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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2001
OR
[ ] 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.
(Exact name of registrant as specified in its charter)
DELAWARE 56-2058574
(State of incorporation) (IRS Employer Identification No.)
2801 WEST TYVOLA ROAD, CHARLOTTE, NORTH CAROLINA 28217-4500
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(704) 357-1000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Class A Common Stock, $0.01 per share None
Class B Common Stock, $0.01 per share None
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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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common equity held by non-affiliates of
the Registrant (assuming for these purposes, but without conceding, that all
executive officers and directors are "affiliates" of the Registrant) as of April
25, 2001 (based on the book value per share of Common Stock of the Registrant,
as of February 3, 2001) was $301,959,409. 54,741,706 shares of common stock were
outstanding as of April 25, 2001, comprised of 53,690,841 shares of the
registrant's Class A Common Stock, par value $0.01, and 1,050,865 shares of the
registrant's Class B Common Stock, par value $0.01.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held on May 30, 2001 are incorporated herein by reference in Part III.
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BELK, INC.
TABLE OF CONTENTS
ITEM NO. PAGE NO.
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PART I
1. Business.................................................... 2
2. Properties.................................................. 9
3. Legal Proceedings........................................... 10
4. Matters Submitted to a Vote of Security Holders............. 10
PART II
5. Market Information for Registrant's Common Equity and 11
Related Stockholder Matters.................................
6. Selected Financial Data..................................... 11
7. Management's Discussion and Analysis of Financial Condition 12
and Results of Operations...................................
7A. Quantitative and Qualitative Disclosure about Market Risk... 17
8. Consolidated Financial Statements and Supplementary Data.... 18
9. Changes in and Disagreements with Accountants on Accounting 38
and Financial Disclosure....................................
PART III
10. Directors and Executive Officers of the Registrant.......... 38
11. Executive Compensation...................................... 38
12. Security Ownership of Certain Beneficial Owners and 38
Management..................................................
13. Certain Relationships and Related Transactions.............. 38
PART IV
14. Exhibits, Financial Statements, Schedules and Reports on 38
Form 8-K....................................................
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THIS INFORMATION CONTAINS FORWARD-LOOKING STATEMENTS
Certain statements made in this report, and other written or oral
statements made by or on behalf of the Company, may constitute "forward-looking
statements" within the meaning of the federal securities laws. Statements
regarding future events and developments and the Company's future performance,
as well as our expectations, beliefs, plans, estimates or projections relating
to the future, are forward-looking statements within the meaning of these laws.
You can identify these forward-looking statements through our use of words such
as "may", "will", "intend", "project", "expect", "anticipate", "believe",
"estimate", "continue" or other similar words. Forward-looking statements
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, anticipated benefits from
the consolidation of our operating divisions and distribution facilities, the
expected benefit of our new systems and technology and the expected increase in
our sales and revenues generated through our proprietary charge card program.
These forward-looking statements are subject to certain risks and uncertainties
which may cause our actual results to differ significantly from the results we
discuss in such forward-looking statements. 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:
- competition among 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;
- levels of consumer debt and bankruptcies;
- changes in interest rates;
- changes in buying, charging and payment behavior among our customers;
- the effects of weather conditions on seasonal sales in our market areas;
- seasonal fluctuations in net income due to increased consumer spending
during the holiday season, timing of new store openings, merchandise mix,
the timing and level of markdowns and historically low first quarter
results;
- the competitive pricing environment within the department and specialty
store industries;
- our ability to compete on merchandise mix, quality, style, service,
convenience and credit availability;
- the effectiveness of our advertising, marketing and promotional
campaigns;
- our ability to determine and implement appropriate merchandising
strategies, merchandise flow and inventory turnover levels;
- our realization of planned synergies and cost savings through the
consolidation of our distribution facilities and functions;
- the effectiveness of our e-commerce strategies;
- our ability to contain costs;
- our ability to accomplish our logistics and distribution strategies;
- changes in our business strategy or development plans;
- our ability to hire and retain key personnel;
- changes in laws and regulations, including changes in accounting
standards, tax statutes or regulations, environmental and land use
regulations, and uncertainties of litigation;
- our ability to obtain capital to fund any growth or expansion plans; and
- general economic and business conditions, both nationally and in our
market areas.
Our other filings with the Securities and Exchange Commission may contain
additional information concerning the risks and uncertainties listed above, and
other factors you may wish to consider. Upon request, we will provide copies of
these filings (without exhibits) to you free of charge.
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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.
PART I
ITEM 1. BUSINESS
GENERAL
Belk, Inc., together with its subsidiaries (collectively, the "Company" or
"Belk"), is the largest privately owned department store business in the United
States, with total revenues of approximately $2.27 billion for the fiscal year
ended February 3, 2001. The Company and its predecessors have been successfully
operating department stores since 1888 by providing superior service and
merchandise that meets customers' needs for fashion, value and quality.
The Company operates 207 retail department stores in 13 states in the
southeastern United States. Belk stores seek to provide customers convenient
shopping, with a dominant 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, restaurants, optical centers and other
amenities.
Although the Company operates 48 Belk stores that exceed 100,000 square
feet in size, most Belk stores range in size from 50,000 to 80,000 square feet.
Most of the Belk stores are anchor tenants in major regional malls and shopping
centers, primarily in medium and smaller markets. In addition to department
stores, the Company operates two stores that sell limited selections of
cosmetics, hosiery and accessories for women under the "Belk Express" store
name. The Belk stores occupy in the aggregate approximately 16.627 million
square feet of space.
Management of the Belk stores is organized into four regional operating
divisions, with each unit headed by a division chairman and a division
president. Each division supervises a number of stores and maintains an
administrative office in the markets served by the division. Division offices
provide overall management and support for the Belk stores in their regions.
Belk Stores Services, Inc., a subsidiary of Belk, Inc., and its subsidiary Belk
Administration Company (collectively "BSS") coordinate the operations of Belk
stores on a company-wide basis by providing services to the Belk division
offices and stores, such as merchandising, marketing, advertising and sales
promotion, information systems, human resources, public relations, accounting,
real estate and store planning, credit, legal, tax, distribution and purchasing.
The Company has established a separate division, headed by a division president,
to develop and manage its e-commerce initiatives.
The Company was incorporated in Delaware in 1997. The Company's principal
executive offices are located at 2801 West Tyvola Road, Charlotte, North
Carolina 28217-4500, and its telephone number is (704) 357-1000.
THE REORGANIZATION
In fiscal year 2001, Belk continued to realize the benefits of the merger
and reorganization of the former 112 Belk corporations into Belk, Inc., which
became effective on May 2, 1998 (the "Reorganization"). Following the
consolidation of its operating divisions in June 1999, the Company constructed a
new 371,000 square foot central distribution center in Blythewood, S.C. in the
fall of 2000 as part of the restructuring of the Company's merchandise
distribution and logistics network. In January 2001, the Company announced that
its distribution centers located in Charlotte, N.C., Morrisville, N.C.,
Greensboro, N.C., Mauldin, S.C., Summerville, S.C. and Fayetteville, N.C.,
together with store merchandise receiving and processing functions in 91 stores
not previously serviced by a distribution center, would be consolidated into the
new Blythewood center.
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The consolidation is scheduled to be complete by August 2001, and the Company
expects the consolidation to result in significant additional expense savings
and logistical efficiencies.
BUSINESS STRATEGY
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 six key elements: (1) a target customer focus; (2) focused merchandise
assortments; (3) compelling sales promotions; (4) distinctive customer service;
(5) a winning store and market strategy; and (6) a "clicks and mortar"
e-commerce strategy which supports and enhances the Company's department store
business and provides an additional distribution channel for certain categories
of merchandise.
Target Customer Focus. Belk's primary target customer is a
35-to-54-year-old female who works outside of the home; who has a family income
of $35,000 to $75,000 per year; who buys for herself and her family; and who is
style conscious and seeks updated fashions and quality basic merchandise. The
Company plans to maintain its target customer focus by conducting ongoing
research to determine target customer needs, such as annual customer
satisfaction surveys and customer focus group studies. Belk believes that its
commitment to meeting the target customer's needs will produce profitable sales
increases in women's apparel, accessories and shoe categories and in other key
merchandise areas, including juniors apparel, accessories and shoes; men's and
children's apparel, accessories and shoes; cosmetics; home furnishings and
household merchandise; and gifts.
The Company intends to respond aggressively to changing customer shopping
and service needs through effective communication with customers and consumer
research. The Company also seeks to maximize customer convenience through
effective inventory management that ensures consistently high inventory levels
of basic and advertised merchandise, effective store layout, merchandise signing
and visual display, and quick and efficient transactions at the point of sale.
The Company also strives to continue to attract and retain well-qualified
associates who provide a high level of friendly, personal service to enhance the
customer's shopping experience.
Focused Merchandise Assortments. The Company has positioned itself through
its target customer focus to take advantage of significant sales growth
opportunities in its women's apparel (including special sizes), accessories and
shoe businesses. The Company has launched merchandise initiatives focused on
providing its target customer with in-depth assortments of updated, branded
fashions for career, casual and social occasions.
Compelling Sales Promotions. Belk's sales promotion strategy focuses on
promoting merchandise which the target customer desires, offering her more
compelling sale discounts, and providing adequate inventory to support all sales
promotion events.
Distinctive Customer Service. The Company's customer research has
determined that Belk generally differentiates itself from competitors through
the high level of service its stores provide. Belk intends to continue its
tradition of employing sales associates who are knowledgeable about the
merchandise they sell, approach customers promptly, help when needed and provide
quick checkout.
Winning Store and Market Strategy. The Company has an explicit
company-wide store and market strategy focused on maximizing return on
investment and improving its competitive position. The approach to investing in
new markets and expanding existing facilities includes a disciplined real estate
evaluation process using a balanced scorecard, rigorous financial measures, and
investment guidelines.
"Clicks and Mortar" E-Commerce Strategy. In January 2001, the Company
launched its redesigned website at belk.com which includes a state-of-the-art
gift registry and merchandise offerings available for customers to purchase
online. The goal of belk.com is to combine the speed, convenience and
accessibility of online shopping with the quality merchandise selection,
superior customer service and outstanding reputation for which Belk stores are
known and respected. The Company plans to continue to expand its online
merchandise selection and the promotion of belk.com within its stores.
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The Company also seeks to improve profitability through developing and
implementing initiatives designed to improve productivity and efficiency. Such
initiatives include logistics efficiencies achieved through the consolidation of
its distribution facilities and the implementation of a "store-ready"
merchandise program that speeds delivery of merchandise to the sales floor, the
expanded implementation of a "smart store" concept that enhances efficiencies on
the sales floor through the use of centralized cash register and gift wrap
stands, and the use of computer-based training programs. The Company is also
participating in several business-to-business Internet initiatives with other
retailers and vendors, which are aimed at improving and expediting various
business processes.
GROWTH STRATEGY
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.
As the consolidation of the department store industry continues, the Company
will also seek out and consider store acquisitions that offer opportunities and
growth in existing and contiguous markets. The Company has invested
approximately $416 million over the past five years in building new stores and
expanding and renovating existing stores.
Management of the Company believes that there are significant opportunities
for growth in existing Belk markets where the Belk name and reputation are well
known. Although the Company will take advantage of 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.
In determining where to open new stores in the future, the Company's
management will evaluate demographic information such as income and education
levels, age and occupation, availability of prime real estate locations,
existing and potential competitors and the number of Belk stores in the same or
contiguous market areas. Management will also analyze store and market sales and
income data and seek to identify economies of scale available in advertising,
distribution and other expenses as part of its process for determining new store
sites and markets for expansion.
In fiscal year 2001, the Company opened eight new stores that have a
combined size of approximately 554,000 square feet of space, and expanded five
existing stores with a total combined new space of approximately 113,000 square
feet. In fiscal year 2002, Belk plans to open four new stores that will have a
combined space of approximately 200,000 square feet, as well as major expansions
of four existing stores with a total combined new space of approximately 110,000
square feet.
New stores and major expansions opened in fiscal 2001 include:
New Stores
DATE OF NEW OR EXISTING
LOCATION SIZE OPENING MARKET
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Snellville, GA (Snellville Pavilion)................ 58,416 03/15/00 New
Charleston, SC (Citadel Mall)....................... 179,892 03/22/00 Existing
Fayetteville, GA (Fayette Pavilion)................. 65,927 04/12/00 Existing
Camden, SC (Springdale Plaza)....................... 52,289 05/03/00 Existing
Spring Hill, FL (Coastal Way)....................... 57,703 08/09/00 New
Wilkesboro, NC...................................... 50,245 10/04/00 Existing
Lady Lake, FL (La Plaza Grande)..................... 40,712 11/01/00 New
Deland, FL (West Volusia Regional).................. 48,263 11/15/00 New
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Expansions
DATE OF NEW OR EXISTING
LOCATION SIZE OPENING MARKET
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Hilton Head, SC (Shelter Cove)...................... 30,752 04/14/00 Existing
Boone, NC (Boone Mall).............................. 12,063 06/07/00 Existing
Aiken, SC (Aiken Mall).............................. 10,581 08/23/00 Existing
Anderson, SC (Anderson Mall)........................ 50,400 10/11/00 Existing
Statesboro, GA (Statesboro Mall).................... 6,125 11/15/00 Existing
New stores and major store expansions scheduled for completion in fiscal
year 2002 include:
New Stores
DATE OF NEW OR EXISTING
LOCATION SIZE OPENING MARKET
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Lake City, FL (Lake City Mall)...................... 46,119 03/07/01 New
Nacogdoches, TX (University Mall)................... 45,000 03/21/01 New
Winter Haven, FL (Winter Haven City Centre)......... 60,875 08/01/01 Existing
Shallotte, NC (Shallotte Crossing).................. 48,497 10/17/01 New
Expansions
DATE OF NEW OR EXISTING
LOCATION SIZE OPENING MARKET
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Asheville, NC (Asheville Mall)...................... 59,933 08/08/01 Existing
Waynesville, NC (Ingles Market)..................... 6,008 10/24/01 Existing
Roanoke, VA (Valley View Mall)...................... 22,800 11/07/01 Existing
Harrisonburg, VA (Valley Mall)...................... 21,735 11/14/01 Existing
MERCHANDISING
Belk stores feature quality name brand and private label merchandise in
moderate to better price ranges, providing fashion, selection and value to
customers. The merchandise mix is targeted to middle and upper-income customers
shopping for their families and homes, and includes a wide selection of fashion
apparel, accessories and shoes for women, men and children, as well as
cosmetics, home furnishings, housewares, gift and guild, jewelry, and other
types of department store merchandise.
The Company's merchandise initiatives are focused on meeting the needs of
its target customer and increasing profitable sales in women's apparel,
accessories and shoes. The goal is to position Belk stores as the leaders in
their markets in providing updated career and casual fashion assortments with
greater depth of style, selection and value. The Company's strategic merchandise
initiatives produced substantial sales increases in women's apparel during
fiscal year 2001 and have continued to improve sales throughout other areas of
the business. Double-digit sales increases were achieved in several women's
apparel areas, including moderate sportswear, petite sportswear and large size
sportswear.
Belk stores offer complete assortments of the most desirable national
brands. Most Belk stores are the leading sellers in their markets of such top
"mega-brands" as Liz Claiborne, Lauren by Ralph Lauren, Tommy Hilfiger, Estee
Lauder, Clinique, Lancome, Nine West, Fossil, Polo Ralph Lauren, Calvin Klein,
Bali, Vanity Fair and others. The Company has enjoyed excellent long-time
relationships with many top apparel and cosmetics suppliers and is often the
exclusive distributor of apparel, accessories and cosmetic lines in its markets.
This enhances the Belk stores' image as a fashion leader and enables Belk stores
to offer customers exclusive and original styles that are not generally
available in other stores in their markets.
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Belk stores also offer a number of exclusive private brands that provide
customers with merchandise that is comparable in quality and style with national
brands at substantial savings. Belk private brands, which include Kim Rogers,
Madison Studio, J. Khaki, Meeting Street and Home Accents, provide outstanding
value for customers and differentiate Belk from its competitors.
The Company intends to keep fresh seasonal inventory in stock at stores
throughout the year and to maintain inventory levels that provide optimum
in-stock positions. Belk stores place special emphasis on maintaining high
levels of inventory of advertised and basic items to ensure that consumers may
buy the merchandise they want.
MARKETING
The Company employs its strategic marketing initiatives and strategies to
develop and enhance the equity of the Belk brand, strengthen its relationship
with and become the desired destination for the target customer, and create and
strengthen "one-to-one" relationships with customers. The Company's primary
marketing strategy emphasizes direct communications with customers through
personal contact and the use of multi-faceted advertising, marketing and sales
promotion programs. This strategy encompasses extensive mass media print and
broadcast advertising, direct mailings to charge customers, comprehensive store
visual merchandising and signing, in-store special events (e.g., trunk shows,
celebrity and designer appearances) and magazine, newspaper and billboard
advertising. The Company also provides the latest information about the Company
and its merchandise offerings and sales promotions on its belk.com website.
Major sales promotions and sales events are planned and implemented in Belk
stores throughout the year. The Company regularly produces advertising circulars
that are distributed to millions of customers via newspaper inserts or direct
mailings. The Company intends to use creative advertising that effectively
communicates the Company's merchandise offerings, fashion image and reputation
for superior service to store customers in a variety of media.
Belk's "one-to-one" relationship marketing program allows the Company to
communicate and advertise more effectively with customers based on their
particular merchandise needs and shopping preferences. A computerized customer
database provides information on the purchasing behavior and shopping patterns
of charge customers that enables the Company to customize its advertising and
sales promotions to attract target customers.
E-COMMERCE
During fiscal year 2001, the Company redesigned its belk.com web site and
commenced online selling of merchandise. The Company is utilizing a solutions
based approach to its online merchandise offerings that allows customers to
select merchandise that meets their specific fashion and lifestyle needs. The
Company's approach also emphasizes dynamic marketing, personalized assortments
and targeted selling.
One of the highlights of the new belk.com is a fully integrated gift
registry that includes a wide assortment of bridal and gift merchandise that can
be registered and purchased online or in local Belk stores, and shipped directly
to the customer or gift recipient. The new gift registry is a fully integrated
system that combines the best of Internet technology and in-store shopping.
Brides and engaged couples can conveniently create their gift registry and make
selections through belk.com from a home computer, or they can go to a Belk store
where a professional bridal consultant can provide assistance using the store's
online "Great Gifts" kiosk. In the Belk stores that have kiosks, brides and
engaged couples can use a portable scanning device, which enables them to
quickly and easily enter information on their gift selections directly into the
registry system.
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BELK PROPRIETARY CHARGE PROGRAMS
The Company offers its customers the convenience of paying for their
purchases on credit using a variety of proprietary charge payment programs.
These programs include:
- 30-day revolving account;
- interest-free 30-60-90 day account;
- interest-free Table Top plan (for china, crystal, silver and other gift
purchases); and
- interest-free Fine Jewelry plan.
The Company intends to promote increased use of the Belk charge cards by
existing Belk charge customers and also to increase the number of new Belk
charge cardholders through targeted marketing campaigns and active solicitation
efforts within Belk stores. The "BelkSelects" affinity program for top Belk
charge customers is designed to attract profitable new customers, increase sales
from existing customers and increase the active Belk credit card account base.
The program offers a number of special benefits and services, such as free
deluxe gift wrapping, free basic alterations and Belk charge dollar credits, to
charge customers who have made Belk charge purchases totaling $750 or more in
the past 12 months.
The Company's charge cards are issued through Belk National Bank, a
subsidiary of the Company located in Lawrenceville, Georgia. Belk National Bank
has enabled the Company to standardize the interest rate terms of Belk charge
customer accounts across the 13 states in which Belk operates and competitively
set interest rates and fees comparable to other retailers.
BUYING
The Company's highly qualified and experienced buyers and merchants
carefully monitor the merchandise mix of the Belk stores to maximize sales and
profitability. The planning process involves a continuous review of merchandise
needs by department and demand center, as well as on an individual store basis.
Historically, Belk stores have remained in touch with local customers and
markets by using a decentralized buying process. In order to achieve a more
efficient buying process, the Company evolved to a buying process conducted by
regional division offices. Buyers in the regional division offices work together
with corporate buyers at BSS and local store personnel to ensure that each Belk
store receives merchandise assortments that meet the needs of local customers.
As part of its target customer strategy, the Company is continuing to
implement changes in its merchandising processes to strengthen and streamline
its buying and assortment planning to ensure the effective execution of the
Company's strategic merchandising initiatives. The Company has implemented new
team buying and assortment planning processes that utilize buying teams to
provide overall planning and direction for each of the Company's key merchandise
areas.
SYSTEMS AND TECHNOLOGY
Belk continued to make significant investments in technology and
information systems in order to drive sales growth, improve operating efficiency
and support its overall business strategy. The Company has placed a priority on
the development and implementation of computerized systems to support its
merchandising, sales floor, inventory and logistics initiatives. These systems
enable Belk management to quickly identify sales trends, order, track and
distribute merchandise, manage markdowns and monitor merchandise mix and
inventory levels. A total of approximately $40.5 million was invested in
information technology and e-commerce during fiscal year 2001.
In fiscal year 2001, the Company introduced its new "Great Gifts Card"
program that replaced paper gift checks with an electronic stored value card.
The new card will improve efficiency and permit the issuance of electronic
credits in lieu of cash refunds on returns without sales receipts.
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INVENTORY MANAGEMENT AND LOGISTICS
The Company opened a new 371,000 square foot Central Distribution Center in
Blythewood, S.C., in the fall of 2000 as part of the restructuring of the
Company's merchandise distribution and logistics network. In January 2001, the
Company announced that its distribution centers located in Charlotte, N.C.,
Morrisville, N.C., Greensboro, N.C., Mauldin, S.C., Summerville, S.C. and
Fayetteville, N.C. would be consolidated into the new Blythewood distribution
center by August 2001. The consolidation will also enable the Company to
eliminate functions that have previously been performed in 91 separate single
store receiving locations. The new central distribution cross-dock facility
incorporates the latest distribution center design, technology and equipment,
facilitating the automation of many labor-intensive processes.
The central distribution center, combined with new inventory management
systems and "floor ready" merchandise receipt initiatives, will enable the
Company to reduce significantly merchandise cycle time. The Company has also
recently adopted and implemented new "Store Ready" merchandise receiving
processes designed to enable stores to receive and process merchandise shipments
and move goods to the sales floor early in the day before the store opens.
NON-RETAIL BUSINESSES
Several of the Company's subsidiaries engage in businesses that indirectly
or directly support the operations of the retail department stores. The
non-retail businesses include United Electronic Services, Inc. ("UES"), a wholly
owned subsidiary of Belk, Inc., which provides equipment maintenance services,
primarily on cash registers, but also on other equipment. UES provides such
services to the Company pursuant to contracts with BSS.
INDUSTRY AND COMPETITION
The Company operates retail department stores in the highly competitive and
dynamic retail apparel industry. Management of the Company 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, including Federated Department Stores, Inc., Wal-Mart
Stores, Inc., The May Department Stores Company, Dillard's, Inc., Saks
Incorporated, Sears Roebuck & Co. and J.C. Penney Company, Inc.
TRADEMARKS AND SERVICE MARKS
BSS owns all of the principal trademarks and service marks now used by the
Company, including "Belk" and "All For You". These marks are registered with the
United States Patent and Trademark Office. The term of each of these
registrations is generally ten years, and they are generally renewable
indefinitely for additional ten-year periods, so long as they are in use at the
time of renewal. Most of the trademarks, trade names and service marks employed
by the Company are used in the Company's private brands program. The Company
intends to vigorously protect its trademarks and service marks and initiate
appropriate legal action whenever necessary.
EMPLOYEES
As of February 3, 2001, the Company had approximately 21,000 full-time and
part-time employees. Because of the seasonal nature of the retail business, the
number of employees is highest during the holiday shopping period in November
and December. The Company as a whole considers its relations with employees to
be good. None of the employees of the Company is represented by unions or
subject to collective bargaining agreements.
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ITEM 2. PROPERTIES
STORE LOCATIONS
As of February 3, 2001, the Company operated a total of 207 retail stores
in the following states:
Alabama -- 3 Maryland -- 2 Tennessee -- 3
Arkansas -- 2 Mississippi -- 1 Texas -- 2
North
Florida -- 18 Carolina -- 74 Virginia -- 19
South West
Georgia -- 39 Carolina -- 38 Virginia -- 2
Kentucky -- 4
Belk stores are located in regional malls (113), strip shopping centers
(88), "power" centers (2), "lifestyle" centers (2) and Belk Express locations
(2). Approximately 89% of the gross square footage of the typical Belk store is
devoted to selling space to ensure maximum operating efficiencies. A majority of
the stores are either new or have undergone renovations within the past ten
years. The new and renovated stores feature the latest in retail design,
including attractive exteriors and interiors. The interiors are designed to
create an exciting, comfortable and convenient shopping environment for
customers. They include the latest lighting and merchandise fixturing, as well
as quality decorative floor and wall coverings and other special decor. The
store layout is designed for ease of shopping, and store signing is used to help
customers identify and locate merchandise.
As of February 3, 2001, the Company owned 59 store buildings, leased 147
store buildings under operating leases, and owned 10 store buildings under
ground leases. The typical operating lease has an initial term of between 15 and
20 years, with four renewal periods of five years each, exercisable at the
Company's option.
The typical ground lease has an initial term of 20 years, with a minimum of
four renewal periods of five years each, exercisable at the Company's option.
NON-STORE FACILITIES
The Company also owns or leases the following distribution centers,
division offices and headquarters facilities:
BELK PROPERTY LOCATION OWN/LEASE
- ------------- --------------------- ---------
Belk, Inc. Southern Division Office............... Jacksonville, FL Lease
Belk, Inc. Northern Division Office............... Raleigh, NC Lease
Belk, Inc. Western Division Office................ Greenville, SC Own
Belk Inc. Corporate and Central Division
Offices......................................... Charlotte, NC Own
Belk Distribution Center.......................... Fayetteville, NC* Lease
Belk Distribution Center.......................... Morrisville, NC* Own
Belk Distribution Center.......................... Greensboro, NC* Lease
Belk Distribution Center.......................... Mauldin, SC* Lease
Belk Distribution Center.......................... Summerville, SC* Lease
Belk Central Distribution Center.................. Blythewood, SC Lease
- ---------------
* These distribution centers are being closed and consolidated into the Belk
Central Distribution Center.
OTHER
The Company owns various other real properties, including primarily former
store locations and division offices. Such property is not material, either
individually or in the aggregate, to the Company's results of operations or
financial condition.
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ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in various legal actions that are incidental to its
business. Management of the Company believes that none of the various actions
and proceedings involving the Company will have a material adverse effect on the
Company's financial condition or results of operations.
ITEM 4. MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the
fourth quarter of the fiscal year ended February 3, 2001.
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PART II
ITEM 5. MARKET INFORMATION FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Neither the Class A Common Stock, par value $.01 per share (the "Class A
Common Stock") nor the Class B Common Stock, par value $.01 per share (the
"Class B Common Stock") was listed or traded on a public market during any part
of fiscal year 2001. There is no established public trading market for either
class of the Registrant's common stock. As of April 25, 2001, there were
approximately 577 holders of record of the Class A Common Stock and 176 holders
of record of Class B Common Stock. On March 28, 2001 and March 29, 2001, the
Company declared a dividend of $.25 on each share of the Class A and Class B
Common Stock outstanding on that date. The amount of dividends paid out with
respect to fiscal year 2002 and each subsequent year will be determined at the
sole discretion of the Board of Directors based upon the Company's results of
operation, financial condition, cash requirements and other factors deemed
relevant by the Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR ENDED
-------------------------------------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 1,
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SELECTED STATEMENT OF INCOME DATA:
Revenues............................. $2,269,695 $2,144,674 $2,056,173 $1,942,247 $1,747,316
Cost of goods sold................... 1,562,100 1,452,856 1,398,446 1,323,370 1,194,936
Depreciation and amortization........ 74,102 65,117 57,141 54,081 51,021
Income from operations............... 129,551 141,579 127,189 107,319 96,908
Income from continuing operations.... 57,625 72,706 57,974 59,672 64,497
Income (loss) from discontinued
operations*........................ (292) (1,543) -- (5,272) 36,873
Net income........................... 57,333 71,163 56,970 53,726 101,370
Basic income per share:
From continuing operations......... 1.05 1.31 1.02 N/A N/A
Net income......................... 1.04 1.28 1.01 N/A N/A
Cash dividends per share............. 0.25 0.235 N/A N/A N/A
SELECTED BALANCE SHEET DATA:
Accounts receivable, net............. 339,591 340,061 351,143 353,509 335,914
Merchandise inventory................ 542,262 501,033 483,995 432,917 425,415
Working capital...................... 617,189 591,054 626,953 496,471 442,753
Total assets......................... 1,736,865 1,631,646 1,596,063 1,350,647 1,358,900
Short-term debt...................... 9,715 7,854 4,264 59,323 187,272
Long-term debt and capitalized lease
obligations........................ 452,579 405,357 403,713 299,582 216,010
Stockholders' equity................. 865,070 822,094 787,260 703,110 672,016
SELECTED OPERATING DATA:
Number of stores at end of period.... 207 206 212 218 250
Comparable store net revenue
increases.......................... 4.4% 2.4% 2.8% 1.2% 2.3%
- ---------------
All years include 52 weeks, with the exception of the fiscal year ended
February 3, 2001, which includes 53 weeks.
* Income (loss) from discontinued operations represents the operating results
and gain on the sale of BAC, Inc., which owned and operated a mall in
Charlotte, North Carolina, and the operating results of TAGS, LLC, which owned
and operated outlet stores.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In April 1998, the shareholders of the 112 companies previously comprising
the Belk Companies (the "Predecessor Companies") approved the Reorganization of
the Predecessor Companies into the Company effective on May 2, 1998. The
following is a discussion of the historical consolidated or combined financial
condition and results of operations of the Company and the Predecessor
Companies, for each of the fiscal years ended February 3, 2001, January 29,
2000, and January 30, 1999, which should be read in conjunction with the
consolidated financial statements, including the notes thereto, included
elsewhere in this Annual Report. The results of operations for the fiscal year
ended January 30, 1999 include three months of pre-Reorganization historical
combined results of the Predecessor Companies and nine months of post-
Reorganization consolidated results of the Company. Prior to the Reorganization,
Belk-Simpson Company, Greenville, South Carolina ("Belk-Simpson") was included
in the combined financial statements as a 37% equity investment. Subsequent to
the Reorganization, Belk-Simpson is included in the consolidated financial
statements as a wholly owned subsidiary. References herein to the "Company"
include the Belk Companies as predecessors to the Company and references herein
to consolidated financial statements include combined financial statements of
the Predecessor Companies for periods prior to the Reorganization.
GENERAL
Discontinued Operations. In October 1997, the Company announced the
closing of the TAGS outlet stores (the "TAGS Stores"), that were operated by
TAGS Stores, LLC ("TAGS"). The operating results of this entity are presented as
discontinued operations.
Certain Components of Net Income. Revenues include sales from retail
operations and net revenues from leased departments. Cost of goods sold include
cost of merchandise, buying, and occupancy expense. Selling, general and
administrative expense ("SG&A") includes payroll, advertising, credit and
depreciation expense.
THE REORGANIZATION
In fiscal year 2001, Belk continued to realize the benefits of the merger
and reorganization of the former 112 Belk corporations into Belk, Inc., which
became effective on May 2, 1998 (the "Reorganization"). Following the
consolidation of its operating divisions in June 1999, the Company constructed a
new 371,000 square foot central distribution center in Blythewood, S.C. in the
fall of 2000 as part of the restructuring of the Company's merchandise
distribution and logistics network. In January 2001, the Company announced that
its distribution centers located in Charlotte, N.C., Morrisville, N.C.,
Greensboro, N.C., Mauldin, S.C., Summerville, S.C., and Fayetteville, N.C.,
together with store merchandise receiving and processing functions in 91 stores
not previously serviced by a distribution center, would be consolidated into the
new Blythewood center. The consolidation is scheduled to be complete by August
2001, and the Company expects the consolidation to result in significant
additional expense savings and logistical efficiencies.
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RESULTS OF OPERATIONS:
The following table sets forth, for the periods indicated, the percentage
relationship to revenues of certain items in the Company's statements of income
and other pertinent financial and operating data.
FISCAL YEAR ENDED
---------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------- ----------- -----------
SELECTED FINANCIAL DATA:
Revenues.................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 68.8 67.7 68.0
Selling, general and administrative expenses................ 25.1 25.3 25.8
Restructuring charge........................................ 0.4 0.4 --
Income from operations...................................... 5.7 6.6 6.2
Interest expense, net....................................... 1.7 1.7 1.8
Income taxes................................................ 1.5 1.8 1.7
Income from continuing operations........................... 2.5 3.4 2.8
Discontinued operations..................................... -- (0.1) --
Net income.................................................. 2.5 3.3 2.8
SELECTED OPERATING DATA:
Gross square footage (in thousands)......................... 16,627 16,369 16,225
Store revenues per gross sq. ft............................. $137 $131 $127
Comparable store net revenue increases...................... 4.4% 2.4% 2.8%
Number of stores:
Opened.................................................... 8 5 8
Acquired.................................................. 0 0 7
Closed.................................................... (7) (11) (21)
Total -- end of period............................ 207 206 212
COMPARISON OF FISCAL YEARS ENDED FEBRUARY 3, 2001 AND JANUARY 29, 2000
Revenues. The Company's revenues in fiscal year 2001 increased 5.8%, or
$125.0 million, to $2.27 billion from $2.14 billion in fiscal year 2000. The
increase resulted primarily from a 4.4% increase in revenue from comparable
stores and $40.4 million of additional revenues from new, expanded and remodeled
stores over the prior year revenues for those locations.
Cost of Goods Sold. As a percentage of revenues, cost of goods sold
increased to 68.8% in fiscal year 2001 as compared to 67.7% in fiscal year 2000.
The increase was due primarily to unseasonably cold weather in the first quarter
and softening economic conditions that lead to increased clearance markdowns to
generate sales and reduce inventory levels.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) were $569.1 million in fiscal year 2001, compared
to $542.6 million in fiscal year 2000, an increase of 4.9%. As a percentage of
revenues, SG&A decreased to 25.1% in fiscal year 2001 from 25.3% in fiscal year
2000. The decrease in SG&A as a percentage of revenues resulted primarily from
increases in finance charge income from the Company's proprietary credit card
partially offset by increases in bad debt expenses from the Company's credit
card, start-up costs for the Company's website development and increases in
depreciation expense related to new stores and store expansions.
During fiscal years 2001 and 2000, the Company's bad debt expense, net of
recoveries, associated with the issuance of credit on the Belk proprietary
credit cards, was $11.8 million and $10.1 million, respectively. During fiscal
years 2001 and 2000, finance charge income on the outstanding Belk proprietary
credit card receivables was $55.2 million and $50.3 million, respectively.
Accounts receivable management and collection services expenses for fiscal years
2001 and 2000 were $22.1 million and $21.6 million, respectively.
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16
Restructuring Charge. For fiscal year 2001, the Company recorded an $8.3
million restructuring charge related to the consolidation of its six
distribution centers and its merchandising receiving and processing functions in
91 stores into one new central distribution center facility. The charge
consisted of $2.5 million of employee severance costs and $5.8 million related
to the disposal of excess assets and real estate holding costs in the closing
distribution centers.
During fiscal year 2001 and 2000, the Company recorded a $.6 million and
$7.6 million charge, respectively, in connection with the consolidation of its
thirteen operating divisions into four expanded regional divisions. The charges
consisted of $3.9 million of employee severance costs and $4.3 million related
to the disposal of excess assets in the closing divisions.
Income From Operations. The Company's income from operations includes an
$8.9 million and $7.6 million restructuring charge for fiscal years 2001 and
2000, respectively. Excluding the restructuring charges, income from operations
for fiscal year 2001 decreased $10.7 million, or 7.2%, compared to fiscal year
2000.
Discontinued Operations. During fiscal year 2001 and 2000, the Company
recognized after-tax losses on disposal of discontinued operations of $.3 and
$1.5 million, respectively, as a result of increases in the estimated costs
associated with the disposal of the TAGS leased property.
Net Income. Net income decreased by $13.8 million in fiscal year 2001
compared to fiscal year 2000. Excluding the restructuring charges, gains and
losses from the sale of property and investments and the loss on disposal of
discontinued operations in fiscal years 2001 and 2000, net income for fiscal
year 2001 decreased $9.4 million, or 12.7%, compared to fiscal year 2000.
COMPARISON OF FISCAL YEARS ENDED JANUARY 29, 2000 AND JANUARY 30, 1999
Revenues. The Company's revenues in fiscal year 2000 increased 4.3%, or
$88.5 million, to $2.14 billion from $2.06 billion in fiscal year 1999. The
increase resulted primarily from a 2.4% increase in revenue from comparable
stores and $25.9 million of additional revenues from new, expanded and remodeled
stores over the prior year revenues for those locations.
Cost of Goods Sold. As a percentage of revenues, cost of goods sold
decreased to 67.7% in fiscal year 2000 as compared to 68.0% in fiscal year 1999.
The reduction resulted from decreases in buying costs due to a more efficient
purchasing structure.
Selling, General and Administrative Expenses. SG&A expenses were $542.6
million in fiscal year 2000, compared to $530.5 million in fiscal year 1999, an
increase of 2.3%. As a percentage of revenues, SG&A decreased to 25.3% in fiscal
year 2000 from 25.8% in fiscal year 1999. The decrease is attributable to
reductions in personnel costs due to improved operating efficiencies and
increases in finance charge income and reduced bad debt losses on the Company's
proprietary credit card receivables partially offset by $6.4 million of
incremental costs incurred during fiscal year 2000 in connection with
establishing the Company's four expanded regional divisions. These incremental
costs consist primarily of one-time expenses for hiring and relocating employees
and converting the Company's systems to support the expanded regional divisions.
During fiscal years 2000 and 1999, the Company's bad debt expense, net of
recovery associated with the issuance of credit on the Belk proprietary credit
cards, was $10.1 million and $12.2 million, respectively. During fiscal years
2000 and 1999, finance charge income on the outstanding Belk proprietary credit
card receivables was $50.3 million and $41.9 million, respectively. Accounts
receivable management and collection services expenses for fiscal years 2000 and
1999 were $21.6 million and $21.5 million, respectively.
Restructuring Charge. For fiscal year 2000, the company recorded a $7.6
million charge in connection with the consolidation of its thirteen operating
divisions into four expanded regional divisions. The charge consisted of $3.9
million of employee severance costs and $3.7 million related to the disposal of
excess assets in the closing divisions.
Income From Operations. The Company's income from operations for fiscal
year 2000 includes a $7.6 million restructuring charge related to the
consolidation of its operating divisions. Excluding the impact of the
14
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restructuring charge, income from operations for fiscal year 2000 increased
$22.0 million, or 17.3% over fiscal year 1999.
Discontinued Operations. During fiscal year 2000, the Company recognized
an after-tax loss on disposal of discontinued operations of $1.5 million as a
result of increases in the estimated costs associated with the disposal of the
TAGS leased property.
Net Income. Net income increased by $14.2 million in fiscal year 2000
compared to fiscal year 1999. Excluding the restructuring charge incurred in
fiscal year 2000, gains from sales of property and investments in fiscal years
2000 and 1999, the loss on disposal of discontinued operations in fiscal year
2000 and the extraordinary charge in fiscal year 1999, net income for fiscal
year 2000 increased $16.5 million, or 28.6% over fiscal year 1999.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its revenues, operating income and net
income. The highest revenue period for the Company is the fourth quarter, which
includes the Christmas selling season. A disproportionate amount of the
Company's revenues and a substantial amount of the Company's operating and net
income are realized during the fourth quarter. If for any reason the Company's
revenues 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 in anticipation of increased
revenues during these months.
The following table illustrates the seasonality of revenues by quarter as a
percentage of the full year for the fiscal years indicated.
2001 2000 1999
---- ---- ----
First quarter............................................... 22.1% 23.1% 21.5%
Second quarter.............................................. 21.9 22.0 21.7
Third quarter............................................... 22.2 22.5 22.9
Fourth quarter.............................................. 33.8 32.4 33.9
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 flow from
operations and borrowings under debt facilities. The company's primary debt
facilities consist of a $275 million variable rate note, a $125 million ten-year
variable rate bond facility and a $175 million seasonal line of credit
agreement. The debt facilities place certain restrictions on mergers,
consolidations and the sale of the Company's assets and require maintenance of
minimum financial ratios. The $275 million variable rate note is collateralized
by the Company's customer accounts receivable and limits borrowings under the
facility to approximately 75% of the Company's customer accounts receivable.
Because the interest rates on all of the Company's debt agreements vary
with LIBOR or commercial paper rates, the Company has entered into interest rate
swap agreements with various financial institutions to manage the exposure to
changes in interest rates. The amount of indebtedness covered by the interest
rate swaps is $300 million for fiscal years 2001 through 2008, and $250 million
for fiscal year 2009.
On April 30, 1999, the Company sold certain leasehold improvements for $42
million and is leasing them back over the next nine years. The Company has the
option to repurchase the leasehold improvements at the end of the lease. In
accordance with SFAS No. 98, "Accounting for Leases", and SFAS No. 66
"Accounting for Sales of Real Estate", the Company is accounting for the
sale-leaseback as a financing. The Company used the proceeds from the sale to
reduce borrowings under its existing debt facilities.
15
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Operating activities provided cash of $110.1 million during fiscal year
2001, as compared to $137.0 million in fiscal year 2000. The decrease in cash
provided by operating activities compared to the prior period was principally
due to decreases in net income and increases in merchandise inventory levels,
partially offset by increases in depreciation and amortization expense and
deferred compensation and other liabilities.
Investing activities used cash of $117.6 million during fiscal year 2001,
as compared to $96.7 million in fiscal year 2000. The increase in cash used for
investing activities was primarily due to increases in purchases of property and
equipment, partially offset by increases in proceeds from the sale of property
and equipment.
Expenditures for property and equipment were $139.9 million during fiscal
year 2001, compared to $114.0 million in fiscal year 2000. During fiscal year
2001, the Company's capital expenditures included expenditures for opening eight
new stores and making significant renovations to and/or expansions of five
existing stores, establishing its e-commerce infrastructure and improving and/or
upgrading its computer systems. While it is difficult to predict capital
expenditures for the Company, capital expenditures over the next three fiscal
years are expected to average approximately $125 million per year.
Net cash provided by financing activities amounted to $11.9 million during
fiscal year 2001, a result of increased borrowings and decreased repurchases of
common stock, compared to $35.6 million of cash used by financing activities
during fiscal year 2000.
Management of the Company believes that cash flows from operations and the
planned credit facilities will be sufficient to cover working capital needs,
capital expenditures and debt service agreements.
BELK NATIONAL BANK
During the first quarter of fiscal year 2000, the Company formed Belk
National Bank ("BNB"), a wholly-owned subsidiary, in order to standardize the
interest rate terms of Belk charge customer accounts across the thirteen states
in which Belk operates and to set competitive interest rates and fees comparable
to other retailers.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of SFAS No. 133". In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Instruments and Certain Hedging Activities", to amend
SFAS No. 133. Collectively, these statements are intended to represent the
comprehensive guidance on accounting for derivatives and hedging activities.
These statements establish accounting and reporting standards requiring that
certain derivative instruments (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an asset
or a liability measured at its fair value. These statements require that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. The accounting provisions for
qualifying hedges allow a derivative's gains and losses to offset related
results of the hedged item in the income statement, and require that the Company
must formally document, designate and assess the effectiveness of transactions
that qualify for hedge accounting. The Company adopted these new standards on
February 4, 2001, and will record the effect of the transition to these new
accounting requirements in the results for the first quarter of fiscal year
2002. While the effect of adopting these accounting changes will not be material
to the Company's results of operations, these new standards will increase
volatility in reported earnings and accumulated other comprehensive income of
the Company.
In October 2000, the Emerging Issues Task Force (the "EITF") reached a
consensus on Issue 00-10, "Accounting for Shipping and Handling Fees and Costs",
which establishes guidance regarding the classification of shipping and handling
revenue. This Issue is applicable for the Company beginning in the fourth
quarter of fiscal year 2001. Shipping and handling fees and expenses are not a
significant portion of the Company's operations and both have been included in
selling, general and administrative expenses.
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IMPACT OF INFLATION
While it is difficult to determine the precise effects of inflation,
management of the Company does not believe inflation had a material impact on
the consolidated financial statements for the periods presented.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on its
variable rate debt. The Company uses interest rate swaps to manage the interest
rate risk associated with its borrowings and to manage the Company's allocation
of fixed and variable rate debt. The Company does not use financial instruments
for trading or other speculative purposes and is not a party to any leveraged
financial instruments.
The Company's net exposure to interest rate risk consists of exposure for
variable rate debt in excess of its interest rate swaps. At February 3, 2001,
the Company had $368 million of variable debt and $300 million of offsetting,
pay variable rate, receive fixed rate swaps. The impact on the Company's results
of operations of a one point interest rate change on the outstanding balance of
unhedged variable rate debt as of February 3, 2001 would not be material.
The Company also owns marketable equity securities that are subject to
market risk. A discussion of the Company's accounting policies for derivative
financial instruments and equity securities are included in the Summary of
Significant Accounting Policies in Note 2 to the Company's financial statements.
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Independent Auditors' Report................................ 19
Consolidated Statements of Income........................... 20
Consolidated Balance Sheets................................. 21
Consolidated Statements of Changes in Stockholders' Equity
and Comprehensive Income.................................. 22
Consolidated Statements of Cash Flows....................... 23
Notes to Consolidated Financial Statements.................. 24
18
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
Belk, Inc.:
We have audited the accompanying consolidated balance sheets of Belk, Inc.
and subsidiaries (as described in Note 1) as of February 3, 2001 and January 29,
2000, and the related consolidated statements of income, changes in
stockholders' equity and comprehensive income and cash flows for each of the
years in the three-year period ended February 3, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Belk, Inc.
and subsidiaries as of February 3, 2001 and January 29, 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended February 3, 2001, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 2, the accompanying consolidated financial statements
have been restated to reflect an accrual for sales returns.
KPMG LLP
Charlotte, North Carolina
March 23, 2001
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BELK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEAR ENDED
---------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------- ----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Revenues................................................... $2,269,695 $2,144,674 $2,056,173
Cost of goods sold (including occupancy and buying
expenses)................................................ 1,562,100 1,452,856 1,398,446
Selling, general and administrative expenses............... 569,139 542,642 530,538
Restructuring charge....................................... 8,905 7,597 --
---------- ---------- ----------
Income from operations..................................... 129,551 141,579 127,189
Interest expense........................................... (40,394) (37,975) (37,132)
Interest income............................................ 1,610 1,593 1,026
Gain (loss) on property, equipment and investments......... (2,201) 5,443 597
Other income, net.......................................... 2,329 466 757
---------- ---------- ----------
Income from continuing operations before income taxes and
equity in earnings of unconsolidated entities............ 90,895 111,106 92,437
Income taxes............................................... 33,270 38,400 34,651
---------- ---------- ----------
Income from continuing operations before equity in earnings
of unconsolidated entities............................... 57,625 72,706 57,786
Equity in earnings of unconsolidated entities, net of
income taxes............................................. -- -- 188
---------- ---------- ----------
Income from continuing operations.......................... 57,625 72,706 57,974
Discontinued operations:
Loss on disposal of discontinued operations, net of
income tax benefit of $168 and $943 for fiscal years
2001 and 2000, respectively........................... (292) (1,543) --
---------- ---------- ----------
Net income before extraordinary item....................... 57,333 71,163 57,974
Extraordinary item -- loan prepayment penalty, net of
income tax benefit of $670............................... -- -- (1,004)
---------- ---------- ----------
Net income................................................. $ 57,333 $ 71,163 $ 56,970
========== ========== ==========
Basic income per share:
Income from continuing operations........................ $ 1.05 $ 1.31 $ 1.02
========== ========== ==========
Discontinued operations.................................. $ (0.01) $ (0.03) $ --
========== ========== ==========
Extraordinary item....................................... $ -- $ -- $ (0.01)
========== ========== ==========
Net income............................................... $ 1.04 $ 1.28 $ 1.01
========== ========== ==========
Dividends per share........................................ $ 0.25 $ 0.235 N/A
========== ========== ==========
Weighted average shares outstanding........................ 54,761,335 55,403,167 56,682,252
========== ========== ==========
See accompanying notes to consolidated financial statements.
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BELK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 3, JANUARY 29,
2001 2000
----------- -----------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 27,517 $ 23,009
Accounts receivable, net.................................. 339,591 340,061
Merchandise inventory..................................... 542,262 501,033
Prepaid income taxes...................................... 907 5,972
Deferred income taxes..................................... -- 2,007
Prepaid expenses and other current assets................. 13,416 11,795
---------- ----------
Total current assets.............................. 923,693 883,877
Investment securities....................................... 21,291 22,169
Property and equipment, net................................. 662,672 598,945
Prepaid pension costs....................................... 101,499 99,542
Other assets................................................ 27,710 27,113
---------- ----------
Total assets...................................... $1,736,865 $1,631,646
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 184,208 $ 163,083
Accrued expenses.......................................... 78,866 88,116
Accrued income taxes...................................... 21,923 24,296
Deferred income taxes..................................... 1,223 --
Lines of credit and notes payable......................... 9,715 7,854
Current installments of long-term debt and capital lease
obligations............................................ 10,569 9,474
---------- ----------
Total current liabilities......................... 306,504 292,823
Deferred income taxes....................................... 44,811 47,734
Long-term debt and capital lease obligations, excluding
current installments...................................... 442,010 395,883
Deferred compensation and other noncurrent liabilities...... 78,470 73,112
---------- ----------
Total liabilities................................. 871,795 809,552
---------- ----------
Stockholders' equity:
Preferred stock........................................... -- --
Common stock, 54.7 million and 54.9 million shares issued
and outstanding at February 3, 2001 and January 29,
2000, respectively..................................... 547 549
Paid-in capital........................................... 562,408 565,031
Retained earnings......................................... 301,364 257,714
Accumulated other comprehensive income (loss)............. 751 (1,200)
---------- ----------
Total stockholders' equity........................ 865,070 822,094
---------- ----------
Total liabilities and stockholders' equity........ $1,736,865 $1,631,646
========== ==========
See accompanying notes to consolidated financial statements.
21
24
BELK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
ACCUMULATED
OTHER
COMPREHENSIVE
COMMON PAID-IN RETAINED INCOME
STOCK CAPITAL EARNINGS (LOSS) TOTAL
-------- -------- --------- ------------- --------
(DOLLARS IN THOUSANDS)
Balance at January 31, 1998, as previously
reported....................................... $ 70,629 $ 470 $ 618,834 $ 13,852 $703,785
Adjustment for sales returns reserve, net of
income tax benefit of $397..................... -- -- (674) -- (674)
-------- -------- --------- -------- --------
Balance at January 31, 1998, as adjusted......... 70,629 470 618,160 13,852 703,111
Comprehensive income:
Net income..................................... -- -- 56,970 -- 56,970
Unrealized losses on securities:
Unrealized losses arising during the period,
net of income tax benefit of $1,087........ -- -- -- (1,883) (1,883)
Reclassification adjustment for losses
included in net income, net of income tax
expense of $569............................ -- -- -- 986 986
--------
Total comprehensive income.............. 56,073
--------
Cash dividends................................... -- -- (8,854) -- (8,854)
Repurchase and retirement of stock............... (50) -- (3,450) -- (3,500)
Reorganization of Belk Companies................. (70,012) 586,171 (463,297) (12,431) 40,431
-------- -------- --------- -------- --------
Balance at January 30, 1999...................... 567 586,641 199,529 524 787,261
Comprehensive income:
Net income..................................... -- -- 71,163 -- 71,163
Unrealized losses on securities:
Unrealized losses arising during the period,
net of income tax benefit of $101.......... -- -- -- (175) (175)
Reclassification adjustment for gains
included in net income, net of income tax
benefit of $894............................ -- -- -- (1,549) (1,549)
--------
Total comprehensive income.............. 69,439
--------
Cash dividends................................... -- -- (12,978) -- (12,978)
Repurchase and retirement of stock............... (18) (21,610) -- -- (21,628)
-------- -------- --------- -------- --------
Balance at January 29, 2000...................... 549 565,031 257,714 (1,200) 822,094
Comprehensive income:
Net income..................................... -- -- 57,333 -- 57,333
Unrealized gains on securities:
Unrealized gains arising during the period,
net of income tax expense of $112.......... -- -- -- 194 194
Reclassification adjustment for losses
included in net income, net of income tax
expense of $1,015.......................... -- -- -- 1,757 1,757
--------
Total comprehensive income.............. 59,284
--------
Cash dividends................................... -- -- (13,683) -- (13,683)
Common stock issued.............................. -- 423 -- -- 423
Repurchase and retirement of stock............... (2) (3,046) -- -- (3,048)
-------- -------- --------- -------- --------
Balance at February 3, 2001...................... $ 547 $562,408 $ 301,364 $ 751 $865,070
======== ======== ========= ======== ========
See accompanying notes to consolidated financial statements.
22
25
BELK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED
---------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
Net income................................................ $ 57,333 $ 71,163 $ 56,970
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred income taxes..................................... 84 6,688 5,087
Depreciation and amortization............................. 74,102 65,117 57,141
Restructuring charge...................................... 8,905 7,597 --
Loss of disposal of discontinued operations, net.......... 292 1,543 --
Gain on sale of property and equipment.................... (571) (3,001) (2,152)
(Gain) loss on sale of investments........................ 2,772 (2,443) 1,555
Equity in earnings of unconsolidated entities, net of
income taxes............................................ -- -- (188)
(Increase) decrease in:
Accounts receivable, net................................ 470 11,082 14,810
Merchandise inventory................................... (41,229) (17,038) (34,987)
Prepaid income taxes.................................... 5,065 1,233 (1,756)
Prepaid expenses and other assets....................... (3,381) 6,256 (16,356)
Increase (decrease) in:
Accounts payable and accrued expenses................... 3,316 20,047 31,786
Accrued income taxes.................................... (2,373) 3,303 18,696
Deferred compensation and other liabilities............. 5,356 (34,519) (4,222)
--------- --------- ---------
Net cash provided by operating activities................... 110,141 137,028 126,384
--------- --------- ---------
Cash flows from investing activities:
Purchases of investments.................................. (6,450) (7,424) (10,149)
Proceeds from sales of investments........................ 7,329 9,053 23,021
Purchases of property and equipment....................... (139,878) (114,015) (136,518)
Proceeds from sales of property and equipment............. 21,427 15,640 28,673
Cash acquired from Belk-Simpson Reorganization............ -- -- 11,861
--------- --------- ---------
Net cash used by investing activities....................... (117,572) (96,746) (83,112)
--------- --------- ---------
Cash flows from financing activities:
Payments to dissenting stockholders....................... -- -- (50,553)
Proceeds from notes payable............................... -- -- 271,678
Payments on notes payable................................. -- -- (69,095)
Proceeds from issuance of long-term debt.................. 108,879 83,217 125,000
Principal payments on long-term debt and capital lease
obligations............................................. (82,070) (87,787) (292,134)
Net proceeds from (payments on) lines of credit........... 1,861 3,590 (13,764)
Dividends paid............................................ (13,683) (12,978) (8,854)
Repurchase of common stock................................ (3,048) (21,628) (3,500)
--------- --------- ---------
Net cash provided (used) by financing activities............ 11,939 (35,586) (41,222)
--------- --------- ---------
Net increase in cash and cash equivalents................... 4,508 4,696 2,050
Cash and cash equivalents at beginning of period............ 23,009 18,313 16,263
--------- --------- ---------
Cash and cash equivalents at end of period......... $ 27,517 $ 23,009 $ 18,313
========= ========= =========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 40,394 $ 36,775 $ 34,226
Income taxes paid, net.................................... 30,494 27,176 41,607
Supplemental schedule of noncash investing and financing
activities:
Increase in property and equipment through assumption of
capital leases.......................................... 20,413 6,214 25,587
Increase in investments through receipt of stock
dividends............................................... 417 -- --
Increase in property and equipment through assumption of
debt.................................................... -- -- 32,000
Increase in assets and liabilities due to
Reorganization.......................................... -- -- 40,431
See accompanying notes to consolidated financial statements.
23
26
BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Belk, Inc. and its subsidiaries (the "Company") operate retail department
stores in the southeastern United States. The Company has one operating segment
that comprises its department stores and an outlet store subsidiary that is
presented as a discontinued operation.
On April 15 and 16, 1998, the shareholders of the 112 companies previously
comprising the Belk Companies (the "Predecessor Companies") voted to approve the
reorganization (the "Reorganization") of the Predecessor Companies into a single
operating entity, Belk, Inc., pursuant to a Plan and Agreement of
Reorganization, dated November 25, 1997, as amended, among Belk, Inc., Belk
Acquisition Co. and the Predecessor Companies (the "Reorganization Agreement").
The accompanying consolidated balance sheets as of February 3, 2001 and January
29, 2000 and the statements of income, stockholders' equity and comprehensive
income and cash flows for the years ended February 3, 2001 and January 29, 2000
reflect the adjustments to merge the companies pursuant to the Reorganization.
The statements of income, stockholders' equity and comprehensive income and cash
flows for the fiscal year ended January 30, 1999 include three months of
pre-Reorganization historical combined results of operations of the Predecessor
Companies and nine months of post-Reorganization consolidated results of
operations of the Company. The calculation of net income per share for the year
ended January 30, 1999 assumes that the Belk, Inc. shares of common stock issued
in connection with the Reorganization have been outstanding since February 1,
1998.
On May 2, 1998, a majority of the shareholders of one of the Belk
Companies, Belk-Simpson Company, Greenville, South Carolina ("Belk-Simpson"),
redeemed their shares in Belk-Simpson (the "Belk-Simpson Reorganization"). Prior
to the Belk-Simpson Reorganization, the 37% investment in Belk-Simpson was
accounted for under the equity method of accounting. Subsequent to the
Belk-Simpson Reorganization, Belk-Simpson is included in the consolidated
financial statements as a wholly owned subsidiary. Equity in earnings of
Belk-Simpson in fiscal year 1999 was $188.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
All significant inter-company transactions and balances have been
eliminated in consolidation and combination.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to each January 31.
Fiscal year 2001 ended on February 3, 2001 and included 53 weeks. Fiscal years
2000 and 1999 ended on January 29, 2000 and January 30, 1999, respectively, and
included 52 weeks.
REVENUES
Revenues include sales from retail operations, net of returns, and the net
revenue received from leased departments of $7,024, $6,557 and $5,853 for fiscal
years 2001, 2000 and 1999, respectively.
Historically, the Company did not record sales returns on the accrual basis
of accounting because the difference between the cash and accrual basis of
accounting was not material. In fiscal 2001, the Company began accruing sales
returns in accordance with generally accepted accounting principles.
Accordingly, the
24
27
BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Company recorded the cumulative effect of this change on prior periods, which
resulted in an increase in current assets of $2,146, an increase in current
liabilities of $2,820 and a corresponding decrease in retained earnings of $674
as of January 31, 1998. Because the effects of this change were insignificant in
fiscal years 1999 and 2000, the Company recorded such amounts in fiscal year
2001 as a reduction of net income of $21.
COST OF GOODS SOLD
Cost of goods sold includes occupancy and buying expenses. Occupancy
expenses include rent, utilities and real estate taxes. Buying expenses include
payroll and travel expenses associated with the buying function.
FINANCE CHARGES
Selling, general and administrative expenses in the statements of income
are reduced by finance charge revenue arising from customer accounts receivable.
Finance charge revenues were $55,228, $50,349, and $41,918 in fiscal years 2001,
2000, and 1999, respectively.
PRE-OPENING COSTS
Store pre-opening costs are expensed as incurred.
ADVERTISING
Advertising costs, net of co-op recoveries from suppliers, are expensed as
incurred and amounted to $65,598, $63,934, and $60,707 in fiscal years 2001,
2000 and 1999, respectively.
IMPAIRMENT CHARGE
The Company evaluates its investment in long-lived assets on an individual
store basis and determines fair value based upon an assessment of historical and
projected operating results. For fiscal years 2001, 2000 and 1999, no impairment
charges to reduce the carrying value of these assets have been incurred as a
result of this analysis.
CASH EQUIVALENTS
Cash equivalents include liquid investments with an original maturity of 90
days or less.
MERCHANDISE INVENTORY
Merchandise inventory is stated at the lower of average cost or market as
determined by the retail inventory method.
INVESTMENTS
The Company accounts for investments in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Securities classified as
available-for-sale are valued at fair value, while securities that the Company
has the ability and positive intent to hold to maturity are valued at amortized
cost. The Company includes unrealized holding gains and losses for
available-for-sale securities in other comprehensive income. Realized gains and
losses are recognized on a specific identification basis and are included in
income. Declines in value that are considered to be other than temporary are
reported in gain (loss) on property, equipment and investments.
25
28
BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
PROPERTY AND EQUIPMENT, NET
Property and equipment owned by the Company is stated at cost less
accumulated depreciation. Property and equipment leased by the Company under
capital leases is stated at an amount equal to the present value of the minimum
lease payments less accumulated amortization. Depreciation and amortization are
provided utilizing straight-line and various accelerated methods over the
shorter of estimated asset lives or related lease terms.
STOCK COMPENSATION POLICY
The Company applies Accounting Principles Board ("APB") Opinion No. 25 and
related interpretations (see Note 14) in measuring compensation cost under its
Incentive Stock Plan. Accordingly, compensation expense is recorded over the
performance period based on the estimated fair market value of the stock.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement bases
and the respective tax bases of the assets and liabilities and operating loss
and tax credit carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
INTANGIBLE ASSETS, NET
Leasehold intangibles, which represent the excess of fair value over the
carrying value of leaseholds, are amortized on a straight-line basis over the
remaining terms of the lease agreements and are included in property and
equipment, net. The carrying value of intangible assets is periodically reviewed
by the Company's management to assess the recoverability of the assets.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments (interest rate swap
agreements) to manage the interest rate risk associated with its borrowings. The
counterparties to these instruments are major financial institutions. These
agreements are used to reduce the potential impact of increases in interest
rates on variable rate long-term debt. The differential to be paid or received
is accrued as interest rates change and is recognized as an adjustment to
interest expense. Other than the amounts allocated to interest rate swaps in
recording the Reorganization, the fair value of the swap agreements is not
recognized in the financial statements. If a swap is terminated prior to its
maturity, the gain or loss is recognized over the remaining original life of the
swap if the item hedged remains outstanding, or immediately, if the item hedged
does not remain outstanding. If the swap is not terminated prior to maturity,
but the underlying hedged item is no longer outstanding, the interest rate swap
is marked to market and any unrealized gain or loss is recognized immediately.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 31, 1999, the Company adopted Statement of Position
("SOP") No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", which establishes standards for the costs of
computer software developed or obtained for internal use. During fiscal years
2001 and 2000,
26
29
BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
the Company has capitalized $3.0 million and $2.7 million, respectively, of
costs for internal use software that historically would have been expensed.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
which establishes standards for accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133", which deferred the effective
date of SFAS No. 133. In June 2000, the FASB issued SFAS No. 138, "Accounting
for Certain Instruments and Certain Hedging Activities", to amend SFAS No. 133.
Collectively, these statements are intended to represent the comprehensive
guidance on accounting for derivatives and hedging activities. These statements
establish accounting and reporting standards requiring that certain derivative
instruments (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. These statements require that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The accounting provisions for qualifying
hedges allow a derivative's gains and losses to offset related results of the
hedged item in the income statement, and require that the Company must formally
document, designate and assess the effectiveness of transactions that qualify
for hedge accounting.
The Company adopted these new standards on February 4, 2001, and will
record the effect of the transition to these new accounting requirements in the
results for the first quarter of fiscal year 2002. While the effect of adopting
these accounting changes will not be material to the Company's results of
operations, these new standards will increase the volatility in reported
earnings and other comprehensive income of the Company.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' financial
statements to conform with the classification used in the financial statements
for the fiscal year ended February 3, 2001.
(3) RESTRUCTURING CHARGE
During fiscal year 2001, the Company recorded a charge of $8,259 in
connection with the consolidation of its six distribution centers and its
merchandising receiving and processing functions in 91 stores into one new
central distribution center facility (the "Logistics Restructuring"). The
restructuring charge includes estimated costs of closing the six distribution
centers, the elimination of approximately 900 positions and the anticipated loss
on disposal of certain long-lived assets. The Company used the estimated net
realizable value to determine the anticipated loss on disposal of excess
property and equipment. The excess property and equipment will be disposed of or
sold.
During fiscal year 2000, the Company recorded a charge of $7,597 in
connection with the consolidation of its thirteen operating divisions into four
expanded regional divisions (the "Division Restructuring"). The Company closed
excess facilities and eliminated 340 positions as a result of streamlining
operations related to the restructuring. Closing of the facilities and
elimination of the positions occurred during the second quarter of fiscal year
2000. Excess property and equipment is being disposed of or sold. An additional
charge of $646 was recorded during fiscal year 2001 and represents an increase
in the estimated future lease obligations of leased locations and an increase in
the estimated loss on property which is being held for sale.
27
30
BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The restructuring charges and their utilization are as follows:
BALANCE AT BALANCE AT
JANUARY 29, CHARGES/ FEBRUARY 3,
2000 ADJUSTMENTS UTILIZED 2001
----------- ----------- -------- -----------
Logistics restructuring:
Employee severance costs.................... $ -- $2,533 $ 70 $2,463
Real estate holding costs................... -- 3,374 -- 3,374
Disposal of excess property and equipment... -- 2,352 -- 2,352
---- ------ ---- ------
Total logistics restructuring....... -- 8,259 70 8,189
---- ------ ---- ------
Division restructuring:
Employee severance costs.................... 110 -- 110 --
Real estate holding costs................... 857 451 456 852
Disposal of excess property and equipment... -- 195 -- 195
---- ------ ---- ------
Total division restructuring........ 967 646 566 1,047
---- ------ ---- ------
Total............................... $967 $8,905 $636 $9,236
==== ====== ==== ======
(4) DISCONTINUED OPERATIONS
In September 1997, the managers and the advisory board of TAGS Stores, LLC,
("TAGS"), the Company's discount outlet store subsidiary, adopted a formal plan
to liquidate its operations during the 1997 Christmas retailing season.
Accordingly, the results of operations of TAGS are presented as discontinued
operations. During the year ended February 3, 2001 and January 29, 2000,
additional losses of $.3 million, net of income tax benefit of $.2 million and
$1.5 million, net of income tax benefit of $.9 million, respectively, were
provided for the disposal of the TAGS leased properties that are requiring more
time than originally anticipated.
(5) 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 and finance charge rates. Installments of deferred payment
accounts receivable maturing after one year are included in current assets in
accordance with industry practice.
The Company provides an allowance for doubtful accounts which is determined
based on a number of factors, including the risk characteristics of the
portfolio, historical charge-off patterns and management judgment.
Accounts receivable, net consists of:
FEBRUARY 3, JANUARY 29,
2001 2000
----------- -----------
Customer receivables........................................ $330,002 $330,490
Other....................................................... 20,560 19,478
Less allowance for doubtful accounts........................ (10,971) (9,907)
-------- --------
Accounts receivable, net.......................... $339,591 $340,061
======== ========
28
31
BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Changes in the allowance for doubtful accounts are as follows:
FISCAL YEAR ENDED
---------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------- ----------- -----------
Balance, beginning of year............................ $ 9,907 $ 9,352 $ 8,406
Charged to expense.................................... 11,814 10,087 12,237
Acquired.............................................. -- -- 313
Net uncollectible balances written off................ (10,750) (9,532) (11,604)
-------- ------- --------
Balance, end of year........................ $ 10,971 $ 9,907 $ 9,352
======== ======= ========
(6) INVESTMENT SECURITIES
Held-to-maturity securities consist of federal, state and local debt
securities. Details of investments in held-to-maturity securities are as
follows:
FEBRUARY 3, JANUARY 29,
2001 2000
----------- -----------
Amortized cost.............................................. $12,300 $12,676
Gross unrealized gains (losses)............................. 512 (87)
------- -------
Fair value........................................ $12,812 $12,589
======= =======
At February 3, 2001, scheduled maturities of held-to-maturity securities
are as follows:
AMORTIZED
FAIR VALUE COST
---------- ---------
One to five years........................................... $ 4,560 $ 4,406
Six to ten years............................................ 2,587 2,436
After ten years............................................. 5,665 5,458
------- -------
$12,812 $12,300
======= =======
Available-for-sale securities consist primarily of equity investments.
Details of investments in available-for-sale securities are as follows:
FEBRUARY 3, JANUARY 29,
2001 2000
----------- -----------
Cost........................................................ $7,849 $11,423
Gross unrealized gains...................................... 1,462 1,812
Gross unrealized losses..................................... (320) (3,742)
------ -------
Fair value of securities.......................... $8,991 $ 9,493
====== =======
Gross realized gains on sales of investment securities included in income
in fiscal years 2001, 2000, and 1999 were $726, $2,704, and $277, respectively,
and gross realized losses on sales of investment securities included in income
in fiscal years 2001, 2000, and 1999 were $383, $261, and $1,832, respectively.
Additionally, gross realized losses on investment securities with other than
temporary declines in market values of $3,115 were included in operations in
fiscal year 2001.
29
32
BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(7) PROPERTY AND EQUIPMENT, NET
Details of property and equipment, net are as follows:
ESTIMATED FEBRUARY 3, JANUARY 29,
LIVES 2001 2000
--------- ----------- -----------
Land................................................. n/a $ 30,692 $ 33,075
Buildings............................................ 30-40 610,617 573,870
Furniture, fixtures and equipment.................... 3-7 580,833 540,330
Construction in progress............................. n/a 33,049 27,371
----- ---------- ----------
1,255,191 1,174,646
Less accumulated depreciation and amortization....... (592,519) (575,701)
---------- ----------
Property and equipment, net................ $ 662,672 $ 598,945
========== ==========
(8) ACCRUED EXPENSES
Accrued expenses are comprised of the following:
FEBRUARY 3, JANUARY 29,
2001 2000
----------- -----------
Salaries, wages and employee benefits....................... $22,331 $20,475
Interest.................................................... 5,899 4,220
Rent........................................................ 6,347 6,042
Taxes, other than income.................................... 6,778 4,685
Construction obligation..................................... 9,790 32,000
Reserve for restructuring................................... 9,236 967
Other....................................................... 18,485 19,727
------- -------
Accrued expenses.................................. $78,866 $88,116
======= =======
(9) BORROWINGS
Long-term debt, principally due to banks, and capital lease obligations
consist of the following:
FEBRUARY 3, JANUARY 29,
2001 2000
----------- -----------
Bond facility............................................... $125,000 $125,000
Note payable................................................ 243,051 205,852
Sale/leaseback financing.................................... 35,835 39,743
Capital lease agreements through February 2018.............. 48,158 34,160
Unsecured notes payable..................................... 535 602
-------- --------
452,579 405,357
Less current installments................................... (10,569) (9,474)
-------- --------
Long-term debt and capital lease obligations, excluding
current installments...................................... $442,010 $395,883
======== ========
The annual maturities of long-term debt and capital lease obligations over
the next five years as of February 3, 2001 are $10,569, $254,308, $9,119, $6,560
and $6,956, respectively.
The bond facility matures in July 2008 and bears interest at a variable
rate based on the market for the bonds that has historically approximated
one-month LIBOR plus 50 basis points. The note payable bears
30
33
BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
interest at a rate that approximates LIBOR plus 35 basis points, is
collateralized by the Company's customer accounts receivable and limits
borrowings to the lesser of $275 million or approximately 75% of the Company's
customer accounts receivable. The note payable expires in April 2002 and,
accordingly, the balance as of February 3, 2001 has been included in annual
maturities of long-term debt for fiscal year 2003. However, the note may be
renewed by mutual consent of the parties and it is the Company's intent to
utilize the note payable as long-term financing. At February 3, 2001, LIBOR was
5.6%.
On April 30, 1999, the Company sold certain leasehold improvements for $42
million and is leasing them back over the next nine years. The Company has the
option to repurchase the leasehold improvements at the end of the lease. In
accordance with SFAS No. 98, "Accounting for Leases", and SFAS No. 66
"Accounting for Sales of Real Estate", the Company is accounting for the
sale-leaseback as financing. The effective interest rate on the facility is
7.27%. The Company used the proceeds from the sale to reduce borrowings under
its existing debt facilities.
The Company's loan agreements place restrictions on mergers,
consolidations, acquisitions, sales of assets, indebtedness, transactions with
affiliates, leases, liens and investments. They also contain leverage ratio,
tangible net worth and fixed charge coverage ratio requirements. The Company is
in compliance with all debt covenants.
The Company has entered into interest rate swap agreements with various
financial institutions to manage the exposure to changes in interest rates on
its variable rate indebtedness. The amount of indebtedness covered by the
interest rate swaps is $300 million for fiscal years 2001 through 2008 and $250
million for fiscal year 2009.
At February 3, 2001, the Company has an unsecured line of credit agreement
totaling $175 million with a bank at a variable interest rate based on LIBOR
plus 60 basis points. The agreement expires on May 29, 2001 and may be renewed
upon mutual agreement between the parties. The amounts outstanding under line of
credit agreements at February 3, 2001 and January 29, 2000 were $9,715 and
$7,854, respectively. The weighted average interest rates on short-term
borrowings at February 3, 2001 and January 29, 2000 were 6.2% and 6.5%,
respectively.
The Company prepaid substantially all of its unsecured notes and all of its
mortgage notes outstanding during fiscal year 1999 due to the availability of
lower interest rate financing. The Company incurred a loan prepayment penalty of
$1,004, net of income taxes of $670, on a mortgage prepayment that is reported
as an extraordinary loss.
(10) LEASES
The Company leases certain of its stores, warehouse facilities and
equipment. The majority of these leases will expire over the next 15 years. The
leases usually contain renewal options and provide for payment by the lessee of
real estate taxes and other expenses and, in certain instances, contingent
rentals determined on the basis of a percentage of sales in excess of stipulated
minimums for certain store facilities. Assets under capital lease and
accumulated amortization were $69,239 and $24,009, respectively, at February 3,
2001 and are included in property and equipment, net.
31
34
BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Future minimum lease payments under noncancelable leases as of February 3,
2001 were as follows:
FISCAL YEAR CAPITAL OPERATING
- ----------- -------- ---------
2002........................................................ $ 9,732 $ 40,559
2003........................................................ 9,687 33,513
2004........................................................ 6,852 31,051
2005........................................................ 3,789 28,490
2006........................................................ 3,716 24,612
After 2006.................................................. 38,487 127,228
-------- --------
Total............................................. 72,263 $285,453
========
Less imputed interest....................................... (24,105)
--------
Present value of minimum lease payments..................... 48,158
Less current portion........................................ (6,635)
--------
$ 41,523
========
Rental expense for all operating leases consists of the following:
FISCAL YEAR ENDED
---------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------- ----------- -----------
Buildings:
Minimum rentals..................................... $30,896 $29,733 $29,420
Contingent rentals.................................. 4,742 4,795 5,059
Equipment............................................. 5,051 7,481 9,316
------- ------- -------
Total rental expense........................ $40,689 $42,009 $43,795
======= ======= =======
(11) INCOME TAXES
Federal and state income tax expense from continuing operations was as
follows:
FISCAL YEAR ENDED
---------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------- ----------- -----------
Current:
Federal............................................. $29,523 $27,813 $24,654
State............................................... 3,663 3,899 4,910
------- ------- -------
33,186 31,712 29,564
------- ------- -------
Deferred:
Federal............................................. 80 5,751 3,644
State............................................... 4 937 1,443
------- ------- -------
84 6,688 5,087
------- ------- -------
Income taxes.......................................... $33,270 $38,400 $34,651
======= ======= =======
32
35
BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
A reconciliation between income taxes from continuing operations computed
using the effective income tax rate and the federal statutory income tax rate of
35% is as follows:
FISCAL YEAR ENDED
---------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------- ----------- -----------
Income tax at the statutory federal rate.............. $31,813 $38,887 $32,353
State income taxes, net of federal income tax
benefit............................................. 2,384 3,142 4,130
Change in valuation allowance......................... -- (675) (1,775)
Other................................................. (927) (2,954) (57)
------- ------- -------
Income taxes.......................................... $33,270 $38,400 $34,651
======= ======= =======
Deferred taxes based upon differences between the financial statement and
tax bases of assets and liabilities and available tax carryforwards consist of:
FEBRUARY 3, JANUARY 29,
2001 2000
----------- -----------
Deferred tax assets:
Benefit plan costs........................................ $ 25,634 $24,720
Reserve for restructuring................................. 3,965 831
Inventory capitalization.................................. 6,149 5,525
Allowance for doubtful accounts........................... 3,878 3,432
Tax carryovers............................................ 2,803 1,994
Accrued vacation.......................................... 2,404 2,306
Advanced payments received................................ 5,713 --
Other..................................................... 6,012 5,167
-------- -------
Gross deferred tax assets................................... 56,558 43,975
Less valuation allowance.................................... (255) (255)
-------- -------
Net deferred tax assets........................... 56,303 43,720
-------- -------
Deferred tax liabilities:
Prepaid pension costs..................................... 37,707 36,432
Property and equipment.................................... 44,567 38,547
Inventory................................................. 15,584 9,266
Investment securities..................................... 2,619 2,594
Other..................................................... 1,860 2,608
-------- -------
Gross deferred tax liabilities.............................. 102,337 89,447
-------- -------
Net deferred tax liabilities...................... $ 46,034 $45,727
======== =======
The valuation allowance decreased $0 and $675 for the years ended February
3, 2001 and January 29, 2000, respectively. In assessing the realization of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the temporary
differences becoming deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
As of February 3, 2001, the Company has net operating loss carryforwards
for federal and state income tax purposes of $3,628 and $31,713, respectively,
which are available to offset future taxable income, if any. These carryforwards
expire at various intervals through 2016. In addition, the Company has
alternative
33
36
BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
minimum tax net operating loss carryforwards of $3,829 which are available to
reduce future alternative minimum taxable income at various intervals through
2013.
(12) PENSION AND POST-RETIREMENT 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. In fiscal year 2001, a plan amendment changed the averaging period
of employees' compensation from calendar years 1994, 1995 and 1996 to calendar
years 1998, 1999 and 2000, or the first two years of participation if employed
after 1998. The cost of pension benefits has been determined by the projected
unit credit actuarial method in accordance with SFAS No. 87 "Employers'
Accounting for Pensions". The assets held by the plan consist of 68% equities
and 32% fixed income investments. No additional funding of the plan is
anticipated in the foreseeable future.
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 Company accounts for postretirement benefits by recognizing the
cost of these benefits over an employee's estimated term of service with the
Company, in accordance with SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other than Pensions".
The change in benefit obligation, change in plan assets, funded status,
amounts recognized and unrecognized, net periodic benefit cost and actuarial
assumptions are as follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------- -------------------------
FEBRUARY 3, JANUARY 29, FEBRUARY 3, JANUARY 29,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Change in benefit obligation:
Benefit obligation at beginning of year... $233,931 $231,806 $ 33,450 $ 36,988
Service cost.............................. 11,134 13,301 378 506
Interest cost............................. 18,199 16,583 2,246 2,433
Amendments................................ 4,209 -- -- --
Actuarial gain............................ (14,785) (10,529) (5,005) (3,748)
Benefits paid............................. (14,164) (17,230) (2,668) (2,729)
-------- -------- -------- --------
Benefit obligation at end of year......... 238,524 233,931 28,401 33,450
-------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of
year................................... 364,874 356,598 -- --
Actual return on plan assets.............. 23,279 25,506 -- --
Contributions to plan..................... -- -- 2,668 2,729
Benefits paid............................. (14,164) (17,230) (2,668) (2,729)
-------- -------- -------- --------
Fair value of plan assets at end of
year................................... 373,989 364,874 -- --
-------- -------- -------- --------
Funded status............................... 135,465 130,943 (28,401) (33,450)
Unrecognized net transition obligation...... -- (523) 3,141 3,403
Unrecognized prior service costs............ 5,316 1,187 -- --
Unrecognized net (gain) loss................ (39,282) (32,065) (2,402) 2,603
-------- -------- -------- --------
Net amount recognized............. $101,499 $ 99,542 $(27,662) $(27,444)
======== ======== ======== ========
34
37
BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The components of net periodic benefit expense (income) are as follows:
PENSION PLAN POSTRETIREMENT PLAN
--------------------------------------- ---------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30, FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999 2001 2000 1999
----------- ----------- ----------- ----------- ----------- -----------
Service cost............ $ 11,134 $ 13,301 $ 13,068 $ 378 $ 506 $ 464
Interest cost........... 18,199 16,583 15,536 2,246 2,433 2,472
Expected return on
assets................ (30,847) (27,629) (25,048) -- -- --
Amortization of
unrecognized items:
Net transition (asset)
obligation......... (523) (523) (1,022) 262 262 486
Prior service cost.... 80 78 144 -- -- --
Net (gains) losses.... -- -- (545) -- 229 241
-------- -------- -------- ------ ------ ------
Net periodic
benefit
expense
(income).... $ (1,957) $ 1,810 $ 2,133 $2,886 $3,430 $3,663
======== ======== ======== ====== ====== ======
Weighted average assumptions were:
PENSION PLAN POSTRETIREMENT PLAN
--------------------------------------- ---------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30, FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999 2001 2000 1999
----------- ----------- ----------- ----------- ----------- -----------
Discount rates.......... 7.75% 7.75% 6.75% 7.75% 7.75% 6.75%
Rates of compensation
increase.............. 4.00 4.00 4.00 N/A N/A N/A
Return on plan assets... 9.40 8.50 8.50 N/A N/A N/A
For measurement purposes, a 5.5% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed for
fiscal year 2001; the rate was assumed to remain at 5.5% for fiscal years
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. For example, increasing the assumed health care cost
trend rates by one percentage point would increase the accumulated
postretirement benefit obligation as of February 3, 2001 by $2,106 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended February 3, 2001 by $261.
Decreasing the assumed health care cost trend rates by one percentage point
would decrease the accumulated postretirement benefit obligation as of February
3, 2001 by $1,722 and the aggregate of the service and interest cost components
of net periodic postretirement benefit cost for the year ended February 3, 2001
by $209.
During fiscal year 2001, the Company changed its measurement date from
December 31 to October 31 for the defined benefit pension plan and the defined
benefit health care plan. Changing the measurement date from December 31 to
October 31 had an immaterial impact on the financial statements.
(13) OTHER EMPLOYEE BENEFITS
The Belk Employees' Health Care Plan provides medical and dental benefits
to substantially all full-time employees. This Plan is "self-funded" for medical
and dental benefits through a 501(c)(9) Trust. The Group Life Insurance Plan and
The Belk Employees Short Term Disability Insurance Plan provide insurance to
substantially all full-time employees and are fully insured through contracts
issued by insurance companies. Contributions by the Company under these plans
amounted to approximately $20,323, $20,799, and $17,350 in fiscal years 2001,
2000, and 1999, respectively.
35
38
BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The Belk 401(k) Savings Plan, a contributory, defined contribution
multi-employer plan, provides benefits for substantially all employees. Prior to
January 1, 1998, the contributions to the plan generally represented 10% of
profits, as defined. Beginning on January 1, 1998, the contributions to the
401(k) Savings Plan are comprised of a matching contribution, generally 50% of
the employees' contribution up to 6% of eligible compensation, and a basic
contribution, generally 2% of eligible compensation, regardless of the
employees' contributions. The cost of the plan was approximately $9,586, $9,280,
and $7,961 in fiscal years 2001, 2000, and 1999, respectively.
The Supplemental Executive Retirement Plan ("SERP") is a non-qualified
defined benefit retirement plan that provides retirement and death benefits to
certain qualified executives of the Company. Total SERP costs charged to
operations were approximately $1,744, $1,467, and $1,431 in fiscal years 2001,
2000, and 1999, respectively. The effective discount rate used in determining
the net periodic SERP cost is 7.75%, 7.75%, and 6.75% for fiscal years 2001,
2000, and 1999, respectively. Actuarial gains and losses are amortized over the
average remaining service lives of the participants. At February 3, 2001 and
January 29, 2000, the projected benefit obligation for this plan was $15,372 and
$13,951, respectively. The corresponding accrued obligation of $14,286 and
$13,650, respectively, has been recognized as a non-current liability in the
balance sheet.
Certain eligible employees participate in a non-qualified Deferred
Compensation Plan ("DCP"). Participants in the DCP have elected to defer a
portion of their regular compensation subject to certain limitations prescribed
by the DCP. The Company is required to pay interest on the employees' deferred
compensation at various rates that have historically been between 8% and 15%.
Total interest expense related to the plan and charged to operations was
approximately $3,567, $3,486, and $4,007, in fiscal years 2001, 2000, and 1999,
respectively.
(14) STOCK-BASED COMPENSATION
In fiscal year 2001, the Company implemented the Belk, Inc. 2000 Incentive
Stock Plan (the "Plan") which is administered by the Company's Board of
Directors. Under the Plan, the Company is authorized to award various types of
equity incentives to key employees.
During fiscal year 2001, the Company accrued compensation expense for
performance based stock awards to certain key executives. These performance
based stock awards will be granted at the end of three years if the Company
meets specified cumulative performance targets during that period. No monetary
consideration is paid by employees who receive performance stock awards.
The Company applies Accounting Principles Board Opinion No. 25 ("APB 25")
in measuring compensation cost extended under the Plan. Accordingly,
compensation expense is recorded over the performance period based on estimates
of performance levels and the estimated fair market value of the stock. The
method for determining the fair value of the stock is based on a third party
valuation. Performance based compensation expense for 2001 was $684.
If the Company would have elected to follow the measurement provisions of
SFAS No. 123, "Accounting for Stock-based Compensation", in accounting for its
performance based stock awards, there would have been no change in net income
for fiscal year 2001.
36
39
BELK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying values approximate fair values for financial instruments that are
short-term in nature, such as cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses, notes payable and lines of credit. The fair
value of other financial instruments are as follows:
FEBRUARY 3, 2001 JANUARY 29, 2000
------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
Long-term debt (excluding capitalized
leases)..................................... $404,421 $405,814 $371,197 $371,197
Interest rate swap agreements................. (2,647) (8,804) (3,078) 16,135
Investment securities......................... 21,291 21,803 22,169 22,082
The fair value of the Company's fixed rate long-term debt is estimated
based on the current rates offered to the Company for debt of the same remaining
maturities. The carrying value of the Company's variable rate long-term debt
approximates its fair value.
The fair value of interest rate swap agreements is the estimated amount
that the Company would pay or receive to terminate the swap agreement, taking
into account the current credit worthiness of the swap counterparties.
(16) STOCKHOLDERS' EQUITY
Authorized capital stock of Belk, Inc. includes 200 million shares of Class
A common stock, 200 million shares of Class B common stock and 20 million shares
of preferred stock, all with par value of $.01 per share. At February 3, 2001,
there were 53,713,078 shares of Class A common stock outstanding, 1,025,436
shares of Class B common stock outstanding, and no shares of preferred stock
outstanding. The Class A shares were issued in exchange for the shares of
existing shareholders of the Predecessor Companies in connection with the
Reorganization described in Note 1.
Class A shares are convertible into Class B shares on a 1 for 1 basis, in
whole or in part, at any time at the option of the holder. Class A and Class B
shares are identical in all respects, with the exception that Class A
stockholders are entitled to ten votes per share and Class B stockholders are
entitled to one vote per share. There are restrictions on transfers of Class A
shares to any person other than a Class A permitted holder. Each Class A share
transferred to a non-Class A permitted holder automatically converts into one
share of Class B.
37
40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE (ITEM 304 OF REGULATION S-K)
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item with respect to Directors and
Executive Officers of the Registrant is included in the Sections entitled
"Election of Directors", "Management of the Company", "Executive Compensation -
Executive Officers" and "Executive Compensation - Section 16(a) Beneficial
Ownership Reporting Compliance" of the Proxy Statement for the Annual Meeting of
Stockholders to be held on May 30, 2001 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the Section entitled
"Executive Compensation" of the Proxy Statement for the Annual Meeting of
Stockholders to be held on May 30, 2001 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the Sections entitled
"Management Common Stock Ownership" and "Principal Stockholders" of the Proxy
Statement for the Annual Meeting of Stockholders to be held on May 30, 2001 and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the Section entitled
"Executive Compensation -- Certain Transactions" of the Proxy Statement for the
Annual Meeting of Stockholders to be held on May 30, 2001 and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets -- February 3, 2001 and January 29, 2000
Consolidated Statements of Income -- Fiscal years ended February 3,
2001, January 29, 2000 and January 30, 1999
Consolidated Statements of Changes in Stockholders' Equity and
Comprehensive Income -- Fiscal years ended February 3, 2001, January 29,
2000 and January 30, 1999
Consolidated Statements of Cash Flow -- Fiscal years ended February 3,
2001, January 29, 2000 and January 30, 1999
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedules
All schedules are omitted because they are inapplicable, not required or
the information is included elsewhere in the consolidated financial
statements or the notes thereto.
38
41
3. Exhibits
The following list of Exhibits includes both Exhibits submitted with this
Form 10-K as filed with the Commission and those incorporated by reference to
other filings:
3.1 Form of Amended and Restated Certificate of Incorporation of
the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-4, File No.
333-42935)
3.2 Form of Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 3.3 to the Company's
Registration Statement on Form S-4, File No. 333-42935)
10.1 Belk, Inc. 2000 Incentive Stock Plan (incorporated by
reference to Exhibit 10.13 to the Registrant's Annual Report
on Form 10-K, filed on April 28, 2000 (File No. 000-26207))
10.2 Letter Agreement extending the Commitment Termination Date
of the Note Purchase Agreement, dated as of May 3, 1999, by
and among Belk, Inc., as Debtor, The Belk Center, Inc., as
Servicer, Enterprise Funding Corporation, and NationsBank,
N.A., as agent for Enterprise Funding Corporation and the
Bank Investors and as a Bank Investor (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q, filed on June 13, 2000 (File No.
000-26207))
10.3 Credit Agreement, dated as of May 30, 2000, by and between
Belk, Inc., as Borrower, and Wachovia Bank, N.A., as Bank
(incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q, filed on
September 12, 2000 (File No. 000-26207))
21.1 Subsidiaries
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the fiscal year ended
February 3, 2001.
39
42
SIGNATURES
Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 4th day of
May 2001.
BELK, INC.
(Registrant)
By: /s/ JOHN M. BELK
------------------------------------
John M. Belk
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated on May 4, 2001.
SIGNATURE TITLE
--------- -----
/s/ JOHN M. BELK Chairman of the Board and Chief Executive
- --------------------------------------------- Officer (Principal Executive Officer)
John M. Belk
/s/ THOMAS M. BELK, JR. President and Director
- ---------------------------------------------
Thomas M. Belk, Jr.
/s/ H. W. MCKAY BELK President and Director
- ---------------------------------------------
H. W. McKay Belk
/s/ JOHN R. BELK President and Director
- ---------------------------------------------
John R. Belk
/s/ B. FRANK MATTHEWS, II Vice Chairman of the Board and Director
- ---------------------------------------------
B. Frank Matthews, II
/s/ SARAH BELK GAMBRELL Director
- ---------------------------------------------
Sarah Belk Gambrell
/s/ J. KIRK GLENN, JR. Director
- ---------------------------------------------
J. Kirk Glenn, Jr.
/s/ KARL G. HUDSON, JR. Director
- ---------------------------------------------
Karl G. Hudson, Jr.
/s/ JOHN A. KUHNE Director
- ---------------------------------------------
John A. Kuhne
/s/ BRIAN T. MARLEY Executive Vice President, Finance
- --------------------------------------------- (Principal Financial Officer)
Brian T. Marley
/s/ BILL R. WALTON Senior Vice President and Treasurer
- --------------------------------------------- (Principal Accounting Officer)
Bill R. Walton
40