent and the ability to hold these securities for a period of time necessary to recover the unrealized loss.

(6) Fair Value Measurements

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. The Company partially adopted SFAS No. 157 as of February 3, 2008. Although the adoption of SFAS No. 157 did not have an effect on the Company’s condensed consolidated financial statements, the Company is now required to provide additional disclosures. In February 2008, the FASB issued FSP No. 157-2, “Effective Date of FASB Statement No. 157”, which delayed for one year the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company elected to defer the adoption of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities and will adopt the additional disclosure requirements during fiscal year 2010.

     SFAS No. 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets and liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

     As of November 1, 2008, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis. These included the Company’s investment securities and an interest rate swap. The Company utilized the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant data generated by market transactions involving identical or comparable assets or liabilities.

     The Company’s investment securities are classified as available-for-sale and the unrealized holding gains and losses are included in other comprehensive income (loss). The fair value of available-for-sale securities are based on quoted market prices. The Company has entered into interest rate swap agreements with financial institutions to manage the exposure to changes in interest rates. The fair values of swap contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The Company has consistently applied these valuation techniques in all periods presented. Additionally, the changes in the fair market value of swaps designated as cash flow hedges are accounted for in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” and swaps that are not designated as hedges are marked to market through gain (loss) on investments. During the nine months ended November 1, 2008, the Company recorded a $2.3 million gain on investments for a swap that was not designated as a cash flow hedge.

10

BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The Company’s assets and liabilities measured at fair value on a recurring basis subject to the disclosure requirements of SFAS No. 157 at November 1, 2008, were as follows:

			Fair Value Measurements at Reporting Date Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
(dollars in thousands)	November 1,		Identical Assets		Observable Inputs		Inputs
Description	2008		(Level 1)		(Level 2)		(Level 3)
Investment securities	$	2,489	$	2,489	$	—	$	—
Total assets measured at fair value	$	2,489	$	2,489	$	—	$	—
Interest rate swap liability	$	4,631	$	—	$	4,631	$	—
Total liabilities measured at fair value	$	4,631	$	—	$	4,631	$	—

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of SFAS No. 115,” which permits an entity to measure many financial assets and financial liabilities at fair value that are not currently required to be measured at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with a few exceptions. SFAS No. 159 amends previous guidance to extend the use of the fair value option to available-for-sale and held-to-maturity securities. The statement also establishes presentation and disclosure requirements to help financial statement users understand the effect of the election. The Company adopted SFAS No. 159 as of February 3, 2008 but did not elect the fair value measurement option for any financial assets or liabilities.

(7) Asset Impairment and Exit Costs

     During the three months ended November 1, 2008, the Company recorded $0.7 million in exit costs comprised primarily of severance costs associated with the planned outsourcing of certain information technology and support functions. During the three months ended November 3, 2007, the Company recorded a $1.2 million impairment charge to adjust a retail location’s net book value to fair market value and a $1.3 million charge for real estate holding costs and other store closing costs.

     During the nine months ended November 1, 2008, the Company recorded $2.1 million in exit costs comprised primarily of severance costs associated with the planned outsourcing of certain information technology and support functions. In addition, the Company recorded $0.6 million in impairment charges to adjust a retail location’s net book value to fair market value. During the nine months ended November 3, 2007, the Company recorded $7.9 million in impairment charges to adjust two retail locations’ net book values to fair market value, a $1.8 million asset impairment charge for assets related to a software development project that was abandoned and a $1.5 million charge for real estate holding costs and other store closing costs. The Company determines fair value of its retail locations primarily based on the present value of future cash flows.

(8) Sale of Properties

     Effective September 24, 2008, the Company sold for $4.0 million an acquired distribution facility, which was classified as held for sale at August 2, 2008. This transaction resulted in a gain on the sale of property of $0.7 million.

     The Company sold for $11.6 million an acquired corporate headquarters facility on April 22, 2008, which was classified as held for sale at February 2, 2008. This transaction resulted in a gain on the sale of property of $0.5 million. In addition, during the nine months ended November 1, 2008, the Company sold two stores for net proceeds of $2.6 million, which resulted in no gain or loss.

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BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     On April 27, 2007, the Company sold a portion of its headquarters building located in Charlotte, NC for $23.3 million. The Company also entered into a lease arrangement with the purchaser of the property to lease the property for a term of 13 years, 8 months. The sale and leaseback transaction resulted in a gain on the sale of the property of $7.3 million, which has been deferred and will be recognized ratably over the lease term.

     During the nine months ended November 3, 2007, the Company sold five former Parisian stores for net proceeds of $18.5 million and one former Proffitt’s and McRae’s store for net proceeds of $10.0 million, which resulted in no gain or loss.

(9) Borrowings

     As of November 1, 2008, the annual maturities of long-term debt and capital lease obligations over the next five years are $4.6 million, $21.4 million, $353.1 million, $103.2 million, and $3.1 million, respectively.

     During fiscal year 2006, the Company entered into a $21.0 million, 20-year variable rate, state bond facility in connection with construction of a distribution center in Mississippi. Due to unfavorable remarketing conditions during the three months ended November 1, 2008, the letter of credit backing the state bond facility was drawn upon. If remarketing efforts remain unsuccessful, the Company expects to repay the $17.8 million outstanding balance in December 2009.

     The Company utilizes derivative financial instruments (interest rate swap agreements) to manage the interest rate risk associated with its borrowings. The Company has not historically traded, and does not anticipate prospectively trading, in derivatives. These agreements are used to reduce the potential impact of increases in interest rates on variable rate long-term debt. The difference between the fixed rate leg and the variable rate leg of each swap, to be paid or received, is accrued and recognized as an adjustment to interest expense. Additionally, the changes in the fair market value of swaps designated as cash flow hedges are accounted for in accordance with SFAS No. 133, and are marked to market through accumulated other comprehensive income (loss). Swaps that are not designated as hedges are marked to market through gain (loss) on investments.

     The Company’s exposure to derivative instruments is limited to one interest rate swap as of November 1, 2008, an $80.0 million (receive variable rate, pay fixed rate 5.155%) notional amount swap, which expires in fiscal year 2013. It has been designated as a cash flow hedge against variability in future interest rate payments on the $80.0 million floating rate senior note. The Company had a $125.0 million notional amount swap, which expired in September 2008, that had previously been designated as a cash flow hedge against variability in future interest payments on a $125.0 million variable rate bond facility. On July 26, 2007, the $125.0 million notional amount swap was de-designated in accordance with SFAS No. 133 due to the Company’s decision to prepay the underlying debt. This swap was marked to market in gain (loss) on investments through its expiration date.

(10) Income Taxes

     At February 2, 2008, the Company had deferred tax assets of $6.2 million related to state net operating losses (“NOL”) and job credit carryovers. These carryovers will expire primarily between fiscal year 2009 and fiscal year 2023. The Company, based on its current projections of taxable income, anticipates that it will not utilize $1.5 million of the state NOLs and job credits and therefore established a valuation allowance during the three months ended November 1, 2008.

     During the three months ended November 1, 2008, the Company settled certain state tax matters which decreased its gross unrecognized tax benefit by $3.6 million, of which $0.9 million was recorded as a decrease to interest expense, $2.5 million as a reduction to tax expense, and $0.2 million as a reduction to cash during the three months ended November 1, 2008.

     During the nine months ended November 1, 2008, the Company settled certain state tax matters included in unrecognized tax benefits. As a result of these resolutions, the Company decreased unrecognized tax benefits by $4.6

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BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

million, decreased interest expense and income tax expense by $1.2 million and $3.2 million, respectively and decreased cash by $0.2 million. The Company anticipates that its gross unrecognized tax benefit may decrease by up to $2.5 million over the remaining three months of fiscal year 2009 due to the resolution of certain state tax matters.

(11) Pension and Postretirement Benefits

     The Company has a defined benefit pension plan covering a portion of its employees. The benefits are based on years of service and the employee’s compensation. The Company also has a non-qualified defined benefit Supplemental Executive Retirement Plan (“Old SERP”), which provides retirement and death benefits to certain qualified executives and a defined benefit health care plan that provides postretirement medical and life insurance benefits to certain retired full-time employees (“Postretirement Plan”).

     The components of net periodic benefit expense for these plans are as follows:

	Three Months Ended
	Pension Plan						Old SERP Plan				Postretirement Plan
	November 1,			November 3,			November 1,		November 3,		November 1,		November 3,
	2008			2007			2008		2007		2008		2007
							(dollars in thousands)
Service cost	$	688		$	877		$	47	$	46	$	33	$	42
Interest cost		6,139			5,783			182		177		407		418
Expected return on plan assets		(5,896	)		(5,798	)		—		—		—		—
Amortization of transition obligation		—			—			—		—		65		65
Amortization of prior service cost		124			124			—		—		—		—
Amortization of net loss		2,459			2,927			54		49		4		41
Net periodic benefit expense	$	3,514		$	3,913		$	283	$	272	$	509	$	566

	Nine Months Ended
	Pension Plan						Old SERP Plan				Postretirement Plan
	November 1,			November 3,			November 1,		November 3,		November 1,		November 3,
	2008			2007			2008		2007		2008		2007
							(dollars in thousands)
Service cost	$	2,407		$	2,631		$	142	$	138	$	100	$	126
Interest cost		18,438			17,349			546		531		1,222		1,254
Expected return on plan assets		(17,688	)		(17,394	)		—		—		—		—
Amortization of transition obligation		—			—			—		—		196		195
Amortization of prior service cost		371			372			—		—		—		—
Amortization of net loss		7,379			8,781			163		147		12		123
Net periodic benefit expense	$	10,907		$	11,739		$	851	$	816	$	1,530	$	1,698

     On September 10, 2008, the Company made a discretionary $20.0 million contribution to its defined benefit pension plan.

(12) Stock-Based Compensation

     The Company has a performance based stock award program (the “LTI Plan”), which the Company uses to grant stock awards to certain key executives. Beginning in fiscal year 2009, the LTI Plan has a one-year performance period and a two-year service period. A portion of the earned shares will be issued at the end of the performance period with the remaining shares issued at the end of the service period.

(13) Earnings per Share

     Basic earnings per share (“EPS”) is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. The diluted EPS calculation includes the effect of contingently issuable stock-based compensation awards with performance vesting conditions as being outstanding at the beginning of the period in which all vesting conditions are met. The Company had no dilutive securities for the three and nine months ended November 1, 2008, and for the three months ended November 3, 2007, therefore basic and diluted EPS are the same.

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BELK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The reconciliations of basic and diluted shares for the nine months ended November 3, 2007 were:

	Nine Months Ended
	November 3,
	2007
Basic Shares	49,809,867
Dilutive contingently-issuable non-vested share awards	31,696
Diluted Shares	49,841,563

(14) Repurchase of Common Stock

     On April 2, 2008, the Company’s Board of Directors approved a self-tender offer to purchase up to 1,000,000 shares of common stock at a price of $25.60 per share. The tender offer was initiated on April 23, 2008, and on May 22, 2008, the Company accepted for purchase 520,063 shares of Class A and 352,895 shares of Class B common stock for $22.3 million.

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

Overview

     Belk, Inc., together with its subsidiaries (collectively, the “Company” or “Belk”), is the largest privately owned department store business in the United States, with over 300 stores and revenues of $3.82 billion for the fiscal year ended February 2, 2008. The Company and its predecessors have been successfully operating stores since 1888 by seeking to provide superior service and merchandise that meets customers’ needs for fashion, value and quality.

     The following discussion, which presents the results of the Company, should be read in conjunction with the Company’s consolidated financial statements as of February 2, 2008, and for the year then ended, and related Notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, all contained in the Company’s Annual Report on Form 10-K for the year ended February 2, 2008.

     The Company’s fiscal year ends on the Saturday closest to each January 31. All references to “fiscal year 2009” refer to the fiscal year that will end January 31, 2009 and all references to “fiscal year 2008” refer to the fiscal year ended February 2, 2008.

     The third quarter of fiscal year 2009 was a difficult one for the Company. Softening macroeconomic conditions, including the dramatic deterioration in financial markets and consumer confidence as the quarter progressed, weighed heavily on consumer spending, particularly for discretionary retail merchandise. As a result, the Company’s revenues decreased 8.3% in the third quarter of fiscal year 2009 to $741.4 million and comparable store revenues decreased 9.8%. Comparable stores include stores that have reached the one-year anniversary of their opening as of the beginning of the fiscal year and exclude closed stores. Operating income (loss) decreased to a $25.1 million loss in the third quarter of fiscal year 2009 compared to operating income of $2.8 million during the same period in fiscal year 2008. Net loss increased to a $23.5 million net loss or ($0.48) per basic and diluted share in the third quarter of fiscal year 2009. The decrease in net income (loss) was due primarily to the revenue decline during the period and the resulting lower gross margin, offset by lower asset impairment and exit costs.

     The Company’s revenues decreased 7.9% in the first nine months of fiscal year 2009 to $2,388.0 million and comparable store revenues decreased 7.5%. Operating income decreased to $18.5 million in the first nine months of fiscal year 2009. Net income (loss) decreased to a $10.2 million net loss or ($0.21) per basic and diluted share. The decrease in net income (loss) was attributed primarily to the revenue decline during the period offset by lower selling, general, and administrative (“SG&A”) and asset impairment and exit costs.

     If the downturn in the economy continues to impact consumer discretionary spending and reduce consumer purchases of the Company’s merchandise, it is likely to continue to adversely impact the Company’s results of operations and continued growth. In addition, continued macroeconomic changes and declines in our profitability could result in a charge to earnings for the non-cash impairment of goodwill. While such a charge would not affect the Company’s cash flow, it is likely that it would result in a decrease to our income or an increase in our losses. The Company’s various debt agreements contain financial covenants that exclude non-cash charges. Therefore, any impairment of goodwill would not have an adverse effect on the Company’s financial covenant compliance. Continued deterioration in consumer spending could cause the Company to seek to amend its financial covenants, pay-down debt or take other actions to maintain financial covenant compliance.

     As of November 1, 2008, the Company operated 308 department stores in 16 states, primarily in the southern 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, fine jewelry, gifts and other types of quality merchandise. The Company also sells exclusive private label brands, which offer customers differentiated merchandise selections. Larger Belk stores may include hair salons, spas, restaurants, optical centers and other amenities.

     The Company seeks to be the leading department store in its markets by selling merchandise to customers that meets their needs for fashion, selection, value, quality and service. To achieve this goal, Belk’s business strategy focuses on quality merchandise assortments, effective marketing and sales promotional strategies, attracting and retaining talented,

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well-qualified associates to deliver superior customer service, and operating efficiently with investments in information technology and process improvement.

     The Company operates department stores in the highly competitive retail apparel industry. Management believes that the principal competitive factors for retail department store operations include merchandise selection, quality, value, customer service and convenience. The Company believes its stores are strong competitors in all of these areas. The Company’s primary competitors are traditional department stores, mass merchandisers, national apparel chains, individual specialty apparel stores and direct merchant firms.

     The Company intends to continue to open new stores selectively in new and existing markets in order to increase sales, market share and customer loyalty. Management believes that opportunities for long-term 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 on medium-sized markets and suburban communities surrounding larger metropolitan markets with store units in the 60,000 to 120,000 square-foot size range.

     The Company intends to expand and strengthen its presence as a multi-channel retailer through an expanded eCommerce initiative. In September 2008, the Company launched a substantially updated and redesigned website that enhances customers’ online shopping capabilities, offers expanded merchandise assortments, and enables customers to access a broader range of Company information online, including current sales promotions, special events and corporate information.

Results of Operations

     The following table sets forth, for the periods indicated, the percentage relationship to revenues of certain items in the Company’s unaudited condensed consolidated statements of income, as well as a period comparison of changes in comparable store revenue.

	Three Months Ended						Nine Months Ended
	November 1,			November 3,			November 1,			November 3,
	2008			2007			2008			2007
SELECTED FINANCIAL DATA
Revenues		100.0	%		100.0	%		100	%		100	%
Cost of goods sold (including occupancy, distribution and buying expenses)		71.8			70.7			69.7			69.5
Selling, general and administrative expenses		31.8			28.9			29.6			27.9
Gain on sale of property and equipment		0.3			0.3			0.2			0.1
Asset impairment and exit costs		0.1			0.3			0.1			0.4
Operating income (loss)		(3.4	)		0.3			0.8			2.3
Interest expense, net		1.6			1.9			1.6			1.7
Gain (loss) on investments		—			—			0.1			—
Income (loss) before income taxes		(5.0	)		(1.5	)		(0.8	)		0.5
Income tax expense (benefit)		(1.9	)		(0.7	)		(0.3	)		0.2
Net income (loss)		(3.2	)		(0.9	)		(0.4	)		0.4
Comparable store revenue increase (decrease)		(9.8	)		(4.4	)		(7.5	)		0.2

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Revenues

     The following table gives information regarding the percentage of revenues contributed by each merchandise area for each of the respective periods. There were no material changes for the periods as reflected in the table below.

	Three Months Ended						Nine Months Ended
	November 1,			November 3,			November 1,			November 3,
Merchandise Areas	2008			2007			2008			2007
Women’s		38	%		38	%		40	%		39	%
Cosmetics, Shoes and Accessories		31			31			31			30
Men’s		15			15			15			15
Home		9			9			8			9
Children’s		7			7			6			7
Total		100	%		100	%		100	%		100	%

Comparison of the Three and Nine Months Ended November 1, 2008 and November 3, 2007

     Revenues.The Company’s revenues for the three months ended November 1, 2008 decreased 8.3%, or $66.9 million, to $741.4 million from $808.3 million during the same period in fiscal year 2008. The decrease is primarily attributable to a 9.8% decrease in revenues from comparable stores and a $3.1 million decrease in revenues due to closed stores, partially offset by an increase in revenues from new stores of $13.3 million.

     The Company’s revenues for the nine months ended November 1, 2008 decreased 7.9%, or $204.4 million, to $2,388.0 million from $2,592.4 million during the same period in fiscal year 2008. The decrease is primarily attributable to a 7.5% decrease in revenues from comparable stores and a $71.6 million decrease in revenues due to closed stores, partially offset by an increase in revenues from new stores of $54.4 million.

     Cost of goods sold.Cost of goods sold was $532.6 million, or 71.8% of revenues, for the three months ended November 1, 2008 compared to $571.6 million, or 70.7% of revenues, for the same period in fiscal year 2008. The increase in cost of goods sold as a percentage of revenues for the three months ended November 1, 2008 was primarily attributable to a $2.9 million increase in store occupancy costs over the same period in fiscal year 2008 while revenues declined, as well as increased markdowns as a percentage of revenues.

     Cost of goods sold was $1,664.5 million, or 69.7% of revenues, for the nine months ended November 1, 2008 compared to $1,802.0 million, or 69.5% of revenues, for the same period in fiscal year 2008. The increase in cost of goods sold as a percentage of revenues for the nine months ended November 1, 2008 was primarily attributable to a $3.3 million increase in store occupancy costs over the same period in fiscal year 2008 while revenues declined.

     Selling, general and administrative expenses. SG&A expenses were $235.4 million, or 31.8% of revenues for the three months ended November 1, 2008, compared to $233.7 million, or 28.9% of revenues, for the same period in fiscal year 2008. The increase in SG&A expenses of $1.7 million was due primarily to $3.7 million in expense from the expanded eCommerce initiative, $1.3 million in depreciation expense and $6.5 million of performance based compensation expense, offset by reduced selling related expenses consisting primarily of payroll expense in response to the declining sales environment. The increase in SG&A expenses as a percentage of revenues was primarily due to the following:

• Depreciation expense increased as a percentage of revenues by 0.61% primarily due to new store openings and expansions in the past year combined with the decline in revenue.

• Performance based compensation increased as a percentage of revenues by 0.77% due to larger reductions for performance based compensation expense in the prior year.

• Other non-selling related expenses increased as a percentage of revenues by 1.20% primarily due to the 8.3% decline in revenue.

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     SG&A expenses were $706.5 million, or 29.6% of revenues for the nine months ended November 1, 2008, compared to $724.5 million, or 27.9% of revenues, for the same period in fiscal year 2008. The decrease in SG&A expenses of $18.0 million was due to reductions in selling related payroll expense of $13.5 million in response to the declining sales environment, as well as a decrease in one-time acquisition-related expenses of $15.0 million offset by an increase in performance based compensation expense in the current year. The increase in SG&A expenses as a percentage of revenues was primarily due to the 7.9% decline in revenue, which more than offset the improvement resulting from the decrease in the dollar amount of SG&A expenses.

     Asset impairment and exit costs.During the three months ended November 1, 2008, the Company recorded $0.7 million in exit costs comprised primarily of severance costs associated with the planned outsourcing of certain information technology and support functions. During the three months ended November 3, 2007, the Company recorded a $1.2 million impairment charge to adjust a retail location’s net book value to fair market value and a $1.3 million charge for real estate holding costs and other store closing costs.

     During the nine months ended November 1, 2008, the Company recorded $2.1 million in exit costs comprised primarily of severance costs associated with the planned outsourcing of certain information technology and support functions. In addition, the Company recorded $0.6 million in impairment charges to adjust a retail location’s net book value to fair market value. During the nine months ended November 3, 2007, the Company recorded $7.9 million in impairment charges to adjust two retail locations’ net book values to fair market value, a $1.8 million asset impairment charge for assets related to a software development project that was abandoned and a $1.5 million charge for real estate holding costs and other store closing costs. The Company determines fair value of its retail locations primarily based on the present value of future cash flows.

     Interest expense, net.Interest expense, net, decreased $3.1 million, or 20.7%, from $15.0 million during the three months ended November 3, 2007 to $11.9 million for the three months ended November 1, 2008. Interest expense, net, decreased $5.5 million, or 12.5%, from $43.9 million during the nine months ended November 1, 2007 to $38.4 million for the nine months ended November 1, 2008. The decrease for the three and nine months ended November 3, 2007 was primarily due to higher debt levels in fiscal year 2008 associated with the prior year refinancing of the $125.0 million ten-year variable rate bond that was prepaid in full on November 1, 2007.

     Gain (loss) on investments.The gain on investments of $1.6 million for the nine months ended November 1, 2008 was primarily due to a gain on the Company’s undesignated interest rate swap, offset by an other-than-temporary impairment of an available-for-sale equity security of $0.6 million.

     Income tax expense(benefit).Income tax benefit for the three months ended November 1, 2008 was $13.8 million compared to $5.6 million for the same period in fiscal year 2008. The effective income tax rate for the three months ended November 1, 2008 was 37.0% compared to 44.5% in the same period in fiscal year 2008. The decrease in the tax rate primarily resulted from the effect of an income tax benefit resulting from a change in estimate as a result of filing the fiscal year 2008 tax return and resolution of certain state tax matters of $2.5 million. In addition, the Company recognized income tax expense of $1.5 million for a valuation allowance related to state net operating losses and job credit carryovers.

     Income tax benefit for the nine months ended November 1, 2008 was $8.1 million compared to $4.1 million of income tax expense for the same period in fiscal year 2008. The effective income tax rate for the nine months ended November 1, 2008 was 44.2% compared to 29.2% in the same period in fiscal year 2008. The difference in the tax rate resulted primarily from settling certain state tax matters which increased income tax benefit by $3.2 million.

Seasonality and Quarterly Fluctuations

     The Company has historically experienced and expects to continue to experience seasonal fluctuations in its revenues, operating income and net income due to the seasonal nature of the retail business. The highest revenue period for the Company is the fourth quarter, which includes the holiday selling season. A disproportionate amount of the Company’s revenues and a substantial amount of the Company’s operating and net income are realized during the fourth quarter. If for any reason the Company’s revenues were below seasonal norms during the fourth quarter, the Company’s annual results of operations could be adversely affected. The Company’s inventory levels generally reach their highest

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levels in anticipation of increased revenues during these months. The Company’s quarterly results of operations could also fluctuate significantly as a result of a variety of factors, including the timing of new store openings.

Liquidity and Capital Resources

     The Company’s primary sources of liquidity are cash on hand, cash flows from operations, and borrowings under debt facilities, which consist of a $750.0 million credit facility that matures in October 2011 and $325.0 million in senior notes. The credit facility is comprised of an outstanding $350.0 million term loan and a $400.0 million revolving line of credit. The senior notes are comprised of an $80.0 million floating rate senior note that matures in July 2012, a $20.0 million fixed rate senior note that expires in July 2012, a $100.0 million fixed rate senior note that matures in July 2015, and a $125.0 million fixed rate senior note that matures in August 2017.

     The debt facilities place certain restrictions on mergers, consolidations, acquisitions, sales of assets, indebtedness, transactions with affiliates, leases, liens, investments, dividends and distributions, exchange and issuance of capital stock and guarantees, and require maintenance of minimum financial ratios, which include a leverage ratio, consolidated debt to consolidated capitalization ratio and a fixed charge coverage ratio. These ratios are calculated exclusive of non-cash charges, such as fixed asset, goodwill and other intangible asset impairments. As of November 1, 2008, the Company was in compliance with all covenants and does not anticipate that complying with the covenants will adversely impact the Company’s liquidity in fiscal year 2009. Continued adverse effects of deteriorating economic conditions on consumer spending could cause the Company to seek to amend its financial covenants, pay-down debt or take other actions to maintain financial covenant compliance.

     Through October 2009, under certain circumstances the credit facility may be increased to $850.0 million at the Company’s request. The credit facility allows for up to $250.0 million of outstanding letters of credit. The credit facility charges interest based upon certain Company financial ratios. As of November 1, 2008, the interest spread was LIBOR plus 87.5 basis points, but is expected to increase to LIBOR plus 112.5 basis points in December 2008. The credit facility contains restrictive financial covenants including leverage and fixed charge coverage ratios. As of November 1, 2008, the Company had $13.4 million of standby letters of credit and a $350.0 million term loan outstanding under the credit facility. Although the stated availability under the credit facility was $386.6 million as of November 1, 2008, the leverage ratio covenant would limit the Company’s availability to $273.6 million at November 1, 2008.

     During fiscal year 2006, the Company entered into a $21.0 million, 20-year variable rate, state bond facility in connection with construction of a distribution center in Mississippi. Due to unfavorable remarketing conditions during the three months ended November 1, 2008, the letter of credit backing the state bond facility was drawn upon. If remarketing efforts remain unsuccessful, the Company expects to repay the $17.8 million outstanding balance in December 2009.

     The Company utilizes derivative financial instruments (interest rate swap agreements) to manage the interest rate risk associated with its borrowings. The Company has not historically traded, and does not anticipate prospectively trading, in derivatives. These agreements are used to reduce the potential impact of increases in interest rates on variable rate long-term debt. The difference between the fixed rate leg and the variable rate leg of each swap, to be paid or received, is accrued and recognized as an adjustment to interest expense. Additionally, the changes in the fair market value of swaps designated as cash flow hedges are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities” and are marked to market through accumulated other comprehensive income (loss). Swaps that are not designated as hedges are marked to market through gain (loss) on investments.

     The Company’s exposure to derivative instruments is limited to one interest rate swap as of November 1, 2008, an $80.0 million (receive variable rate, pay fixed rate 5.155%) notional amount swap, which expires in fiscal year 2013. It has been designated as a cash flow hedge against variability in future interest rate payments on the $80.0 million floating rate senior note. The Company had a $125.0 million notional amount swap, which expired in September 2008, that had previously been designated as a cash flow hedge against variability in future interest payments on a $125.0 million variable rate bond facility. On July 26, 2007, the $125.0 million notional amount swap was de-designated in accordance with SFAS No. 133 due to the Company’s decision to prepay the underlying debt. This swap was marked to market in gain (loss) on investments through its expiration date.

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     Net cash provided by operating activities was $72.5 million for the nine months ended November 1, 2008 compared to $14.1 million net cash used for the same period in fiscal year 2008. The increase in cash flows from operating activities for the nine months ended November 1, 2008 was principally due to a reduction in inventory in response to the declining sales environment offset by lower net income (loss) and a $20.0 million discretionary contribution to the Company’s defined benefit plan.

     Net cash used by investing activities decreased $7.8 million to $104.0 million for the nine months ended November 1, 2008 from $111.8 million for the same period in fiscal year 2008. The decrease in cash used by investing activities primarily resulted from reduced purchases of property and equipment of $55.6 million, offset by lower proceeds from the sale of property and equipment principally related to the prior year sale-leaseback of a portion of the Company’s headquarters building.

     Net cash used by financing activities was $46.2 million for the nine months ended November 1, 2008 compared to $16.5 million for the same period in fiscal year 2008. The increase in cash used by financing activities primarily relates to proceeds from borrowings of $33.7 million from its line of credit in the prior year.

     Management of the Company believes that existing cash on hand, as well as cash flows from operations and existing credit facilities will be sufficient to cover working capital needs, stock repurchases, dividends, 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 February 2, 2008 was included under the heading “Contractual Obligations and Commercial Commitments” in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2008. To facilitate an understanding of the significant changes in the Company’s contractual obligations and commercial commitments, occurring in the normal course of business, the following table includes only those items that have changed significantly since the fiscal year ended February 2, 2008.

	Payments Due by Period
Updated Contractual Obligations	Total		Less than 1 Year		1-3 years		3 - 5 Years		More than 5 Years
			(dollars in thousands)
Long-Term Debt	$	692,780	$	—	$	367,780	$	100,000	$	225,000
Estimated Interest Payments on Debt (a)		178,440		36,844		72,084		30,511		39,001

(a) Interest rates used to compute estimated interest payments utilize the stated rate for fixed rate debt and projected interest rates for variable rate debt. Projected rates range from 3.5% to 6.5% over the term of the variable rate debt agreements.

     In addition, the total uncertain tax position liability for FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” is approximately $22.4 million, including tax, penalty and interest. The Company is not able to reasonably estimate the timing of these tax related future cash flows and have excluded these liabilities from the table. At this time, the Company anticipates that its gross unrecognized tax benefit may decrease by up to $2.5 million over the remaining three months of fiscal year 2009 due to the resolution of certain state tax matters.

Off-Balance Sheet Arrangements

     The Company has not provided any financial guarantees as of November 1, 2008. The Company has not created, and is not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating the Company’s business. The Company does not have any arrangements or relationships with entities that are not consolidated into the financial statements that are reasonably likely to materially affect the Company’s liquidity or the availability of capital resources.

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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 nine months ended November 1, 2008 from the disclosures contained in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2008.

Item 4. Controls and Procedures

     The Company’s management conducted an evaluation pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by Belk in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

     During the period covered by this report, there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.Legal Proceedings

     In the ordinary course of business, the Company is subject to various legal proceedings and claims. The Company believes that the ultimate outcome of these matters will not have a material adverse effect on its consolidated financial position or results of operations.

Item 1A.Risk Factors

     There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K filed on April 17, 2008 other than the updated risk factors listed below.

General Economic, Political and Business Conditions

     General economic, political and business conditions, nationally and in our market areas, are beyond our control. These factors influence our forecasts and impact actual performance. Factors include rates of economic growth, interest rates, inflation or deflation, consumer credit availability, levels of consumer debt and bankruptcies, tax rates and policy, unemployment trends, potential acts of terrorism and threats of such acts and other matters that influence consumer confidence and spending. Consumer purchases of discretionary items, including our merchandise, generally decline during recessionary periods and other periods where disposable income is adversely affected. A downturn in the economy may affect consumer purchases of our merchandise and adversely impact our results of operations and continued growth. In addition, macroeconomic changes and declines in our profitability could result in a charge to earnings for the impairment of goodwill, which would not affect our cash flow, but could decrease our earnings or increase our losses.

Debt Covenants

     Our failure to comply with debt covenants could adversely affect capital resources, financial condition and liquidity. Our debt agreements contain certain restrictive financial covenants, which include a leverage ratio, consolidated debt to consolidated capitalization ratio and a fixed charge coverage ratio. A downturn in the economy may reduce consumer purchases of our merchandise and adversely impact our results of operations and continued growth. If we fail to comply with such covenants as a result of one or more of the factors listed above as well as in the risk factors described in our Annual Report on Form 10-K filed with the SEC on April 17, 2008 as updated in this report, we may be forced to settle outstanding debt obligations, negatively impacting cash flows. Our ability to obtain future financing may also be negatively impacted.

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.

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Item 6.Exhibits

(a) Exhibits

3.1	Form of Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to pages B-24 to B-33 of the Company’s Registration Statement on Form S-4/A, filed on March 5, 1998 (File No. 333-42935)).
3.2	Form of Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004).
4.1	Articles Fourth, Fifth and Seventh of the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to pages B-24 to B-33 of the Company’s Registration Statement on Form S-4/A, filed on March 5, 1998 (File No. 333-42935)).
4.2	Articles I and IV of the Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004).
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BELK, INC.
Dated: December 11, 2008	By:	/s/ Ralph A. Pitts
		Ralph A. Pitts
		Executive Vice President, General Counsel and Corporate Secretary (Authorized Officer of the Registrant)
	By:	/s/ Brian T. Marley
		Brian T. Marley
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

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