BELK INC - 10-K Annual Report

Back to GetFilings.com

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------------

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 2, 2002
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:

---------------------

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. [X]

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
26, 2002 (based on the book value per share of Common Stock of the Registrant,
as of February 2, 2002) was $342,036,654. 54,759,003 shares of common stock were
outstanding as of April 26, 2002, comprised of 53,573,996 shares of the
registrant's Class A Common Stock, par value $0.01, and 1,185,007 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 29, 2002 are incorporated herein by reference in Part III.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

BELK, INC.

TABLE OF CONTENTS

i

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS

Certain statements made in this report, and other written or oral
statements made by or on behalf of the Company, may constitute "forward-looking
statements" within the meaning of the federal securities laws. Statements
regarding future events and developments and the Company's future performance,
as well as our expectations, beliefs, plans, estimates or projections relating
to the future, are forward-looking statements within the meaning of these laws.
You can identify these forward-looking statements through our use of words such
as "may", "will", "intend", "project", "expect", "anticipate", "believe",
"estimate", "continue" or other similar words. Forward-looking statements
include information concerning possible or assumed future results from
merchandising, marketing and advertising in our stores and through the internet,
our ability to be competitive in the retail industry, our ability to execute
profitability and efficiency strategies, our ability to execute our growth
strategies, anticipated benefits from the consolidation of our operating
divisions and distribution facilities, the expected benefit of our new systems
and technology, the expected increase in our sales and revenues generated
through our proprietary charge card program and the anticipated benefits from
the Merchandising Restructuring (as described herein). These forward-looking
statements are subject to certain risks and uncertainties that may cause our
actual results to differ significantly from the results we discuss in such
forward-looking statements. We believe that these forward-looking statements are
reasonable; however, you should not place undue reliance on such statements.

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

- general economic and business conditions, both nationally and in our
market areas;

- 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;

- 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;

- 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 our the
consolidation of our distribution facilities and functions;

- the effectiveness of our e-commerce and gift registry strategies;

- our ability to contain costs;

- our ability to accomplish our logistics and distribution strategies;

- the effectiveness of our merchandising and sales promotion consolidation
and the implementation of our planning and allocation functions;

- 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; and

- our ability to obtain capital to fund any growth or expansion plans.
1

Our other filings with the Securities and Exchange Commission may contain
additional information concerning the risks and uncertainties listed above, and
other factors you may wish to consider. Upon request, we will provide copies of
these filings to you free of charge.

Our forward-looking statements are based on current expectations and speak
only as of the date of such statements. We undertake no obligation to publicly
update or revise any forward-looking statement, even if future events or new
information may impact the validity of such statements.

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 $2.24 billion for the fiscal year
ended February 2, 2002. 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 the
convenience of one-stop 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, spas, 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 16.610 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 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.

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 five key elements: (i) a target customer focus; (ii) focused
merchandise assortments; (iii) compelling sales promotions; (iv) distinctive
customer service; and (v) a winning store and market strategy.

2

Target Customer Focus. Belk's primary target customer is a
35-to-54-year-old female who works outside of the home; whose annual family
income exceeds $35,000; who buys for herself and her family; and who is style
conscious and seeks updated fashions and quality merchandise. The Company
maintains its target customer focus by conducting ongoing research to ascertain
and update target customer characteristics and needs, such as annual customer
satisfaction surveys and customer focus group studies. It seeks to maximize
customer convenience and satisfaction through effective inventory management
that ensures consistently high inventory levels of desired merchandise,
effective store layout, merchandise signing and visual display, and quick and
efficient transactions at the point of sale. Additionally, the Company strives
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 that meet customers' lifestyle needs for casual, career and social
occasions.

Compelling Sales Promotions. Belk's sales promotion strategy focuses on
promoting merchandise that the target customer desires, offering her 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 and amenities that 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 investment in
new markets and the expansion and renovation of existing facilities includes a
disciplined real estate evaluation process using a balanced scorecard, rigorous
financial measures, and investment guidelines.

PRODUCTIVITY AND EFFICIENCY STRATEGY

The Company seeks to improve profitability through developing and
implementing initiatives designed to improve productivity and efficiency
throughout the organization. Such initiatives include 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.

During fiscal year 2002, a Company-wide expense management initiative
produced substantial savings. Associates from throughout the Company submitted
more than 1,000 expense saving ideas, many of which were implemented to help
reduce costs across all expense areas. In addition to the "grass roots" effort,
management identified other areas for expense reduction, set stretch goals and
targets and implemented a process to track savings for each area and idea. The
expense management efforts had a significant positive impact on the Company's
overall financial results for the year, and integrating expense management
strategies, processes and programs into operations throughout the Company will
continue to be a top priority.

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 for
growth in existing and contiguous markets.

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 continue to take

3

advantage of prudent opportunities to expand into large markets, the Company
will focus its expansion in medium-sized markets with store units in the 50,000
to 80,000 square-foot size range.

In determining where to open new stores in the future, the Company's
management will evaluate demographic information such as income, education
levels, age and occupation, as well as the 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 2002, the Company opened four new stores that have a
combined size of approximately 200,000 square feet of space, and expanded four
existing stores with a total combined new space of approximately 110,000 square
feet. In fiscal year 2003, Belk plans to open nine new stores that will have a
combined space of approximately 845,000 square feet. The Company will also
complete a 40,000-square-foot expansion and major renovation of its flagship
store at SouthPark Mall in Charlotte, N.C.

New stores and major expansions opened in fiscal year 2002 include:

New Stores

Expansions

New stores and major store expansions scheduled for completion in fiscal
year 2003 include:

New Stores

4

Expansions

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 goal is to position Belk stores as
the leaders in their markets in providing updated, "fashion-right" assortments
with greater depth of style, selection and value. The Company's strategic
merchandise initiatives continued to produce strong sales results in fiscal year
2002 in women's apparel, accessories and shoes, as well as other areas of the
business.

Belk stores offer complete assortments of the most desirable national
brands. 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 fashion leaders and enables Belk to offer customers exclusive
and original merchandise that is not generally available in other stores in
their markets.

Belk stores also offer exclusive private brands in selected merchandise
areas 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, Saddlebred and
Home Accents, provide outstanding value for customers and set Belk apart from
its competitors. During fiscal year 2002, the Company reintroduced its
Saddlebred label in men's merchandise and plans in the coming year to launch an
updated Nursery Rhyme label for infants and toddlers.

THE MERCHANDISING RESTRUCTURING

In May 2002, the Company announced plans to consolidate its divisional
merchandising and sales promotions functions into a single organization to be
located at the company's corporate offices in Charlotte, NC. The plans also
include implementation of a central planning and allocation function to oversee
the distribution and allocation of merchandise to the stores. The Company
anticipates that the consolidation will permit the Company to achieve more
unified and consistent execution of its merchandising, marketing and advertising
strategies and more focused merchandise assortments at the store level. The
Company also anticipates that the consolidation, once fully implemented, will
result in cost savings and greater operating efficiencies. The Company plans to
record a restructuring charge in the second quarter of fiscal year 2003 to
reflect anticipated severance payments, lease obligation liabilities and the
disposal of excess assets. The Company is not at this time able to predict the
amount of the charge or the anticipated cost savings due to uncertainties
regarding the number and identity of employees who will remain with the Company,
the asset requirements for the consolidated organization and the costs of
implementation. The consolidation is scheduled to be effective in the third
quarter.

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

5

magazine, newspaper and billboard advertising. The Company also provides
information about the Company and its sales promotions and bridal gift registry
on the 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, including
customized advertising based upon the particular merchandise needs and shopping
preferences of its customers.

In fiscal year 2002, the Company launched a new marketing concept and
merchandise program for juniors called Zuniverse. The area offers the hottest
fashion trends in a bright, upbeat setting designed especially for teenaged
girls and young adult women. Zuniverse sets itself apart from other areas of the
store with a distinctive decor featuring vibrant orange and purple colors, bold
graphics and signing. Customers can access information about Zuniverse
merchandise and services via the Internet through Belk's exclusive website at
www.Zuniverse.net. A Zuniverse Great Gifts(TM) card has been created especially
for the Zuniverse customer, which can be purchased at any store sales register.
Juniors customers can join Belk's Z-Club at no cost and receive a ten percent
discount on all Zuniverse purchases each time they shop.

GIFT CARDS

The Company's "Great Gifts Card" program introduced in spring 2000 replaced
paper gift checks with an electronic stored value card. The program provides a
convenient option for customer gift-giving and also enables stores to issue
electronic credits to customers in lieu of cash refunds for merchandise returned
without sales receipts. Four types of Great Gifts Cards are available, each with
its own distinctive design and appeal: Bridal/Anniversary, Holiday, Zuniverse
(for juniors customers), and Standard.

SALONS AND SPAS

The Company owns and operates eleven hair styling salons in its various
store locations, seven of which also offer spa services. During fiscal year
2002, the Company opened new salon and spa operations at its stores in
Asheville, NC (Asheville Mall) and Anderson, SC (Anderson Mall) and completed a
renovation of the existing hair salon at SouthPark Mall in Charlotte, NC, which
was expanded to include spa services. On March 12, 2002, a salon and spa was
opened at Belk of The Streets at Southpoint, Durham, NC, and an additional hair
salon and spa is scheduled to open at Belk of Triangle Towne Center, Raleigh, NC
in August 2002. The hair salons offer the latest hair styling services as well
as wide assortments of top brand name beauty products, including Aveda. The spas
offer massage therapy, skincare, nail treatments and other specialized services.

E-COMMERCE AND GIFT REGISTRY

During fiscal year 2002, the Company integrated the operations of its
former E-Commerce Division into existing functional areas in order to more
efficiently meet the needs of bridal and gift registry customers and implement a
new Belk e-commerce business model. The Company also recorded an $8.6 million
charge in connection with its e-commerce initiative as a result of reduced
revenues and earnings projections. Under the new model, belk.com continues to
provide a presence for the Company on the Internet and offers online shopping
solutions to customers for bridal gift needs, including support of bridal gift
kiosks and product scanning capabilities in the stores.

The Company's gift registry offers a wide assortment of bridal merchandise
that can be registered and purchased online or in local Belk stores, and shipped
directly to the customer or gift recipient. The 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 certified 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

6

can use a portable scanning device, which enables them to quickly and easily
enter information on their gift selections directly into the registry system.

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,
including a 30-day revolving account, an interest-free 30-60-90 day account, an
interest-free table top plan (for china, crystal, silver and other gift
purchases) and an interest-free fine jewelry plan.

The Company promotes the use of Belk charge cards by existing Belk charge
customers and seeks to increase the number of new Belk cardholders through
targeted marketing campaigns and active solicitation efforts within Belk stores.
During fiscal year 2002, the Company implemented an updated "Belk Select"
affinity program offering improved benefits for its best Belk charge customers.
The program is designed to attract profitable new customers, increase sales from
existing customers and increase the active Belk credit card account base. It
offers special benefits and services to charge customers whose Belk charge
purchases total $650 or more in a calendar year, including $5 in free Belk
"Select reward dollars" for every $150 charged to their Belk Select card which
can be applied toward future Belk purchases, a 10-percent-off "Make Your Own
Sale" certificate, free deluxe gift wrapping, free basic alterations, choice of
billing dates, two skip-a-payment options per year, no annual fee, and
notifications of special savings, sales events and courtesy shopping days.

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.

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 management and logistics initiatives.
These systems enable management to quickly identify sales trends, order, track
and distribute merchandise, manage markdowns and monitor merchandise mix and
inventory levels. In addition, during fiscal year 2002 the Company outsourced
its computer operations, help desk and network support services to IBM Global
Services.

INVENTORY MANAGEMENT AND LOGISTICS

The Company opened a new 371,000 square foot Central Distribution Center in
Blythewood, S.C., in July 2000 as part of the restructuring of the Company's
merchandise distribution and logistics network. During fiscal year 2002, the
Company completed the consolidation of its distribution centers located in
Charlotte, NC, Morrisville, NC, Greensboro, NC, Mauldin, SC, Summerville, SC and
Fayetteville, NC, together with store merchandise receiving and processing
functions in 91 stores not previously serviced by a distribution center, into
the new Blythewood center. The central distribution facility incorporates the
latest distribution center design, technology and equipment, facilitating the
automation of many labor-intensive processes. The consolidation resulted in
significant cost savings, logistical efficiencies and accelerated delivery of
merchandise from the vendor to the sales floor. The degree and timing of the
total cost savings ultimately realized is subject to fluctuation based on the
level of vendor compliance with the Company's Floor Ready standards, the
competitive pricing conditions for third party services and other factors.

Additionally, the Central Distribution Center, combined with the Company's
inventory management systems and "Floor Ready" initiatives, has significantly
reduced merchandise cycle time. The Company's "Store Ready" merchandise
receiving processes have enabled stores to receive and process merchandise
shipments and move goods to the sales floor early in the day before the store
opens, ensuring the ongoing timely delivery of fresh goods to meet customers'
shopping needs.
7

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., Kohl's Corporation, The May Department Stores Company, Dillard's,
Inc., Sak's, Inc., 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.

ASSOCIATES

As of February 2, 2002, the Company had approximately 18,500 full-time and
part-time associates. Because of the seasonal nature of the retail business, the
number of associates fluctuates from time to time and is highest during the
holiday shopping period in November and December. The Company as a whole
considers its relations with associates to be good. None of the associates of
the Company are represented by unions or subject to collective bargaining
agreements.

ITEM 2. PROPERTIES

STORE LOCATIONS

As of February 2, 2002, the Company operated a total of 207 retail stores
in the following states:

Alabama -- 3 Maryland -- 2 Tennessee -- 3
Arkansas -- 2 Mississippi -- 1 Texas -- 3
Florida -- 19 North Carolina -- 73 Virginia -- 19
Georgia -- 38 South Carolina -- 38 West Virginia -- 2
Kentucky -- 4

Belk stores are located in regional malls (114), strip shopping centers
(87), "power" centers (2) and "lifestyle" centers (2). Additionally, there are
two freestanding stores. 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

8

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 2, 2002, the Company owned 58 store buildings, leased 143
store buildings under operating leases, and owned 16 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:

OTHER

The Company owns or leases various other real properties, including
primarily former store locations, division offices and distribution centers.
Such property is not material, either individually or in the aggregate, to the
Company's results of operations or financial condition.

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 VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the security holders during the
fourth quarter of the fiscal year ending February 2, 2002.

9

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 2002. There is no established public trading market for either
class of the Registrant's common stock. As of April 26, 2002, there were
approximately 580 holders of record of the Class A Common Stock and 221 holders
of record of Class B Common Stock. On March 14, 2002, 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

- ---------------

(1) Loss from discontinued operations represents the operating results of TAGS,
LLC, which owned and operated outlet stores.
(2) On a 52 versus 52 week basis, comparable store net revenues decreased .7% in
fiscal year 2002 and increased 3.2% in fiscal year 2001.

10

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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 includes payroll, advertising, credit and depreciation
expense.

THE LOGISTICS RESTRUCTURING

During fiscal year 2001, the Company constructed a new 371,000 square foot
central distribution center in Blythewood, S.C. as part of the restructuring of
the Company's merchandise distribution and logistics network (the "Logistics
Restructuring"). During fiscal year 2002, the Company completed the
consolidation of 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, into
the new Blythewood center. The consolidation resulted in significant cost
savings, logistical efficiencies and accelerated delivery of merchandise from
the vendor to the sales floor. The degree and timing of the total cost savings
ultimately realized is subject to fluctuation based on the level of vendor
compliance with the Company's packaging and labeling standards, the competitive
pricing conditions for third party services and other factors.

THE MERCHANDISING RESTRUCTURING

In May 2002, the Company announced plans to consolidate its divisional
merchandising and sales promotions functions into a single organization to be
located at the company's corporate offices in Charlotte, NC. The plans also
include implementation of a central planning and allocation function to oversee
the distribution and allocation of merchandise to the stores. The Company
anticipates that the consolidation will permit the Company to achieve more
unified and consistent execution of its merchandising, marketing and advertising
strategies and more focused merchandise assortments at the store level. The
Company also anticipates that the consolidation, once fully implemented, will
result in cost savings and greater operating efficiencies. The Company plans to
record a restructuring charge in the second quarter of fiscal year 2003 to
reflect anticipated severance payments, lease obligation liabilities and the
disposal of excess assets. The Company is not at this time able to predict the
amount of the charge or the anticipated cost savings due to uncertainties
regarding the number and identify of employees who will remain with the Company,
the asset requirements for the consolidated organization and the costs of
implementation. The consolidation is scheduled to be effective in the third
quarter.

ASSET IMPAIRMENT AND STORE CLOSING COSTS

During fiscal year 2002, the Company recorded a pre-tax charge of $13.5
million for asset impairment and store closing costs. The charge includes (i) an
$8.6 million reduction to fair value of the historical cost of assets associated
with the Company's e-commerce initiative as a result of reduced revenues and
earnings projections for Belk.com and (ii) $1.6 million of exit costs and a $3.3
million write-down of long-term assets for four stores closing during fiscal
years 2002 and 2003. The exit costs primarily consist of post-closing real
estate lease obligations. The long-term assets in the stores are primarily
leasehold improvements and fixtures that will be abandoned, discarded or sold
when the stores are closed. The Company does not anticipate incurring
significant additional exit costs in connection with the store closings.

CRITICAL ACCOUNTING POLICIES

Management's Discussion and Analysis discusses the results of operations
and financial condition as reflected in the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. As discussed in Note 1 to
the

11

Company's Consolidated Financial Statements, the preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America 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
reported amounts of revenues and expenses during the reporting period. On an
ongoing basis, management evaluates its estimates and judgments, including those
related to inventory valuation; the allowance for doubtful accounts; useful
lives of depreciable assets; recoverability of long-lived assets, including
intangible assets; restructuring and store closing reserves and the calculation
of pension and postretirement obligations. Management bases its estimates and
judgments on its substantial historical experience and other relevant factors,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. See Note 1 to the Company's Consolidated Financial Statements for a
discussion of the Company's significant accounting policies.

While the Company believes that the historical experience and other factors
considered provide a meaningful basis for the accounting policies applied in the
preparation of the consolidated financial statements, the Company cannot
guarantee that its estimates and assumptions will be accurate, which could
require the Company to make adjustments to these estimates in future periods.

The following critical accounting policies are used in the preparation of
the financial statements:

Inventory Valuation. Inventories are valued using the lower of cost or
market value, determined by the retail inventory method. Under the retail
inventory method ("RIM"), the valuation of inventories at cost and the resulting
gross margins are calculated by applying a cost-to-retail ratio to the retail
value of inventories. RIM is an averaging method that has been widely used in
the retail industry due to its practicality. Also, it is recognized that the use
of the retail inventory method will result in valuing inventories at lower of
cost or market if markdowns are currently taken as a reduction of the retail
value of inventories. Inherent in the RIM calculation are certain significant
management judgments and estimates including, among others, merchandise markon,
markup, markdowns and shrinkage, which significantly impact the ending inventory
valuation at cost as well as resulting gross margins. These significant
estimates, coupled with the fact that the RIM is an averaging process, can,
under certain circumstances, produce distorted or inaccurate costs. In addition,
failure to take markdowns currently can result in an overstatement of cost under
the lower of cost or market principle.

Allowance for Doubtful Accounts. The Company provides an allowance for
doubtful accounts that is determined based on a number of factors, including
delinquency rates, bankruptcy filings, historical charge-off patterns and
management judgment.

Useful Lives of Depreciable Assets. The Company utilizes judgment in
determining the estimated useful lives of its depreciable long-lived assets
which are included in the consolidated financial statements. The estimate of
useful lives is determined by the Company's historical experience with the type
of asset purchased.

Recoverability of Long-Lived Assets. Long-lived assets, including
intangible assets, are reviewed when facts and circumstances indicate that the
carrying value of the asset may not be recoverable. When necessary, impaired
assets are written down to estimated fair value based on the best information
available. Estimated fair value is generally measured by discounting estimated
future cash flows. Where available, the Company would also obtain individual
appraisals or utilize other indicators of fair value. Considerable management
judgment is necessary to estimate discounted future cash flows.

Restructuring and Store Closing Reserves. The Company reduces the carrying
value of property and equipment to fair value for owned locations or recognizes
a reserve for future obligations for leased facilities at the time a decision is
made to close a store or other location. The reserve includes future minimum
lease payments, common area maintenance and taxes. Additionally, the Company
makes certain assumptions related to potential subleases and lease buyouts that
reduce the recorded amount of the accrual. These assumptions are based on our
knowledge of the market and other relevant experience including information
provided by third party real estate brokers. However, significant changes in the
real estate market and the inability to enter into the subleases or obtain
buyouts within the estimated timeframe may result in increases or decreases to
these reserves.

12

Pension and Postretirement Obligations. The Company utilizes significant
assumptions in determining its periodic pension and postretirement expense and
obligations which are included in the consolidated financial statements. These
assumptions include determining an appropriate discount rate, investment
earnings, rate of compensation increase as well as the remaining service period
of active employees. The Company utilizes a qualified actuary to calculate the
periodic pension and postretirement expense and obligations based upon these
assumptions and actual employee census data.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
relationship to revenues of certain items in the Company's consolidated
statements of income and other pertinent financial and operating data.

- ---------------

(1) On a 52 versus 52 week basis, comparable store net revenues decreased .7% in
fiscal year 2002 and increased 3.2% in fiscal year 2001.

COMPARISON OF FISCAL YEARS ENDED FEBRUARY 2, 2002 AND FEBRUARY 3, 2001

Revenues. The Company's revenues in fiscal year 2002 decreased 1.2%, or
$26.5 million, to $2.24 billion from $2.27 billion in fiscal year 2001. The
decrease resulted primarily from a 2.1% decrease in revenue from comparable
stores due to the 53rd week in fiscal year 2001 versus 52 weeks in fiscal year
2002, partially offset by $14.5 million of additional revenues from new,
expanded and remodeled stores over the prior year revenues for those locations.
On a 52 versus 52 week basis, fiscal year 2002 revenues from all stores
increased .2% over fiscal year 2001.

Cost of Goods Sold. As a percentage of revenues, cost of goods sold
decreased to 68.3% in fiscal year 2002 as compared to 68.8% in fiscal year 2001.
The decrease is primarily attributable to cost savings generated by the
Logistics Restructuring, partially offset by additional markdowns resulting from
economic and competitive conditions.

Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses were $559.7 million in fiscal year 2002,
compared to $566.4 million in fiscal year 2001, a decrease of 1.2%. As a
percentage of revenues, SG&A decreased to 24.9% in fiscal year 2002 from 25.0%
in fiscal year 2001. The

13

decrease in SG&A expenses as a percentage of revenues resulted primarily from
expense management initiatives instituted by the Company and increased finance
charge income associated with the Company's proprietary credit cards, partially
offset by increases in depreciation expense related to new stores and store
expansions, increased bad debt expense associated with the Company's proprietary
credit cards and additional costs associated with the initial operating phase of
the Company's e-commerce initiative.

During fiscal years 2002 and 2001, the Company's bad debt expense, net of
recoveries, associated with the issuance of credit on the Belk proprietary
credit cards, was $18.7 million and $13.7 million, respectively. During fiscal
years 2002 and 2001, finance charge income on the outstanding Belk proprietary
credit card receivables was $57.7 million and $56.9 million, respectively.
Accounts receivable management and collection services expenses for fiscal years
2002 and 2001 were $24.3 million and $23.6 million, respectively.

Asset Impairment and Store Closing Costs. During fiscal year 2002, the
Company recorded a pre-tax charge of $13.5 million for asset impairment and
store closing costs. The charge includes (i) an $8.6 million reduction to fair
value of the historical cost of assets associated with the Company's e-commerce
initiative as a result of reduced revenues and earnings projections for Belk.com
and (ii) $1.6 million of exit costs and a $3.3 million reduction to fair value
of long-term assets for four stores closing during fiscal years 2002 and 2003.

Restructuring Charge. For fiscal years 2002 and 2001, the Company recorded
a $.1 million and $8.3 million charge, respectively, in connection with the
Logistics Restructuring. The charges consisted of $2.6 million of employee
severance costs and $5.8 million related to the disposal of excess assets and
post closing lease obligations.

During fiscal year 2002 and 2001, the Company recorded a $.5 million and
$.6 million charge, respectively, in connection with the consolidation of its
thirteen operating divisions into four expanded regional divisions in June 1999.
The charges resulted from increases in estimated costs associated with post
closing lease obligations.

Income from Operations. The Company's income from operations includes
$13.5 million of asset impairment and store closing costs in fiscal year 2002
and a $.7 million and $8.9 million restructuring charge for fiscal years 2002
and 2001, respectively. Excluding these charges, income from operations for
fiscal year 2002 increased $10.1 million, or 7.2%, compared to fiscal year 2001.

Discontinued Operations. During fiscal year 2002 and 2001, the Company
recognized after-tax losses on disposal of discontinued operations of $.2 and
$.3 million, respectively, as a result of increases in the estimated costs
associated with the disposal of the TAGS leased property.

Cumulative Effect of Change in Accounting Principle. In connection with
the implementation of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", the Company recorded a $1.0 million charge to net income as
of the beginning of fiscal year 2002 related to its interest rate swap contracts
with option provisions. The adjustment represented the fair market value, net of
tax benefit, of these contracts as of February 4, 2001.

Net Income. Net income increased by $6.0 million in fiscal year 2002
compared to fiscal year 2001. Excluding the asset impairment and store closing
costs during fiscal year 2002, the cumulative effect of change in accounting
principle as of the beginning of fiscal year 2002, and the restructuring charge,
gain (loss) from the sale of property, equipment and investments and loss on
disposal of discontinued operations in each period, net income for fiscal year
2002 increased $6.7 million, or 10.4%, compared to fiscal year 2001.

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 (in part due to the 53rd week in fiscal year 2001 versus 52 weeks in
fiscal year 2000) and $40.4 million of additional revenues from new, expanded
and remodeled stores over the prior year revenues for those locations. On a
comparable 52-week basis, fiscal year 2001 revenues from all stores increased
4.6% over fiscal year 2000.

14

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 led to increased clearance markdowns to
generate sales and reduce inventory levels.

Selling, General and Administrative Expenses. SG&A expenses were $566.4
million in fiscal year 2001, compared to $539.9 million in fiscal year 2000, an
increase of 4.9%. As a percentage of revenues, SG&A decreased to 25.0% in fiscal
year 2001 from 25.2% 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
e-commerce initiative 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 $13.7 million and $10.1 million, respectively. During fiscal
years 2001 and 2000, finance charge income on the outstanding Belk proprietary
credit card receivables was $56.9 million and $50.1 million, respectively.
Accounts receivable management and collection services expenses for fiscal years
2001 and 2000 were $23.6 million and $21.6 million, respectively.

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.

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 levels in anticipation of
increased revenues during these months.

15

The following table illustrates the seasonality of revenues by quarter as a
percentage of the full year for the fiscal years indicated.

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 variable rate note is collateralized by the
Company's customer accounts receivable and limits borrowings under the facility
to approximately 72% of the Company's customer accounts receivable. The variable
rate note and seasonal line of credit expire in April 2003 and May 2002,
respectively, and have historically been renewed for annual periods.

Because the interest rates on some of the Company's debt agreements vary
with LIBOR or commercial paper rates, the Company has entered into interest rate
swap agreements with a financial institution 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 2002 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 activity. The Company used the proceeds from the
sale to reduce borrowings under its existing debt facilities.

Operating activities provided cash of $176.0 million during fiscal year
2002, as compared to $110.1 million in fiscal year 2001. The increase in cash
provided by operating activities compared to the prior period was principally
due to increases in net income and decreases in merchandise inventory levels,
partially offset by decreases in accounts payable and accrued expenses.

Investing activities used cash of $113.4 million during fiscal year 2002,
as compared to $117.6 million in fiscal year 2001. The decrease in cash used for
investing activities was primarily due to decreases in purchases of property and
equipment, partially offset by decreases in proceeds from the sale of property
and equipment.

Expenditures for property and equipment were $132.2 million during fiscal
year 2002, compared to $139.9 million in fiscal year 2001. During fiscal year
2002, the Company's capital expenditures included expenditures for opening four
new stores and making significant renovations to and/or expansions of eight
existing stores. 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 used by financing activities amounted to $67.7 million during
fiscal year 2002, a result of decreased borrowings, compared to $11.9 million of
cash provided by financing activities during fiscal year 2001.

Management of the Company believes that cash flows from operations and its
credit facilities will be sufficient to cover working capital needs, capital
expenditures and debt service agreements for the next 12 months.

16

RELATED PARTY TRANSACTIONS

In October 2001, the Company sold approximately 353 acres of undeveloped
land located in Lancaster, South Carolina for a total purchase price of $1.1
million to the Company's Chairman of the Board and Chief Executive Officer. The
purchase price was determined on the basis of independent third party
appraisals.

During fiscal year 2002, the Company loaned a total of $7.5 million to
three executives who are also stockholders and directors. The loans are
scheduled to be repaid to the Company in equal annual installments of $1.5
million plus interest in cash or stock over a five-year period beginning January
3, 2003. The loans bear interest at LIBOR plus 150 basis points.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

To facilitate an understanding of the Company's contractual obligations and
commercial commitments, the following data is provided:

- ---------------

* Standby letters of credit includes a $125 million facility that supports the
ten-year bonds due July 2008.

BELK NATIONAL BANK

During the first quarter of fiscal year 2001, 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 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" (Statement No. 141). Statement No. 141
supercedes APB No. 16, "Business Combinations," and is applicable to business
combinations initiated after June 30, 2001.

In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" (Statement No. 142). Statement
No. 142 will require that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead be tested for impairment. The
effective date of Statement No. 142 is the beginning of the Company's fiscal
year 2003. The Company does not

17

anticipate that the adoption of Statement No. 142 will have a material impact on
the Company's financial position or results of operations.

In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (Statement No. 144). Statement No. 144 addresses financial accounting
and reporting for the impairment of long-lived assets and for long-lived assets
to be disposed of. The effective date of Statement No. 144 is the beginning of
the Company's fiscal year 2003. The Company does not anticipate that the
adoption of Statement No. 144 will have a material impact on the Company's
financial position or results of operations.

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 2, 2002,
the Company had $336 million of variable rate 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 2, 2002 and
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 1 to the Company's financial statements.

18

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

19

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Belk, Inc.:

We have audited the accompanying consolidated balance sheets of Belk, Inc.
and subsidiaries as of February 2, 2002 and February 3, 2001, 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 2, 2002. 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
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated 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 2, 2002 and February 3, 2001, and the results of
their operations and their cash flows for each of the years in the three-year
period ended February 2, 2002, in conformity with accounting principles
generally accepted in the United States of America.

As discussed in note 1 to the consolidated financial statements, the
Company changed its method of accounting for derivative instruments and hedging
activities during the year ended February 2, 2002.

KPMG LLP

Charlotte, North Carolina
March 8, 2002, except as
to note 19 which is as
of May 2, 2002.

20

BELK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

See accompanying notes to consolidated financial statements.

21

BELK, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

See accompanying notes to consolidated financial statements.

22

BELK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)

See accompanying notes to consolidated financial statements.

23

BELK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

See accompanying notes to consolidated financial statements.

24

BELK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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. All significant intercompany transactions
and balances have been eliminated in consolidation.

Certain prior period amounts have been reclassified to conform with the
current presentation.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.

Significant estimates are required as part of determining the allowance for
doubtful accounts, depreciation, amortization and recoverability of long-lived
assets, establishing restructuring and other reserves, and calculating
retirement benefits.

FISCAL YEAR

The Company's fiscal year ends on the Saturday closest to each January 31.

REVENUES

Revenues include sales from retail operations, net of estimated returns,
and the net revenue received from leased departments of $6,615, $7,024 and
$6,557 for fiscal years 2002, 2001 and 2000, respectively. The reserve for
returns is calculated as a percentage of sales based on historical return
percentages.

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 $57,678, $56,949 and $50,116 in fiscal years 2002,
2001, and 2000, respectively.

25

BELK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)

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 $62,448, $65,599 and $63,937 in fiscal years 2002, 2001
and 2000, respectively.

LONG-LIVED ASSET RECOVERABILITY

Long-lived assets, including intangible assets, are reviewed when facts and
circumstances indicate that the carrying value of the asset may not be
recoverable. When necessary, impaired assets are written down to estimated fair
value based on the best information available. Estimated fair value is generally
based on either appraised value or measured by discounting estimated future cash
flows. Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly from
such estimates.

For fiscal year 2002, the carrying value of long-lived assets has been
reduced by $11,878 for impairment charges incurred as a result of this analysis.
For fiscal years 2001 and 2000, no impairment charges were incurred.

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.

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.

26

BELK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)

STOCK BASED COMPENSATION

The Company applies Accounting Principles Board ("APB") Opinion No. 25 and
related interpretations (see Note 15) 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.

IMPLEMENTATION OF NEW ACCOUNTING STANDARD

In fiscal year 2002, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedge Activities".
SFAS No. 133 sets forth accounting and reporting standards for derivative
instruments and hedging activities, requiring the recognition of all derivative
instruments, (including certain derivatives embedded in other contracts) as
either assets or liabilities in the balance sheet measured at fair value. SFAS
No. 133 also establishes criteria for a derivative to qualify as a hedge for
accounting purposes.

The adoption of SFAS No. 133 resulted in a $1.0 million reduction to
earnings, net of a $.6 million tax benefit, recorded as a cumulative effect of
change in accounting principle; a charge to accumulated other comprehensive
income (loss) of $8.9 million net of a $5.8 million tax benefit and an increase
to interest rate swap liability of $17.1 million. The Company anticipates
amortizing approximately $400 of accumulated other comprehensive loss, net of
$200 income tax benefit, during the next twelve months.

The only significant derivative instruments the Company holds are $300
million of interest rate swaps, which the Company uses as a cost effective means
to manage the interest rate and cash flow risks associated with its borrowings
and to manage the Company's allocation of fixed and variable-rate debt. These
swaps hedge the Company's $125 million bond facility and a series of forecasted
borrowings through maturity in

27

BELK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)

2008. As of February 2, 2002, the Company had swaps with a negative fair value
of $19.7 million, recorded in other non-current liabilities, designated as a
cash flow hedge of forecasted cash flows associated with the Company's
borrowings. Of the Company's $19.7 million swap liability, $3.7 million relates
to contracts with option provisions that are excluded from hedge accounting
treatment under SFAS No. 133. Any hedge ineffectiveness is recorded as a
component of interest expense. During fiscal year 2002 there was no hedge
ineffectiveness recorded by the Company. The increase in the swap liability for
contracts with option provisions for the twelve months ended February 2, 2002 of
$535 is recorded as an increase to interest expense.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 141, Business Combinations, (SFAS
No. 141). SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations. SFAS No. 141 specifies criteria that intangible
assets acquired in a business combination must meet to be recognized and
reported separately from goodwill.

In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" (Statement No. 142). Statement
No. 142 will require that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead be tested for impairment. The
effective date of Statement No. 142 is the beginning of the Company's fiscal
year 2003. The Company does not anticipate that the adoption of Statement No.
142 will have a material impact on the Company's financial position or results
of operations.

In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (Statement No. 144). Statement No. 144 addresses financial accounting
and reporting for the impairment of long-lived assets and for long-lived assets
to be disposed of. The effective date of Statement No. 144 is the beginning of
the Company's fiscal year 2003. The Company does not anticipate that the
adoption of Statement No. 144 will have a material impact on the Company's
financial position or results of operations.

(2) ASSET IMPAIRMENT AND STORE CLOSING COSTS

During fiscal year 2002, the Company recorded a pre-tax charge of $13.5
million for asset impairment and store closing costs. The charge includes (i) an
$8.6 million reduction to fair value of the historical cost of assets associated
with the Company's e-commerce initiative as a result of reduced revenues and
earnings projections for Belk.com and (ii) $1.6 million of exit costs and a $3.3
million reduction to fair value of long-term assets for four stores closing
during fiscal years 2002 and 2003. The exit costs primarily consist of post-
closing real estate lease obligations. The long-term assets in the stores are
primarily leasehold improvements and fixtures that will be abandoned, discarded
or sold when the stores are closed. As of February 2, 2002 the remaining reserve
balance for post-closing real estate lease obligations was $1.6 million. The
Company does not anticipate incurring significant additional exit costs in
connection with the store closings.

(3) RESTRUCTURING CHARGE

During fiscal year 2002 and 2001, the Company recorded charges of $148 and
$8,259, respectively, in connection with the consolidation of its six
distribution centers and its merchandise receiving and processing functions in
91 stores into one new central distribution center facility (the "Logistics
Restructuring"). The charges consisted of $2,563 for employee severance costs
and $5,844 related to the disposal of excess assets and post closing lease
obligation costs in the closed distribution centers. During fiscal year 2002,
the six distribution centers were closed, approximately 800 positions were
eliminated and the majority of the property and equipment from the closed
facilities was discarded or sold.

28

BELK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)

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. Closure of the facilities and
elimination of the positions occurred during the second quarter of fiscal year
2000. Excess property and equipment was discarded or sold. Additional charges of
$544 and $646 were recorded during fiscal years 2002 and 2001, respectively, as
a result of increases in the estimated costs associated with post closing lease
obligations.

The restructuring charges and their utilization are as follows:

(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 2, 2002 and February 3, 2001,
additional losses of $.2 million, net of income tax benefits of $.1 million and
$.3 million, net of income tax benefit of $.2 million, respectively were
recorded as a result of increases in the estimated costs associated with
post-closing lease obligations.

29

BELK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(5) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

(6) ACCOUNTS RECEIVABLE, NET

Customer receivables arise primarily under open-end revolving credit
accounts used to finance purchases of merchandise from the Company. These
accounts have various billing and payment structures, including varying minimum
payment levels. Installments of deferred payment accounts receivable maturing
after one year are included in current assets in accordance with industry
practice.

The Company provides an allowance for doubtful accounts that is determined
based on a number of factors, including delinquency rates, bankruptcy filings,
historical charge-off patterns and management judgment.

Accounts receivable, net consists of:

Changes in the allowance for doubtful accounts are as follows:

30

BELK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(7) 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:

At February 2, 2002, scheduled maturities of held-to-maturity securities
are as follows:

Available-for-sale securities consist primarily of equity investments.
Details of investments in available-for-sale securities are as follows:

Details of realized gains and losses are as follows:

31

BELK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(8) PROPERTY AND EQUIPMENT, NET

Details of property and equipment, net are as follows:

(9) ACCRUED EXPENSES

Accrued expenses are comprised of the following:

(10) BORROWINGS

Long-term debt, principally due to banks, and capital lease obligations
consist of the following:

The annual maturities of long-term debt and capital lease obligations over
the next five years as of February 2, 2002 are $11,278, $220,536, $6,591, $6,988
and $15,352, 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

32

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 72% of the Company's
customer accounts receivable. The note payable expires in April 2003 and,
accordingly, the balance as of February 2, 2002 has been included in annual
maturities of long-term debt for fiscal year 2004. 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 2, 2002, LIBOR was
1.86%.

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 bond
facility requires the Company to maintain a $125 million supporting letter of
credit. 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 2002 through 2008 and $250
million for fiscal year 2009 (see note 1).

At February 2, 2002, the Company has an unsecured line of credit agreement
totaling $175 million with a bank at a variable interest rate based on LIBOR
plus 75 basis points. The agreement expires on May 28, 2002 and may be renewed
upon mutual agreement between the parties. The amounts outstanding under line of
credit agreements at February 2, 2002 and February 3, 2001 were $6,089 and
$9,715, respectively. The average interest rates on short-term borrowings during
the years ended February 2, 2002 and February 3, 2001 were 4.3% and 6.2%,
respectively.

(11) 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 $68,676 and $30,920, respectively, at February 2,
2002 and are included in property and equipment, net.

33

BELK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)

Future minimum lense payments under noncancelable lenses, net of future
minimum sublease rental income under noncancelable subleases, as of February 2,
2002 were as follows:

Net rental expense for all operating leases consists of the following:

(12) INCOME TAXES

Federal and state income tax expense from continuing operations was as
follows:

34

BELK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)

A reconciliation between income taxes from continuing operations and income
tax expense computed using the federal statutory income tax rate of 35% is as
follows:

Deferred taxes based upon differences between the financial statement and
tax bases of assets and liabilities and available tax carryforwards consist of:

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 2, 2002, the Company has net operating loss carryforwards
for federal and state income tax purposes of $3,242 and $14,609, respectively,
which are available to offset future taxable income, if any. These carryforwards
expire at various intervals through fiscal year 2021. In addition, the Company
has

35

BELK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)

alternative minimum tax net operating loss carryforwards of $3,477 which are
available to reduce future alternative minimum taxable income at various
intervals through fiscal year 2011.

(13) PENSION AND POSTRETIREMENT BENEFITS

The Company has a defined benefit pension plan covering substantially all
of its employees. The benefits are based on years of service and the employee's
compensation. 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 63% equities
and 37% 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:

36

BELK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)

The components of net periodic benefit expense (income) are as follows:

Weighted average assumptions were:

For measurement purposes, an 11.0% annual rate of increase in the per
capita cost of covered benefits (i.e., health care cost trend rate) was assumed
for fiscal year 2002; the rate was assumed to decrease to 5.5% gradually over
the next 5 years and remain at that level 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 2, 2002 by $1,996 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for the
year ended February 2, 2002 by $276. Decreasing the assumed health care cost
trend rates by one percentage point would decrease the accumulated
postretirement benefit obligation as of February 2, 2002 by $1,638 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended February 2, 2002 by $221. The
measurement date for the defined benefit pension plan and the defined benefit
health care plan is October 31.

(14) 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 $25,585, $20,323 and $20,799 in fiscal years 2002,
2001, and 2000, respectively.

37

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 $10,368, $9,586
and $9,280 in fiscal years 2002, 2001, and 2000, 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 $1,821, $1,744 and $1,467 in fiscal years 2002,
2001, and 2000, respectively. The effective discount rate used in determining
the net periodic SERP cost is 7.50%, 8.00% and 7.75% for fiscal years 2002,
2001, and 2000, respectively. Actuarial gains and losses are amortized over the
average remaining service lives of the participants. As of February 2, 2002 and
February 3, 2001, the projected benefit obligation was $17,536 and $15,372,
respectively, and is included in deferred compensation and other non-current
liabilities. The corresponding accrued obligation of $14,933 and $14,286 as of
February 2, 2002 and February 3, 2001, respectively, has been recorded in other
non-current liabilities.

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 $3,614, $3,567 and $3,486, in fiscal years 2002, 2001, and 2000,
respectively.

(15) 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 up to 2.8 million
shares of common stock for various types of equity incentives to key employees.

During fiscal years 2001 and 2002, 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.
Performance based compensation expense was $411 and $684 for fiscal years 2002
and 2001, respectively.

If the Company had elected to follow the measurement provisions of SFAS No.
123, "Accounting for Stock-based Compensation", in accounting for its
performance based stock awards, net income for fiscal years 2002 and 2001 would
have been reduced by $49 and $0, respectively. There was no impact to earnings
per share. The method for determining the fair value of the stock is based on a
third party valuation.

38

BELK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(16) 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:

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. The fair value of investment securities is primarily based on
quoted market prices.

(17) 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 2, 2002,
there were 53,618,414 shares of Class A common stock outstanding, 1,129,292
shares of Class B common stock outstanding, and no shares of preferred stock
outstanding.

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 10 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.

(18) RELATED PARTY TRANSACTIONS

In October 2001, the Company sold approximately 353 acres of undeveloped
land located in Lancaster, South Carolina for a total purchase price of $1.1
million to the Company's Chairman of the Board and Chief Executive Officer.

During fiscal year 2002, the Company loaned a total of $7.5 million to
three executives who are also stockholders and directors. The loans are
scheduled to be repaid to the Company in equal annual installments of $1.5
million plus interest in cash or stock over a five-year period beginning January
3, 2003. The loans bear interest at LIBOR plus 150 basis points.

(19) SUBSEQUENT EVENT

In May 2002, the Company announced plans to consolidate its divisional
merchandising and sales promotions functions into a single organization to be
located at the company's corporate offices in Charlotte, NC. The plans also
include implementation of a central planning and allocation function to oversee
the distribution and allocation of merchandise to the stores. The Company
anticipates that the consolidation will permit the Company to achieve more
unified and consistent execution of its merchandising, marketing and advertising
strategies and more focused merchandise assortments at the store level. The
Company also

39

BELK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)

anticipates that the consolidation, once fully implemented, will result in cost
savings and greater operating efficiencies. The Company plans to record a
restructuring charge in the second quarter of fiscal year 2003 to reflect
anticipated severance payments, lease obligation liabilities and the disposal of
excess assets. The Company is not at this time able to predict the amount of the
charge or the anticipated cost savings due to uncertainties regarding the number
and identity of employees who will remain with the Company, the asset
requirements for the consolidated organization and the costs of implementation.
The consolidation is scheduled to be effective in the third quarter.

40

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

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" and "Executive
Compensation -- Executive Officers" of the Proxy Statement for the Annual
Meeting of Stockholders to be held on May 29, 2002 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 29, 2002 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 29, 2002 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 29, 2002 and is incorporated
herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

Report of Independent Accountants

Balance Sheets -- Years ended February 2, 2002 and February 3, 2001.

Statements of Income -- Years ended February 2, 2002, February 3, 2001
and January 29, 2000.

Statements of Changes in Stockholders Equity -- Years ended February 2,
2002, February 3, 2001 and January 29, 2000.

Statements of Cash Flow -- Years ended February 2, 2002, February 3,
2001 and January 29, 2000.

Notes to Financial Statements

2. Financial Statement Schedules

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 pages B-24 to B-33
of the Company's Registration Statement on Form S-4, filed
on March 5, 1998 (File No. 333-42935))
3.2 Form of Amended and Restated Bylaws of the Company
(incorporated by reference to pages B-34 to B-42 of the
Company's Registration Statement on Form S-4, filed on March
5, 1998 (File No. 333-42935))

41

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 Amendment Number 1 to Note Purchase Agreement, dated as of
November 1, 2000, among Belk, Inc., as Debtor, The Belk
Center, Inc., as Servicer, Enterprise Funding Corporation
and Bank of America, N.A., as agent for Enterprise Funding
Corporation and the Bank Investors and as a Bank Investor,
amending that certain Note Purchase Agreement dated as of
May 3, 1999, as amended (incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q, filed on June 19, 2001 (File No. 000-26207)).
10.3 Amendment Number 2 to Note Purchase Agreement, dated as of
April 28, 2001, among Belk, Inc., as Debtor, The Belk
Center, Inc., as Servicer, Enterprise Funding Corporation
and Bank of America, N.A., as agent for Enterprise Funding
Corporation and the Bank Investors and as a Bank Investor,
amending that certain Note Purchase Agreement dated as of
May 3, 1999, as amended (incorporated by reference to
Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q, filed on June 19, 2001 (File No. 000-26207)).
10.4 First Amendment to Credit Agreement, dated as of May 29,
2001, among Belk, Inc., Wachovia Bank, N.A., and certain
Belk, Inc. subsidiaries as guarantors amending that certain
Credit Agreement dated as of May 30, 2000 (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q, filed on September 18, 2001 (File No.
000-26207)).
10.5 Letter modifying the First Amendment to Credit Agreement,
dated June 25, 2001, among Belk, Inc., Wachovia Bank, N.A.
and certain Belk, Inc. subsidiaries as guarantors amending
that certain Credit Agreement dated as of May 30, 2000
(incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q, filed on
September 18, 2001 (File No. 000-26207)).
10.6 Second Modification Agreement, dated as of September 21,
2001, between Belk, Inc. and First Union National Bank
(incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q, filed on
December 18, 2001 (File No. 000-26207)).
10.7 Third Amendment to Credit Agreement, dated as of September
21, 2001, by and among Belk, Inc. and Wachovia Bank, N.A.
(incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q, filed on
December 18, 2001 (File No. 000-26207)).
10.8 Amendment Number 3 to Note Purchase Agreement, dated as of
October 19, 2001 among Belk, Inc., The Belk Center, Inc.,
Enterprise Funding Corporation, and Bank of America, N.A.,
amending that certain Note Purchase Agreement dated as of
May 3, 1999 (incorporated by reference to Exhibit 10.3 to
the Registrant's Quarterly Report on Form 10-Q, filed on
December 18, 2001 (File No. 000-26207)).
10.9 Note and Pledge Agreement, dated October 1, 2001, by and
between Thomas M. Belk, Jr. and Belk, Inc. (incorporated by
reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q, filed on December 18, 2001 (File No.
000-26207)).
10.10 Note and Pledge Agreement, dated October 1, 2001, by and
between H.W. McKay Belk and Belk, Inc. (incorporated by
reference to Exhibit 10.5 to the Registrant's Quarterly
Report on Form 10-Q, filed on December 18, 2001 (File No.
000-26207)).
10.11 Note and Pledge Agreement, dated October 1, 2001, by and
between John R. Belk and Belk, Inc. (incorporated by
reference to Exhibit 10.6 to the Registrant's Quarterly
Report on Form 10-Q, filed on December 18, 2001 (File No.
000-26207)).
10.12 Amended Note and Pledge Agreement, dated February 1, 2002,
by and between John R. Belk and Belk, Inc.
21.1 Subsidiaries.

(b) Reports on Form 8-K.

There were no reports filed on Form 8-K during the fiscal year ended
February 2, 2002.

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 3rd day of
May, 2002.

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 3, 2002.